UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2016
or
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 000-51397
Federal Home Loan Bank of New York
(Exact name of registrant as specified in its charter)
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Federally chartered corporation |
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13-6400946 |
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(State or other jurisdiction of |
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(I.R.S. Employer |
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incorporation or organization) |
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Identification No.) |
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101 Park Avenue, New York, New York |
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10178 |
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(Address of principal executive offices) |
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(Zip Code) |
(212) 681-6000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Class B Stock, putable, par value $100
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
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.
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Large accelerated filer o |
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Accelerated filer o |
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Non-accelerated filer x |
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x
Registrant’s stock is not publicly traded and is only issued to members of the registrant. Such stock is issued and redeemed at par value, $100 per share, subject to certain regulatory and statutory limits. At June 30, 2016, the aggregate par value of the common stock held by members of the registrant was approximately $5,666,422,500. At February 28, 2017, 60,748,320 shares of common stock were outstanding.
FEDERAL HOME LOAN BANK OF NEW YORK
2016 Annual Report on Form 10-K
General
The Federal Home Loan Bank of New York (“we,” “us,” “our,” “the Bank” or the “FHLBNY”) is a federally chartered corporation exempt from federal, state and local taxes except local real property taxes. It is one of eleven district Federal Home Loan Banks (“FHLBanks”). The FHLBanks are U.S. government-sponsored enterprises (“GSEs”), organized under the authority of the Federal Home Loan Bank Act of 1932, as amended (“FHLBank Act”). Each FHLBank is a cooperative owned by member institutions located within a defined geographic district. The members purchase capital stock in the FHLBank and generally receive dividends on their capital stock investment. Our defined geographic district is New Jersey, New York, Puerto Rico, and the U.S. Virgin Islands. We provide a readily available, low-cost source of funds for our member institutions.
The FHLBNY is managed to deliver balanced value to members, rather than to maximize profitability or advance volume through low pricing. Our members must purchase FHLBNY stock according to regulatory requirements as a condition of membership. For more information, see financial statements, Note 13. Capital Stock, Mandatorily Redeemable Capital Stock and Restricted Retained Earnings. The business of the cooperative is to provide liquidity for our members (primarily in the form of loans referred to as “advances”) and to provide a return on members’ investment in FHLBNY stock in the form of a dividend. Since members are both stockholders and customers, our management operates the Bank such that there is a trade-off between providing value to them via low pricing for advances with a relatively lower dividend versus higher advances pricing with a relatively higher dividend.
All federally insured depository institutions, insured credit unions and insurance companies engaged in residential housing finance can apply for membership in the FHLBank in their district. Community development financial institutions (“CDFIs”) that have been certified by the CDFI Fund of the U.S. Treasury Department, including community development loan funds, community development venture capital funds, and state-chartered credit unions without federal insurance, are also eligible to become members of a FHLBank. Three CDFIs were members of the FHLBNY at December 31, 2016.
A member of another FHLBank or a financial institution that is not a member of any FHLBank may also hold FHLBNY stock as a result of having acquired one of our members. Because we operate as a cooperative, we conduct business with related parties in the normal course of business and consider all members and non-member stockholders as related parties in addition to the other FHLBanks. For more information, see financial statements, Note 19. Related Party Transactions, and also Item 13. Certain Relationships and Related Transactions, and Director Independence in this Form 10-K.
Our primary business is making collateralized loans or advances to members and is also the principal factor that impacts our financial condition. We also serve the public through our mortgage programs, which enable our members to liquefy certain mortgage loans by selling them to the Bank. We also provide members with such correspondent services as safekeeping, wire transfers, depository and settlement services. Non-members that have acquired members have access to these services up to the time that their advances outstanding prepay or mature.
We obtain our funds from several sources. A primary source is the issuance of FHLBank debt instruments, called consolidated obligations, to the public. The issuance and servicing of consolidated obligations are performed by the Office of Finance, the fiscal agent for the issuance and servicing of consolidated obligations on behalf of the 11 FHLBanks. These debt instruments represent the joint and several obligations of all the FHLBanks. Because the FHLBanks’ consolidated obligations are rated Aaa/P-1 with a stable outlook by Moody’s Investors Service (Moody’s) and AA+/A-1+ with a stable outlook by Standard & Poor’s Rating Services (“S&P” or “Standard & Poor’s”) and because of the FHLBanks’ GSE status, the FHLBanks are generally able to raise funds at rates that are typically at a small to moderate spread above U.S. Treasury security yields. Additional sources of funding are member deposits, other borrowings, and the issuance of capital stock. Deposits may be accepted from member financial institutions and federal instrumentalities.
We combine private capital and public sponsorship as a GSE to provide our member financial institutions with a reliable flow of credit and other services for housing and community development, and our cooperative ownership structure allows us to pass along the benefit of these low funding rates to our members. By supplying additional liquidity to our members, we enhance the availability of residential mortgages and community investment credit. Members also benefit from our affordable housing and economic development programs, which provide grants and below-market-rate loans that support members’ involvement in creating affordable housing and revitalizing communities.
We do not have any wholly or partially owned subsidiaries, nor do we have an equity position in any partnerships, corporations, or off-balance sheet special purpose entities. We have a grantor trust related to employee benefits programs, more fully described in financial statements, Note 15. Employee Retirement Plans.
In 2011, the 11 FHLBanks entered into a Joint Capital Enhancement Agreement (“Capital Agreement”). The Capital Agreement is intended to enhance the capital position of each FHLBanks, each FHLBanks will contribute 20% of its Net income each quarter to its own restricted retained earnings account at the FHLBank until the balance of that account equals at least one percent of that FHLBank’s average balance of outstanding consolidated obligations for the previous quarter. These restricted retained earnings will not be available to pay dividends.
The FHLBNY is supervised by the Federal Housing Finance Agency (“FHFA” or the “Finance Agency”), the independent Federal regulator of the FHLBanks, the Federal Home Loan Mortgage Corporation (Freddie Mac) and the Federal National Mortgage Association (Fannie Mae). The FHFA’s stated mission with respect to the
FHLBanks is to provide effective supervision, regulation and housing mission oversight of the FHLBanks to promote their safety and soundness, support housing finance and affordable housing, and support a stable and liquid mortgage market.
Each FHLBank carries out its statutory mission only through activities that are authorized under and consistent with the Safety and Soundness Act and the FHLBank Act; and the activities of each FHLBank and the manner in which they are operated is consistent with the public interest. The Finance Agency also ensures that the FHLBNY carries out its housing and community development mission, remains adequately capitalized and able to raise funds in the capital markets. However, while the Finance Agency establishes regulations governing the operations of the FHLBanks, the Bank functions as a separate entity with its own management, employees and board of directors.
Our website is www.fhlbny.com. We have adopted, and posted on our website, a Code of Business Conduct and Ethics applicable to all employees and directors.
Market Area
Our market area is the same as the membership district — New Jersey, New York, Puerto Rico, and the U.S. Virgin Islands. Institutions that are members of the FHLBNY must have their charter or principal places of business within this market area but may also operate elsewhere. We had 328 members at December 31, 2016 and 329 members at December 31, 2015.
Due to the deeply penetrated market, there are few opportunities to gain new bank and credit union members. However, we continue to engage the few prospects that are eligible to join. In 2016, Health Insurance Companies became a newly eligible member type and the Sales and Marketing department began initiatives to court these prospects. In addition, foreign banks with charters based in our membership district are another potential pool of prospects. This is not a new trend as we currently have 11 members who have parent companies outside the USA.
An appropriate candidate for membership is an institution that is likely to transact advance business with us within a reasonable period of time, so that the stock the potential member will likely be required to purchase under membership provisions will not dilute the dividend on the existing members’ stock. Characteristics that identify attractive candidates include an asset base of $100 million or greater ($50 million for credit unions), an established practice of wholesale funding, a high loan-to-deposit ratio, strong asset growth, sufficient eligible collateral, and management that has experience with the FHLBanks during previous employment.
We actively market membership through a series of targeted, on-going sales and marketing initiatives. We compete for business by offering competitively priced products, services and programs that provide financial flexibility to the membership. The dominant reason institutions join the FHLBNY is access to a reliable source of liquidity. Advances are an attractive source of liquidity because they permit members to pledge relatively non-liquid assets, such as 1-4 family, multifamily, home equity, and commercial real estate mortgages held in portfolio, to create liquidity. Advances are attractively priced because of our access to capital markets as a GSE and our strategy of providing balanced value to members.
The following table summarizes our members(a) by type of institution:
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Community |
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Development |
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Commercial |
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Thrift |
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Credit |
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Insurance |
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Financial |
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Banks |
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Institutions |
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Unions |
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Companies (a) |
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Institution |
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Total |
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December 31, 2016 |
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137 |
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84 |
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90 |
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14 |
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3 |
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328 |
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December 31, 2015 |
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140 |
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87 |
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86 |
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14 |
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2 |
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329 |
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(a) Includes three captive insurance companies, which were considered in 2016 as non-members.
Business Segments
We manage our operations as a single business segment. Management and our Board of Directors review enterprise-wide financial information in order to make operating decisions and assess performance.
Our cooperative structure permits us to expand and contract with demand for advances and changes in membership. When advances are paid down, because the member no longer needs the funds or because the member has been acquired by a non-member and the former member decides to prepay advances, the stock associated with the advances is immediately redeemed. When advances are paid before maturity, we collect fees that make us financially indifferent to the prepayment. Our operating expenses are low. Dividend capacity, which is a function of net income and the amount of stock outstanding, is largely unaffected by the prepayment since future stock and future income are reduced more or less proportionately. We believe that we will be able to meet our financial obligations and continue to deliver balanced value to members, even if advance demand drops significantly or if membership declines.
Products and Services
Advances to members are the primary focus of our operations, and are also the principal factor that impacts our financial condition. Revenues from advances to members are the largest and the most significant element in our operating results. Providing advances to members, supporting the products and associated collateral and credit operations, and funding and swapping the funds are the focus of our operations.
We offer our members several correspondent banking services as well as safekeeping services. The fee income that is generated from these services is not significant. We also issue standby letters of credit on behalf of members for a fee. The total income derived from all such sources, and other incidental income and expenses were not material in the periods in this report.
We provide our members with an alternative to originating and selling long-term, fixed-rate mortgages in the secondary market. We accomplish this by purchasing eligible conforming fixed-rate mortgages originated or purchased by our members. Purchases are at negotiated market rates. For more information, see Acquired Member Assets Programs below and in the financial statements, Note 9. Mortgage Loans Held-for-portfolio. However, we do not expect the program to become a significant factor in our operations. The interest revenues derived from this program were $86.8 million in 2016, $81.1 million in 2015 and $71.5 million in 2014. The revenues were not a significant source of interest income.
Advances
We offer a wide range of credit products to help members meet local credit needs, manage interest rate and liquidity risk and serve their communities. Our primary business is making secured loans, called advances, to members. These advances are available as short- and long-term loans with adjustable-variable and fixed-rate features (including option-embedded and amortizing advances).
Advances to members, including former members, constituted 76.1% and 76.2% of our total assets of $143.6 billion and $123.2 billion at December 31, 2016 and 2015. In terms of revenues, interest income derived from advances were $919.9 million, $627.9 million and $478.7 million, representing 67.6%, 62.9% and 57.2% of total interest income in 2016, 2015 and 2014. Most of our critical functions are directed at supporting the borrowing needs of our members and monitoring the members’ associated collateral positions. For more information about advances, including our underwriting standards, see financial statements, Note 8. Advances; also see Tables 3.1 to 3.9 and the accompanying discussions in this MD&A.
Members use advances as a source of funding to supplement their deposit gathering activities. Advances borrowed by members have been substantial in the last 10 years because many members have not been able to increase their deposits in their local markets as quickly as they have increased their assets. To close this funding gap, members have preferred to obtain reasonably priced advances rather than increasing their deposits by offering higher rates or foregoing asset growth. Because of the wide range of advance types, terms, and structures available to them, members have also used advances to enhance their asset/liability management. As a cooperative, we price advances at minimal net spreads above the cost of our funding in order to deliver more value to members.
Letters of Credit
We may issue standby financial letters of credit on behalf of members to facilitate members’ residential and community lending, provide members with liquidity, or assist members with asset/liability management. Where permitted by law, members may utilize FHLBNY letters of credit to collateralize deposits made by units of state and local governments. Our underwriting and collateral requirements for securing letters of credit are the same as our requirements for securing advances.
Derivatives
To assist members in managing their interest rate and basis risks in both rising and falling interest-rate environments, we will act as an intermediary between the member and derivatives counterparty. We do not act as a dealer and view this as an additional service to our members. Participating members must comply with our documentation requirements and meet our underwriting and collateral requirements. Volume of such requests has been insignificant.
Acquired Member Assets Programs
Utilizing a risk-sharing structure, the FHLBanks are permitted to acquire certain assets from or through their members. These initiatives are referred to as Acquired Member Assets (“AMA”) programs. At the FHLBNY, the Acquired Member Assets initiative is the Mortgage Partnership Finance (“MPF®”) Program, which provides members with an alternative to originating and selling long-term, fixed-rate mortgages in the secondary market. In the MPF Program, we purchase conforming fixed-rate mortgages originated or purchased by our members. Members are then paid a fee for assuming a portion of the credit risk of the mortgages that we acquired. Members assume credit risk by providing a credit enhancement to us or providing and paying for a supplemental mortgage insurance policy insuring us for some portion of the credit risk involved. This provides a double-A equivalent level of creditworthiness on the mortgages. The amount of this credit enhancement is fully collateralized by the member. We assume the remainder of the credit risk along with the interest rate risk of holding the mortgages in the MPF loan portfolio.
The Acquired Member Assets Regulation does not specifically address the disposition of Acquired Member Assets. The main intent of that regulation is the purchase of assets for investment rather than for trading purposes. However, the FHLBanks have the legal authority to sell Mortgage Partnership Finance loans pursuant to the granting of incidental powers in Section 12 of the FHLBank Act. Section 12(a) of the FHLBank Act specifically provides that each FHLBank shall have all such incidental powers, not inconsistent with the provisions of this chapter, as are customary and usual in corporations generally. General corporate law principles permit the sale of investments.
For additional discussion on our mortgage loans and their related credit risk, see financial statements, Note 9. Mortgage Loans Held-for-Portfolio. Also see Tables 5.1 to 5.6 and accompanying discussions in this MD&A.
Correspondent Banking Services
We offer our members an array of correspondent banking services, including depository services, wire transfers, settlement services, and safekeeping services. Depository services include processing of customer transactions in “Overnight Investment Accounts,” the interest-bearing demand deposit account each customer has with us. All customer-related transactions (e.g. deposits, Federal Reserve Bank settlements, advances, securities transactions, and wires) are posted to these accounts each business day. Wire transfers include processing of incoming and outgoing domestic wire transfers, including third-party transfers. Settlement services include automated clearinghouse and other transactions received through our accounts at the Federal Reserve Bank as correspondent for members and passed through to our customers’ Overnight Investment Accounts with us. Through a third party, we offer customers a range of securities custodial services, such as settlement of book entry (electronically held) and physical securities. We encourage members to access these products through 1Linksm, an Internet-based delivery system we developed as a proprietary service. Members access the 1Link system to obtain account activity information or process wire transfers, book transfers, security safekeeping and advance transactions.
Affordable Housing Program and Other Mission Related Programs
Federal Housing Finance Agency regulation Part 1292.5 (“Community Investment Cash Advance Programs”) states in general that each FHLBank shall establish an Affordable Housing Program in accordance with Part 1291, and a Community Investment Program. As more fully discussed under the section “Assessments” in this Form 10-K, the 11 FHLBanks together, must annually allocate for the Affordable Housing Program the greater of $100 million or 10% of regulatory defined net income. For more information, see Background in the MD&A, and financial statements, Note 12. Affordable Housing Program.
The FHLBank may also offer a Rural Development Advance program, an Urban Development Advance program, and other Community Investment Cash Advance programs.
Affordable Housing Program (“AHP”). We meet this requirement by allocating 10% of regulatory defined net income to our Affordable Housing Program each year. The Affordable Housing Program helps our members meet their Community Reinvestment Act responsibilities. The program gives members access to cash grants and subsidized, low-cost funding to create affordable rental and home ownership opportunities, including first-time homebuyer programs. Within each year’s AHP allocation, we have established a set-aside program for first-time homebuyers called the First Home Clubsm. The FHLBNY may set aside annually, in aggregate, up to the greater of $4.5 million or 35% of the Bank’s annual required AHP contributions. Household income qualifications for the First Home Club are the same as for the competitive AHP. Qualifying households can receive matched funds at a 4:1 ratio, up to $7,500 to help with closing costs and/or down payment assistance. Households are also required to attend counseling. We may provide up to $500 to defray the cost of the nonprofit housing agency that provides counseling.
Other Mission—Related Activities. The Bank offers three distinct Community Lending Programs (“CLP”) that support our member’s community-oriented mortgage lending, which was established under the Community Investment Cash Advance Programs. The Bank provides reduced interest rate advances to members for lending activity that meet the CLP requirements, under the following individual programs: Community Investment Program (“CIP”), Rural Development Advance (“RDA”), and Urban Development Advance (“UDA”). The CLP provides additional support to members in their affordable housing and economic development lending activities within low- and moderate-income neighborhoods as well as other activities that benefit low- and moderate-income households. The Bank also provides letters of credit in support of projects that meet the CLP program requirements and are offered at reduced fees. Providing CLP Advances and Letters of Credit at advantaged pricing that is discounted from our market interest rates and fees represents an additional allocation of our income in support of the Bank’s affordable housing and community economic development mission. In addition, overhead costs and administrative expenses associated with the implementation of our Affordable Housing and CLP are absorbed as general operating expenses and are not charged back to the AHP allocation set-aside. The foregone interest and fee income, as well as the administrative and operating costs, are above and beyond the annual income contribution to the AHP Loans offered under these programs.
Investments
We maintain portfolios of investments to provide additional earnings and for liquidity purposes. Investment income also bolsters our capacity to fund Affordable Housing Program projects, and to cover operating expenditures. To help ensure the availability of funds to meet member credit needs, we maintain a portfolio of short-term investments issued by highly-rated, high credit quality financial institutions. The investments may include overnight Federal funds, term Federal funds, securities purchased under agreements to resell, interest-bearing deposits, and certificates of deposit. We further enhance our interest income by holding long-term investments classified as either held-to-maturity or as available-for-sale. These portfolios primarily consist of mortgage-backed securities issued by government-sponsored mortgage enterprises. Our long-term investments also include a small portfolio of privately issued mortgage-backed and residential asset-backed securities that were primarily acquired prior to 2004, bonds issued by housing finance agencies, and a FHLBNY owned Grantor Trust.
For more information, see financial statements, Note 4. Federal Funds Sold, Interest-bearing Deposits, and Securities Purchased Under Agreements to Resell, Note 7. Held-To-Maturity Securities, and Note 6. Available-for-Sale Securities. Also see Tables 4.1 through 4.12 and accompanying discussions in this MD&A.
Debt Financing — Consolidated Obligations
Our primary source of funds is the sale of debt securities, known as consolidated obligations, in the U.S. and global capital markets. Consolidated obligations are the joint and several obligations of the FHLBanks, backed only by the financial resources of the 11 FHLBanks. Consolidated obligations are not obligations of the United States, and the United States does not guarantee them. The issuance and servicing of consolidated obligations debt are performed by the Office of Finance, a joint office of the FHLBanks established by the Finance Agency. The Office of Finance (or the “OF”) has authority to issue joint and several debt on behalf of the FHLBanks. At December 31, 2016 and 2015, the par amounts of consolidated obligations outstanding, bonds and discount notes for all 11 FHLBanks was $1.0 trillion and $0.9 trillion, including $133.7 billion and $114.1 billion issued by the FHLBNY and outstanding at those dates.
For more information, see financial statements, Note 11. Consolidated Obligations. Also see Tables 6.1 to 6.10 and accompanying discussions in this MD&A.
Finance Agency regulations state that the FHLBanks must maintain, free from any lien or pledge, qualifying assets at least equal to the face amount of consolidated obligations outstanding. Qualifying assets are defined as cash; secured advances; assets with an assessment or rating at least equivalent to the current assessment or rating of the consolidated obligations; obligations of or fully guaranteed by the United States, obligations, participations, or other instruments of or issued by Federal National Mortgage Association (“Fannie Mae”) or the Government National Mortgage Association (“Ginnie Mae”); mortgages, obligations, or other securities which are or ever have been sold by the Federal Home Loan Mortgage Corporation (“Freddie Mac”) under the FHLBank Act; and such securities as fiduciary and trust funds may invest in under the laws of the state in which the FHLBank is located. Any assets subject to a lien or pledge for the benefit of holders of any issue of consolidated obligations are treated as if they were free from lien or pledge for purposes of compliance with these regulations.
Consolidated obligations are distributed through dealers selected by the Office of Finance using various methods including competitive auction and negotiations with individual or syndicates of underwriters. Some debt issuance is in response to specific inquiries from underwriters. Many consolidated obligations are issued with the FHLBank concurrently entering into derivatives agreements, such as interest rate swaps. To facilitate issuance, the Office of Finance may coordinate communication between underwriters, individual FHLBanks, and financial institutions executing derivative agreements with the FHLBanks.
Issuance volume is not concentrated with any particular underwriter.
The Office of Finance is mandated by the Finance Agency to ensure that consolidated obligations are issued efficiently and at the lowest all-in cost of funds over time. If the Office of Finance determines that its action is consistent with its Finance Agency’s mandated policies, it may reject our issuance request, and the requests of other FHLBanks, to raise funds through the issuance of consolidated obligations on particular terms and conditions. We have never been denied access under this policy for all periods reported. The Office of Finance serves as a source of information for the FHLBanks on capital market developments, and manages the FHLBanks’ relationship with the rating agencies with respect to the consolidated obligations.
Consolidated Obligation Liabilities
Each FHLBank independently determines its participation in each issuance of consolidated obligations based on (among other factors) its own funding and operating requirements, maturities, interest rates, and other terms available for consolidated obligations in the market place. The FHLBanks have emphasized diversification of funding sources and channels as the need for funding from the capital markets has grown.
Consolidated Obligations Bonds. Consolidated bonds are issued primarily to raise intermediate- and long-term funds for the FHLBanks. They can be issued and distributed through negotiated or competitive bidding transactions with approved underwriters or bidding group members. Consolidated bonds generally carry fixed- or variable-rate payment terms and have maturities ranging from one month to 30 years.
The Global Debt Program — The FHLBanks issue global bullet consolidated bonds. The FHLBanks and the Office of Finance maintain a debt issuance process for scheduled issuance of global bullet consolidated bonds. As part of this process, management from each FHLBank will determine and communicate a firm commitment to the Office of Finance for an amount of scheduled global bullet debt to be issued on its behalf. If the FHLBanks’ orders do not meet the minimum debt issue size, each FHLBank receives an allocation of proceeds equal to either the larger of the FHLBank’s commitment or the ratio of the individual FHLBank’s regulatory capital to total regulatory capital of all of the FHLBanks. If the FHLBanks’ commitments exceed the minimum debt issue size, then the proceeds are allocated based on relative regulatory capital of the FHLBanks, with the allocation limited to either the lesser of the allocation amount or the actual commitment amount. The FHLBanks can, however, pass on any scheduled calendar slot and decline to issue any global bullet consolidated bonds upon agreement of at least eight of the FHLBanks.
TAP Issue Program — The FHLBanks use the TAP Issue Program to issue fixed-rate, noncallable (bullet) bonds. This program uses specific maturities that may be reopened daily through competitive auctions. The goal of the TAP Issue Program is to aggregate frequent smaller fixed-rate funding needs into a larger bond issue that may have greater market liquidity.
Consolidated Obligation Discount Notes. On a daily basis, FHLBanks may request that specific amounts of consolidated discount notes with specific maturity dates be offered by the Office of Finance for sale through certain securities dealers. The Office of Finance commits to issue consolidated discount notes on behalf of the requesting FHLBanks after dealers submit orders for the specific consolidated discount notes offered for sale. The FHLBanks
receive funding based on the time of their request, the rate requested for issuance, the trade date, the settlement date, and the maturity date. However, a FHLBank may receive less than requested (or may not receive any funding) because of investor demand and competing FHLBank requests for the particular funding that the FHLBank is requesting. These consolidated discount notes have a maturity range of one day to one year, are generally issued at or below par, and mature at par.
Twice weekly, one or more of the FHLBanks may also request that specific amounts of consolidated discount notes with fixed maturities of four, nine, 13, and 26 weeks be offered by the Office of Finance through competitive auctions conducted with securities dealers in the consolidated discount note selling group. The consolidated discount notes offered for sale through competitive auction are not subject to a limit on the maximum costs the FHLBanks are willing to pay. The FHLBanks receive funding based on their requests at a weighted-average rate of the winning bids from the dealers. If the bids submitted are less than the total of the FHLBanks’ requests, a FHLBank receives funding based on that FHLBank’s regulatory capital relative to the regulatory capital of other FHLBanks offering consolidated discount notes.
Deposits
The FHLBank Act allows us to accept deposits from its members, other FHLBanks and government instrumentalities. For us, member deposits are also a source of funding, but we do not rely on member deposits to meet our funding requirements. For members, deposits are a low-risk earning asset that may satisfy their regulatory liquidity requirements. We offer several types of deposit programs to our members, including demand and term deposits.
Retained Earnings and Dividends
The Bank’s Retained Earnings and Dividends policy (the “Policy”) is a Board approved policy, the objectives of which are to preserve the value of our members’ investment with us, and to provide members with a reasonable dividend. The Policy also states that we want to provide returns on the investment in the Bank’s stock that are sufficient to attract and retain members, and that do not discourage member borrowing. The Bank’s minimum level of Retained Earnings should provide management with a high degree of confidence that estimable losses under simulated stressful conditions and scenarios will not impair paid-in capital, thereby preserving the par value of the stock. Additionally, Unrestricted Retained Earnings should be available to supplement dividends when earnings are low or losses occur. Our ability to pay dividends and any other distributions may be affected by standards under the Policy.
The Policy establishes (1) a minimum level of Retained Earnings equal to the Bank’s “Retained Earnings Sufficiency” distinguished as the quantification of the Bank’s risk exposures. The Retained Earnings Sufficiency is estimated under simulated stressful conditions and scenarios, within a defined confidence interval, on market, credit and operational risks, as well as GAAP accounting exposures related to the fair values of certain financial instruments; (2) the priority of contributions to retained earnings relative to other distributions of income; (3) the target level of Retained Earnings, based on the Retained Earnings Sufficiency level, and (4) a timeline to achieve the targets and to ensure maintenance of appropriate levels of Retained Earnings.
The Bank may pay dividends from Unrestricted Retained Earnings and current net income. Per Finance Agency regulations, our Board of Directors may declare and pay dividends in either cash or capital stock; our practice has been to pay dividends in cash. Our dividends and our dividend policy are subject to Federal Housing Finance Agency regulations and policies.
To achieve the Bank’s strategic plans and business objectives within the Bank’s risk appetite, Management had determined the Unrestricted Retained Earnings target to be $885.0 million for 2016 and $865.0 million for 2015. At December 31, 2016 and 2015, actual Unrestricted Retained Earnings was $1,028.7 million and $967.1 million respectively and Restricted Retained Earnings was $383.3 million and $303.1 million at the two dates. The balance in Accumulated Other Comprehensive Income (AOCI), a component of stockholder’s equity, was a loss of $95.6 million and $135.7 million at December 31, 2016 and 2015. Throughout 2016 and 2015, actual Unrestricted Retained Earnings were greater than the Bank’s Retained Earnings Sufficiency level. As of December 31, 2016 and 2015, the Retained Earnings Sufficiency level was measured at $588.7 million and $743.2 million.
The following table summarizes the impact of dividends on our retained earnings for the years ended December 31, 2016, 2015 and 2014 (in thousands):
|
|
|
December 31, |
| |||||||
|
|
|
2016 |
|
2015 |
|
2014 |
| |||
|
|
|
|
|
|
|
|
| |||
|
Retained earnings, beginning of year |
|
$ |
1,270,139 |
|
$ |
1,082,771 |
|
$ |
998,526 |
|
|
Net Income for the year |
|
401,152 |
|
414,811 |
|
314,923 |
| |||
|
|
|
1,671,291 |
|
1,497,582 |
|
1,313,449 |
| |||
|
Dividends paid in the year (a) |
|
(259,326 |
) |
(227,443 |
) |
(230,678 |
) | |||
|
|
|
|
|
|
|
|
| |||
|
Retained earnings, end of year |
|
$ |
1,411,965 |
|
$ |
1,270,139 |
|
$ |
1,082,771 |
|
(a) Dividends are paid in arrears in the second month after quarter end. Dividends are not accrued at quarter end.
Competition
Demand for advances is affected by (among other things) the availability and cost to members of alternate sources of liquidity, including retail deposits and wholesale funding options such as brokered deposits, repurchase agreements and Federal funds. Historically, members have grown their assets at a faster pace than retail deposits and capital creating a funding gap. We compete with both secured and unsecured suppliers of wholesale funding to fill these potential funding gaps. Such other suppliers of funding may include Wall Street dealers, commercial banks, regional broker-dealers and firms capitalizing on wholesale funding platforms (e.g. “CDARS,” the Certificate of Deposit Account Registry Service). Certain members may have access to alternative wholesale funding sources such as lines of credit, wholesale CD programs, brokered CDs, deposits thru listing service, and sales of securities under agreements to repurchase. Of these wholesale funding sources, the brokered CD market is our number one threat as members continue to increase their usage. An emerging competitor is Deposits Thru Listing Services, which are financial institutions that charge a subscription fee to help banks gather deposits. We have seen a gradual uptick of these wholesale deposits and thus, have added them to our Market Share Analysis and will enhance our monitoring of the service. CDARs borrowing activity has been flat, while Repo and Federal funds have subsided compared to pre-crisis volume; we expect this trend to extend as advances and brokered CDs continue to take market share. Large members may also have access to the national and global credit markets. The availability of alternative funding sources can vary as a result of market conditions, member creditworthiness, availability of collateral and suppliers’ appetite for the business, as well as other factors.
We compete for funds raised through the issuance of unsecured debt in the national and global debt markets. Competitors include corporate, sovereign, and supranational entities, as well as Government Sponsored Enterprises including Fannie Mae, Freddie Mac, and the Federal Farm Credit Banks (“FFCB”). Increases in the supply of competing debt products could, in the absence of increases in demand, result in higher debt costs or lesser amounts of debt issued at the same cost than would otherwise be the case. In addition, the availability and cost of funds can be adversely affected by regulatory initiatives that could reduce demand for Federal Home Loan Bank system debt. Although the available supply of funds has historically kept pace with the liquidity needs of our members, there can be no assurance that this will continue to be the case indefinitely.
There is considerable competition among high credit quality issuers in the markets for callable debt. The sale of callable debt and the simultaneous execution of callable derivatives that mirror the debt have been, when available, a valuable source of competitively priced funding for the FHLBNY. Therefore, the liquidity of markets for callable debt is one of the determinants of our relative cost of funds. There can be no assurance that the current breadth and depth of these markets will be sustained as it is heavily influenced by investor sentiment concerning rising rates and yields and availability of alternative investments.
We compete for the purchase of mortgage loans held-for-sale. For single-family products, competition is primarily with Fannie Mae and Freddie Mac, principally on the basis of price, products, structures, and services offered.
Competition among the 11 member banks of the FHLBanks is limited. A bank holding company with multiple banking charters may operate in more than one FHLBank. If the member has a centralized treasury function, it is possible that there could be competition for advances. A limited number of our member institutions are subsidiaries of financial holding companies with multiple charters and FHLBank memberships. We do not believe, however, that the amount of advances borrowed by these entities, or the amount of capital stock held, is material in the context of its competitive environment. Certain large member financial institutions operating in our district may borrow unsecured Federal funds from other FHLBanks. We are permitted by regulation to purchase short-term investments from our members, but we are not permitted to allow members to borrow unsecured funds from us.
Oversight, Audits, and Examinations
The Federal Housing Finance Agency (“Finance Agency” or “FHFA”), an independent agency in the executive branch of the U.S. government, supervises and regulates the FHLBanks. The Housing Act created the FHFA with regulatory authority over FHLBank matters such as: board of director composition, executive compensation, risk-based capital standards and prompt corrective action enforcement provisions, membership eligibility, and low-income housing goals. The FHFA’s mission, with respect to the FHLBanks, is to ensure that the FHLBanks operate in a safe and sound manner so that the FHLBanks serve as a reliable source of liquidity and funding for housing finance and community investment.
We carry out our statutory mission only through activities that comply with the rules, regulations, guidelines, and orders issued under the Federal Housing Enterprises Financial Safety and Soundness Act, the Housing Act and the FHLBank Act.
Our shares of Class B stock are registered with the SEC under the Exchange Act, and we are subject to the information, disclosure, insider trading restrictions and other requirements under the Exchange Act. We are not subject to the provisions of the Securities Act as amended.
The Government Corporation Control Act provides that, before a government corporation may issue and offer obligations to the public, the Secretary of the Treasury shall prescribe the form, denomination, maturity, interest rate and conditions of the obligations; the way and time issued; and the selling price. The U.S. Department of the Treasury receives the Finance Agency’s annual report to Congress, monthly reports reflecting securities transactions of the FHLBanks, and other reports reflecting the operations of the FHLBanks.
The FHLBNY has an internal audit department, and our Board of Directors has an Audit Committee. An independent registered public accounting firm audits our annual financial statements. The independent registered public accounting firm conducts these audits following auditing standards established by the Public Company Accounting Oversight Board (United States). The FHLBanks, the Finance Agency, and Congress all receive the
audit reports. We must also submit annual management reports to Congress, the President, the Office of Management and Budget, and the Comptroller General. These reports include: Statements of financial condition, operations, and cash flows; a Statement of internal accounting and administrative control systems; and the Report of the independent registered public accounting firm on the financial statements and internal controls over financial reporting.
The Comptroller General has authority under the FHLBank Act to audit or examine the Finance Agency and the FHLBanks, including the FHLBNY, and to decide the extent to which they fairly and effectively fulfill the purpose of the FHLBank Act. Furthermore, the Government Corporation Control Act provides that the Comptroller General may review any audit of our financial statements conducted by a registered independent public accounting firm. If the Comptroller General conducts such a review, then he or she must report the results and provide his or her recommendations to Congress, the Office of Management and Budget and the Bank. The Comptroller General may also conduct his or her own audit of any of our financial statements.
Personnel
As of December 31, 2016, we had 280 full-time and no part-time employees. As of December 31, 2015, we had 273 full-time and no part-time employees. The employees are not represented by a collective bargaining unit, and we consider our relationship with employees to be good.
Tax Status
The FHLBanks, including the FHLBNY, are exempt from ordinary federal, state, and local taxation except for real property taxes.
Assessments
Affordable Housing Program (“AHP”) Assessments. — Section 10(j) of the FHLBank Act requires each FHLBank to establish an Affordable Housing Program. Each FHLBank provides subsidies in the form of direct grants and below-market interest rate advances to members who use the funds to assist in the purchase, construction, or rehabilitation of housing for very low-, low-, and moderate-income households. Annually, the FHLBanks must allocate for the AHP the greater of $100 million or 10% of regulatory net income. Regulatory net income is defined as GAAP net income before interest expense related to mandatorily redeemable capital stock and the assessment for Affordable Housing Program. The exclusion of interest expense related to mandatorily redeemable capital stock is a regulatory interpretation of the Finance Agency. We accrue the AHP expense monthly.
We charge the amount allocated for the Affordable Housing Program to income and recognize the amounts allocated as a liability. We relieve the AHP liability as members use subsidies. In periods where our regulatory income before Affordable Housing Program is zero or less, the amount of AHP liability is equal to zero. If the result of the aggregate 10% calculation described above is less than $100 million for all 11 FHLBanks, then the Act requires the shortfall to be allocated among the FHLBanks based on the ratio of each FHLBank’s income before Affordable Housing Program to the sum of the income before Affordable Housing Program of the 11 FHLBanks. There was no shortfall in the years ended 2016, 2015 and 2014.
The following discussion sets forth the material risk factors that could affect the FHLBNY’s financial condition and results of operations. Readers should not consider any descriptions of such factors to be a complete set of all potential risks that could affect the FHLBNY.
Regulatory Risks
The FHLBanks are governed by federal laws and regulations, which could change or be applied in a manner detrimental to FHLBNY’s operations. The FHLBanks are government-sponsored enterprises (“GSEs”), organized under the authority of the FHLBank Act, and, as such, are governed by federal laws and regulations of the Finance Agency, an independent agency in the executive branch of the federal government. From time to time, Congress has amended the FHLBank Act in ways that significantly affected the FHLBanks and the manner in which the FHLBanks carry out their housing finance mission and business operations. New or modified legislation enacted by Congress or regulations adopted by the Finance Agency could have a negative effect on our ability to conduct business or our cost of doing business. Due to recent changes in the U.S. government administration and recent executive actions, there are additional uncertainties in the legislative and regulatory environment.
Changes in regulatory or statutory requirements, or in their application, could result in, among other things, changes in: our cost of funds; retained earnings requirements; debt issuance; dividend payments; capital redemption and repurchases; permissible business activities; the size, scope, or nature of our lending, investment, or mortgage purchase programs; or our compliance costs. Changes that restrict dividend payments, the growth of our current business, or the creation of new products or services could negatively affect our results of operations and financial condition. Further, the regulatory environment affecting members could be changed in a manner that would negatively affect their ability to acquire or own our capital stock or take advantage of our products and services.
As a result of these factors, the FHLBank System may have to pay a higher rate of interest on consolidated obligations. The resulting increase in the cost of issuing consolidated obligations could cause our advances to be less profitable and reduce our net interest margins (the difference between the interest rate received on advances and the interest rate paid on consolidated obligations). If we change the pricing of our advances, they may no longer be attractive to members and outstanding advances may decrease. In any case, the increased cost of issuing consolidated obligations could negatively affect our financial condition and results of operations.
Negative information about us, the FHLBanks or housing GSEs, in general, could adversely impact our cost and availability of financing. Negative information impacting us or any other FHLBank, such as material losses or increased risk of losses, could also adversely impact our cost of funds. More broadly, negative information about housing GSEs, in general, could adversely impact us. The housing GSEs — Fannie Mae, Freddie Mac, and the FHLBanks — issue highly rated agency debt to fund their operations. From time to time, negative announcements by any of the housing GSEs concerning accounting problems, risk-management issues, and regulatory enforcement actions have created pressure on debt pricing for all GSEs, as investors have perceived such instruments as bearing increased risk. Similar announcements by the FHLBanks may contribute to this pressure on debt pricing. One possible source of information that impacts us could come from plans for housing GSE reform. Such plans, including those introduced by the U.S. Treasury and HUD proposed certain recommendations for the reform of the housing GSEs. Although the focus of those recommendations is on Fannie Mae and Freddie Mac, the proposal includes certain recommendations for the FHLBanks. The proposed reforms could affect the FHLBanks’ current business activities with their members, particularly large financial institutions. These recommendations include reducing and altering the composition of FHLBanks investment portfolios, limiting the level of advances outstanding to individual members and restricting membership to allow each financial institution, inclusive of its affiliates, to be an active member in only a single FHLBank. Other recommendations or other plans could result in market uncertainty regarding the status of U.S. federal government support of housing GSEs, in general, including the FHLBanks, and our cost of financing could be adversely impacted as a result.
Any such negative information or other factors could result in the FHLBanks having to pay a higher rate of interest on COs to make them attractive to investors. If we maintain our existing pricing on our advances products and other services notwithstanding increases in CO interest rates, the spreads we earn would fall and our results of operations would be adversely impacted. If, in response to this decrease in spreads, we change the pricing of our advances, the advances may be less attractive to members and the amount of new advances and our outstanding advance balances may decrease. In either case, the increased cost of issuing COs could adversely impact our financial condition and results of operations.
Loan modification programs could adversely impact the value of the FHLBNY’s mortgage-backed securities or our investment values in the MPF loans. Federal and state government authorities, as well as private entities such as financial institutions and the servicers of residential mortgage loans, have proposed, commenced, or promoted implementation of programs designed to provide homeowners with assistance in avoiding residential mortgage loan foreclosures. Loan modification programs, as well as future legislative, regulatory or other actions, including amendments to the bankruptcy laws, that result in the modification of outstanding mortgage loans may adversely affect the value of and the returns on our mortgage-backed securities or MPF loans under our Acquired Member Assets Programs.
Business Risks
A loss or change of business activities with large members could adversely affect the FHLBNY’s results of operations and financial condition. We have a high concentration of advances with three member institutions, and a loss or change of business activities with any of these institutions could adversely affect our results of operations and financial condition. Concentration risk for the FHLBNY is defined as the exposure to loss arising from a
disproportionately large number of financial transactions with a limited number of individual customers, with a particular focus on members that have outstanding advances that account for more than 10% of advances by par value to the total par value of all advances outstanding as of a given date. For more information about concentration, see Note 20. Segment Information and Concentration to Financial Statements.
Future changes in the regulatory environment for larger members that fall into the category of a Global Systemically Important Bank, may impact our business. As an example, in November 2014, the Financial Stability Board (“FSB”) issued consultative document that defined a global standard for minimum amounts of Total Loss Absorbency Capacity (“TLAC”) to be held by Global Systemically Important Banks (G-SIBs), with the objective of ensuring that G-SIBs have the loss absorbing and recapitalization capacity so that critical functions continue without requiring taxpayer support or threatening financial stability. G-SIBs will have until 2019 to meet certain leverage and other thresholds, and for certain G-SIBs that may require changes in balance sheet management, including issuances of additional senior and Tier 2 debt. Depending on how soon the balance sheet adjustments are made, they could have an impact on our business even in the near term.
Withdrawal of one or more large members from our membership could result in a reduction of our total assets, capital, and net income. If one or more of our large members were to prepay their advances or repay the advances as they came due and no other advances were made to replace them, it could also result in a reduction of our total assets, capital, and net income. In prior years, we experienced significant prepayments of advances by large members. In 2016, we also experienced prepayments due to the acquisition of a member by another member.
While our analysis of the impact of the prepayments do not indicate a material adverse impact on our business and results of operations, however, these are the types of events that we consider to be potential negative factors that may arise from a high concentration of advances. The timing and magnitude of the effect of a reduction in the amount of advances would depend on a number of factors, including:
· the amount and the period over which the advances were prepaid or repaid;
· the amount and timing of any corresponding decreases in activity-based capital;
· the profitability of the advances;
· the size and profitability of our short- and long-term investments; and
· the extent to which consolidated obligations (funding) matured as the advances were prepaid or repaid.
At December 31, 2016, advances borrowed by insurance companies accounted for 18.7% of total advances (17.0% at December 31, 2015). Lending to insurance companies poses a number of unique risks not present in lending to federally insured depository institutions. For example, there is no single federal regulator for insurance companies. They are supervised by state regulators and subject to state insurance codes and regulations. There is uncertainty about whether a state insurance commissioner would try to void FHLBNY’s claims on collateral in the event of an insurance company failure. Even if ultimately unsuccessful, such a legal challenge could result in a delay in the liquidation of collateral and a loss of market value. Also see Note 8 Advances to Financial Statements for more information.
The FHLBNY has geographic concentrations that may adversely impact its business operations and/or financial condition. By nature of our regulatory charter and our business operations, we are exposed to credit risk as the result of limited geographic diversity. Our advance lending is limited by charter to operations to the four areas — New Jersey, New York, Puerto Rico and the U.S. Virgin Islands. We employ conservative credit rating and collateral policies to limit exposure, but a decline in regional economic conditions could create an exposure to us in excess of collateral held.
We have concentrations of mortgage loans in some geographic areas based on our investments in MPF loans and private-label MBS and on the receipt of collateral pledged for advances. To the extent that any of these geographic areas experiences significant declines in the local housing markets, declining economic conditions, or a natural disaster, we could experience increased losses on our investments in the MPF loans or the related MBS or be exposed to a greater risk that the pledged collateral securing related advances would be inadequate in the event of default on such an advance.
The FHLBNY relies upon derivative instruments to reduce its interest-rate risk, and changes in our credit ratings may adversely affect our ability to enter into derivative instruments on acceptable terms. Our financial strategies are highly dependent on our ability to enter into derivative instruments on acceptable terms to reduce our interest-rate risk. Rating agencies may from time to time change a rating or issue negative reports, which may adversely affect our ability to enter into derivative instruments with acceptable parties on satisfactory terms in the quantities necessary to manage our interest-rate risk on consolidated obligations or other financial instruments. This could negatively affect our financial condition and results of operations.
Changes in regulatory requirements related to derivative instruments may adversely affect our ability to enter into derivative instruments on acceptable terms. The ongoing implementation of derivatives regulation under the Dodd-Frank Act could adversely impact the FHLBNY’s ability to execute derivatives to hedge interest rate risk, and would increase our compliance costs and negatively impact our results of operations. Derivatives regulations under the Dodd-Frank Act have impacted and will continue to substantially impact the derivatives markets by, among other things: (i) requiring extensive regulatory and public reporting of derivatives transactions; (ii) requiring a wide range of over-the-counter derivatives to be cleared through recognized clearing facilities and traded on exchanges or exchange-like facilities; (iii) requiring the collection and segregation of collateral for most uncleared derivatives; and (iv) significantly broadening limits on the size of positions that may be maintained in specified derivatives. These market structure reforms will make many derivatives products more costly to execute, may significantly reduce the liquidity of certain derivatives markets and could diminish customer demand for covered derivatives. Those changes could negatively impact the FHLBNY’s ability to execute derivatives in a cost
efficient manner, which could have an adverse impact on its results of operations. Numerous aspects of the new derivatives regime require costly and extensive compliance systems to be put in place and maintained.
The FHLBNY faces competition for advances, loan purchases, and access to funding, which could adversely affect its businesses and the FHLBNY’s efforts to make advance pricing attractive to its members as well as it may adversely affect earnings. Our primary business is making advances to our members, and we compete with other suppliers of wholesale funding, both secured and unsecured, including investment banks, commercial banks and, in certain circumstances, other FHLBanks. Our members have access to alternative funding sources, which may offer more favorable terms than the ones we offer on our advances, including more flexible credit or collateral standards. We may make changes in policies, programs, and agreements affecting members from time to time, including, affecting the availability of and conditions for access to advances and other credit products, the MPF Program, the AHP, and other programs, products, and services, which could cause members to obtain financing from alternative sources. In addition, many of our competitors are not subject to the same regulations, which may enable those competitors to offer products and terms that we are not able to offer.
The availability of alternative funding sources that are more attractive to our members may significantly decrease the demand for our advances. Lowering the price of the advances to compete with these alternative funding sources may decrease the profitability of advances. A decrease in the demand for our advances or a decrease in our profitability on advances could adversely affect our financial condition and results of operations.
Certain FHLBanks, including the FHLBNY, also compete (primarily with Fannie Mae and Freddie Mac) for the purchase of mortgage loans from members. Some FHLBanks may also compete with other FHLBanks with which their members have a relationship through affiliates. We offer the MPF Program to our members. Competition among FHLBanks for MPF program business may be affected by the requirement that a member and its affiliates can sell loans into the MPF Program through only one FHLBank relationship at a time. Increased competition can result in a reduction in the amount of mortgage loans we are able to purchase and adversely impact income from this part of its business.
The FHLBanks, including the FHLBNY, also compete with the U.S. Department of the Treasury, Fannie Mae, Freddie Mac, and other GSEs, as well as corporate, sovereign, and supranational entities, for funds raised through the issuance of debt in the national and global debt markets. Increases in the supply of competing debt products may, in the absence of increases in demand, result in higher debt costs or lower amounts of debt issued at the same cost than otherwise would be the case. Increased competition could adversely affect our ability to have access to funding, reduce the amount of funding available to us, or increase the cost of funding available to us. Any of these effects could adversely affect our financial condition and results of operations.
Market and Economic Risks
The FHLBNY’s funding depends on its ability to access the capital markets. Our primary source of funds is the sale of consolidated obligations in the capital markets. Our ability to obtain funds through the sale of consolidated obligations depends in part on prevailing conditions in the capital markets, which are, for the most part, beyond our control. Accordingly, we may not be able to obtain funding on acceptable terms, if at all. If we cannot access funding when needed on acceptable terms, our ability to support and continue operations could be adversely affected, which could negatively affect our financial condition and results of operations. If additional reforms are legislated over money market funds, they may have an adverse impact on the FHLBank discount note pricing, given that the funds are significant sponsors of short-term FHLBank debt. Ongoing changes to the regulatory environment that affect bank counterparties and debt underwriters could adversely affect our ability to access the debt markets or the cost of that funding.
Changes in interest rates could significantly affect the FHLBNY’s financial condition and results of operations. We earn income primarily from the spread between interest earned on our outstanding advances, investments and shareholders’ capital, and interest paid on our consolidated obligations and other interest-bearing liabilities. Although we use various methods and procedures to monitor and manage our exposure to changes in interest rates, we may experience instances when either our interest-bearing liabilities will be more sensitive to changes in interest rates than our interest-earning assets, or vice versa. In either case, interest rate movements contrary to our position could negatively affect our financial condition and results of operations. Moreover, the effect of changes in interest rates can be exacerbated by prepayment and extension risk, a risk that mortgage related assets will be refinanced by the mortgagor in low interest rate environments or will remain outstanding longer than expected at below market yields when interest rates increase. The possibility of negative interest rates on U.S. Treasury or other market instruments could adversely affect our results of operations by, for example, reducing asset yields or spreads, creating operating and operating system issues, or having other adverse impacts on our business.
Economic downturns and changes in federal monetary policy could have an adverse effect on the FHLBNY’s business and its results of operations. Our businesses and results of operations are sensitive to general business and economic conditions. These conditions include short- and long-term interest rates, inflation, money supply, fluctuations in both debt and equity capital markets, and the strength of the United States economy and the local economies in which we conduct our business. If any of these conditions deteriorate, our businesses and results of operations could be adversely affected. For example, a prolonged economic downturn could result in members needing fewer advances. In addition, our business and results of operations are significantly affected by the fiscal and monetary policies of the federal government and its agencies, including the Federal Reserve Board, which regulates the supply of money and credit in the United States. The Federal Reserve Board’s policies directly and indirectly influence the yield on interest-earning assets and the cost of interest-bearing liabilities.
Credit Risks
Changes in the credit ratings on FHLBank System consolidated obligations may adversely affect the cost of consolidated obligations, which could adversely affect FHLBNY’s financial condition and results of operations. FHLBank System consolidated obligations have been assigned Aaa/P-1 and AA+/A-1+ ratings by Moody’s and S&P. The outlook for the FHLBank debt by both S&P and Moody’s is stable. Rating agencies may from time to time change a rating or issue negative reports, which may adversely affect the cost of funds of one or more FHLBanks, including the FHLBNY, and the ability to issue consolidated obligations on acceptable terms. A higher cost of funds or the impairment of the ability to issue consolidated obligations on acceptable terms could also adversely affect our financial condition and results of operations. Rating agency downgrades of the debt of the United States could also cause a downgrade in the rating of the FHLBanks.
The FHLBNY’s financial condition and results of operations could be adversely affected by FHLBNY’s exposure to credit risk. We have exposure to credit risk in that the market value of an obligation may decline as a result of deterioration in the creditworthiness of the obligor or the credit quality of a security instrument. In addition, we assume secured and unsecured credit risk exposure associated with the risk that a borrower or counterparty or a derivative clearing organization could default and we could suffer a loss if we could not fully recover amounts owed to us on a timely basis. A credit loss, if material, will have an adverse effect on the FHLBNY’s financial condition and results of operations.
We are subject to credit-risk exposures related to the loans that back our investments. Increased delinquency rates and credit losses beyond those currently expected could adversely impact the yield on or value of those investments. The carrying value of our portfolio of private-label MBS was $233.4 million at December 31, 2016. Since 2006, we have made no acquisitions of private-label MBS. Our investments in private-label MBS are primarily backed by prime, subprime mortgage loans, and many of these securities are projected to sustain credit losses under current assumptions, and have been downgraded by various NRSROs. See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations for a description of our portfolio of investments in these securities.
Credit losses have not been significant in all periods in this report, but if we were to experience high rates of delinquency and an increase in loss severity trends on the loans underlying the private-label MBS, and face challenging macroeconomic factors, such as continuing high unemployment levels and higher than expected troubled residential mortgage loans, we may have to recognize additional credit losses.
We have also invested in securities issued by Housing Finance Agencies (“HFA”), which are held-to-maturity, with a carrying value of $1.1 billion as of December 31, 2016. Generally, the cash flows on these securities are based on the performance of the underlying loans, although these securities generally do include additional credit enhancements. At the time of purchase, the HFA securities were rated double-A (or its equivalent rating), some have since been downgraded. Further, the fair values of some of our HFA securities have also fallen, and gross unrealized losses on these securities totaled $37.0 million at December 31, 2016. Although we have determined that none of these securities is other-than-temporarily impaired, should the underlying loans underperform our projections, we could realize credit losses from these securities.
A rise in delinquency rates on our investments in MPF loans or related adverse trends could adversely impact our results of operation and financial condition. As discussed in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Financial Condition, our methodology for determining our allowance for loan losses is determined based on our investments in MPF loans and considers factors relevant to those investments. Important factors in determining this allowance are the collateral values supporting our investments in conventional mortgage loans. The allowance of $1.6 million at December 31, 2016 may prove insufficient if macroeconomic factors worsen, housing prices fall and collateral values decline. To the extent those risks are realized, we may determine to increase our allowance for loan losses, which would adversely impact our results of operations and financial condition.
Insufficient collateral protection could adversely affect the FHLBNY’s financial condition and results of operations. We require that all outstanding advances be fully collateralized. In addition, for mortgage loans that we purchased under the MPF Program, we require that members fully collateralize the outstanding credit enhancement obligations not covered through the purchase of supplemental mortgage insurance. We evaluate the types of collateral pledged by our members and assign borrowing capacities to the collateral based on the risks associated with that type of collateral. If we have insufficient collateral before or after an event of payment default by the member, or we are unable to liquidate the collateral for the value assigned to it in the event of a payment default by a member, we could experience a credit loss on advances, which could adversely affect our financial condition and results of operations.
The FHLBNY may become liable for all or a portion of the consolidated obligations of the FHLBanks, which could negatively impact the FHLBNY’s financial condition and results of operations. We are jointly and severally liable along with the other FHLBanks for the consolidated obligations issued through the Office of Finance. Dividends on, redemption of, or repurchase of shares of our capital stock are not permitted unless the principal and interest due on all consolidated obligations have been paid in full. If another Federal Home Loan Bank were to default on its obligation to pay principal or interest on any consolidated obligations, the Finance Agency may allocate the outstanding liability among one or more of the remaining FHLBanks on a pro rata basis or on any other basis the Finance Agency may determine. As a result, our ability to pay dividends on, to redeem, or to repurchase shares of capital stock could be affected by the financial condition of one or more of the other FHLBanks. However, no FHLBank has ever defaulted on its debt and no FHLBank has ever been asked to assume the debt payments of another FHLBank since the FHLB System was established in 1932.
Liquidity Risks
The FHLBNY may not be able to meet its obligations as they come due or meet the credit and liquidity needs of its members in a timely and cost-effective manner. We seek to be in a position to meet our members’ credit and liquidity needs and pay our obligations without maintaining excessive holdings of low-yielding liquid investments or being forced to incur unnecessarily high borrowing costs. In addition, we maintain a contingent liquidity plan designed to enable us to meet our obligations and the liquidity needs of members in the event of operational disruptions or short-term disruptions in the capital markets. Our ability to manage our liquidity position or our contingent liquidity plan may not enable us to meet our obligations and the credit and liquidity needs of our members, which could have an adverse effect on our financial condition and results of operations.
Operational Risks
The FHLBNY relies heavily on information systems and other technology. We rely heavily on information systems and other technology to conduct and manage our business. We have implemented a business continuity plan that includes the maintenance of alternate sites for data processing and office functions. All critical systems are tested annually for recovery readiness and all business units update and test their respective disaster recovery plans annually. If we were to experience a failure or interruption in any of these systems or other technology and our disaster recovery capabilities were also impacted, it would affect our ability to conduct and manage our business effectively, including advance and hedging activities. This may adversely affect member relations, risk management, and negatively affect our financial condition and results of operations.
The FHLBNY’s operational systems and networks continue to be vulnerable to an increasing risk of continually evolving cybersecurity or other technological risks which could result in the disclosure of confidential client or customer information, damage to the FHLBNY’s reputation, additional costs to the FHLBNY, regulatory penalties and financial losses. A significant portion of FHLBNY’s operations relies heavily on the secure processing, storage and transmission of financial and other information. The FHLBNY’s computer systems, software and networks will continue to be vulnerable to unauthorized access, loss or destruction of data, unavailability of service, computer viruses or other malicious code, cyber attacks and other events. These threats may derive from human error, fraud or malice on the part of employees or third parties, or may result from accidental technological failure. If one or more of these events occurs, it could result in the disclosure of confidential information, damage to FHLBNY’s reputation with its customers, additional costs to the FHLBNY (such as repairing systems or adding new personnel or protection technologies), regulatory penalties and financial losses, to the FHLBNY. Such events could also cause interruptions or malfunctions in the operations of the FHLBNY data systems (such as the lack of availability of FHLBNY’s online advance transaction system with members).
Deteriorating market conditions increase the risk that the FHLBNY’s models may produce unreliable results. We use market-based information as inputs to our financial models, which are used in making operational decisions and to derive estimates for use in our financial reporting processes. The downturn in the housing and mortgage markets created additional risk regarding the reliability of the models, particularly since the models are regularly adjusted in response to rapid changes in the actions of consumers and mortgagees to changes in economic conditions. This may increase the risk that our models could produce unreliable results or estimates that vary widely or prove to be inaccurate.
The departure of key personnel could adversely impact the Bank’s operations. We rely on key personnel for many of our functions. Our success in retaining such personnel is important to our ability to conduct our operations and measure and maintain risk and financial controls. The ability to retain key personnel could be challenged as the U.S. employment market improves. We maintain a succession planning program in which we attempt to identify and develop employees who can potentially replace key personnel in the event of their departure, whether due to resignation or normal retirement.
A natural disaster in the Bank’s region could adversely affect the Bank’s profitability and financial condition. A severe natural disaster could damage the Bank’s physical infrastructure and have an adverse effect on the FHLBNY’s business. Furthermore, portions of the Bank’s region are subject to risks from hurricanes, tornadoes, floods or other natural disasters. These natural disasters could damage or dislocate the facilities of the Bank’s members, may damage or destroy collateral that members have pledged to secure advances, may adversely affect the viability of the Bank’s mortgage purchase programs or the livelihood of borrowers of the Bank’s members, or otherwise could cause significant economic dislocation in the affected areas of the Bank’s region. As an example, in 2012, Hurricane Sandy struck sections of the New York and New Jersey coast line, and our market area was significantly impacted by the storm which resulted in widespread flooding, wind damage, and power outages.
Failures of critical vendors and other third parties could disrupt the Banks’ ability to conduct and manage its businesses. We rely on vendors and other third parties to perform certain critical services. A failure in, or an interruption to, one of more of those services could adversely affect the business operations of the Bank. The use of vendors and other third parties also exposes the Bank to the risk of loss of confidential information or other harm. To the extent that vendors do not conduct their activities under appropriate standards, the Bank could also be exposed to reputational risk.
Item 1B. Unresolved Staff Comments.
Not applicable.
At December 31, 2016, we occupied approximately 41,000 square feet of leased office space at 101 Park Avenue, New York, New York. We also maintain 30,000 square feet of leased office space at 30 Montgomery Street, Jersey City, New Jersey, principally as an operations center.
From time to time, the FHLBNY is involved in disputes or regulatory inquiries that arise in the ordinary course of business. At the present time, except as noted below, there are no pending claims against the FHLBNY that, if established, are reasonably likely to have a material effect on the FHLBNY’s financial condition, results of operations or cash flows.
On September 15, 2008, Lehman Brothers Holdings, Inc. (“LBHI”), the parent company of Lehman Brothers Special Financing Inc. (“LBSF”), 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 on October 3, 2008. A Chapter 11 plan became effective on March 6, 2012.
At the time of LBHI’s bankruptcy filing, the FHLBNY had 356 interest rate swap and other derivative transactions outstanding with LBSF, with a total notional amount of $16.5 billion. LBHI guaranteed LBSF’s contractual obligations to the FHLBNY. On September 18, 2008, the FHLBNY terminated these transactions as permitted in the wake of LBHI’s bankruptcy filing. The FHLBNY provided LBSF with a calculation showing that LBSF owed the FHLBNY approximately $65 million as a result of the termination, after giving effect to collateral posted by the FHLBNY with LBSF. The FHLBNY filed timely proofs of claim as a creditor of LBSF and LBHI in the bankruptcy proceedings. Given the dispute described below, the FHLBNY fully reserved the LBSF and LBHI receivables, as the timing and amount of any recovery is uncertain.
On July 23, 2010, the FHLBNY received a notice from LBSF claiming that the FHLBNY improperly calculated the termination payment, and that the FHLBNY owed LBSF a substantial amount. Pursuant to bankruptcy court procedures, the parties mediated their dispute commencing in late 2010 and again in early 2015. Both mediations concluded without a settlement.
On May 13, 2015, LBHI, on behalf of itself and LBSF, filed a complaint against the FHLBNY in the bankruptcy court, alleging, among other things, that the FHLBNY’s calculation of the termination payment breached its contract with LBSF and violated section 562 of the Bankruptcy Code. The complaint seeks damages in excess of $150 million, plus pre-judgment contractual interest. On August 3, 2015, the FHLBNY filed amended proofs of claim reducing the FHLBNY’s claims against LBSF and LBHI, as LBSF’s guarantor, to approximately $45 million. On September 24, 2015, the bankruptcy court denied the FHLBNY’s motion to dismiss certain of the claims alleged in LBHI’s complaint.
On September 21, 2016, LBHI served a disclosure calculating its damages to be $116 million, plus accrued contractual interest totaling $232 million. On September 23, 2016, the FHLBNY filed a partial summary judgment motion seeking dismissal of LBHI’s claim that the FHLBNY violated section 562 of the Bankruptcy Code in calculating its claim, and also seeking dismissal of LBHI’s claim for contractual interest. The parties are engaged in pre-trial discovery proceedings, and trial is currently scheduled to commence in April 2017.
The FHLBNY is pursuing its claims against LBSF and LBHI in the LBHI litigation. The FHLBNY intends to vigorously defend against LBHI’s complaint, which we believe to be without merit.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
All of the capital stock of the FHLBNY is owned by our members. Stock may also be held by former members as a result of having been acquired by a non-member institution. We conduct our business in advances and mortgages exclusively with stockholder members and housing associates (1). There is no established marketplace for FHLBNY stock as FHLBNY stock is not publicly traded. It may be redeemed at par value upon request, subject to regulatory limits. The par value of all FHLBNY stock is $100 per share. These shares of stock in the FHLBNY are registered under the Securities Exchange Act of 1934, as amended. At December 31, 2016, we had 325 members (excluding three “captive insurance companies” who are considered to be non-members from a regulatory perspective), who held 63,077,657 shares of capital stock between them. At December 31, 2016, former members held 314,347 shares. At December 31, 2015, we had 329 members, who held 55,850,305 shares of capital stock between them. At December 31, 2015, former members held 194,986 shares. Capital stock held by former members is classified as a liability, and deemed to be mandatorily redeemable under the accounting guidance for certain financial instruments with characteristics of both liabilities and equity.
Our recent quarterly cash dividends are outlined in the table below. No dividends were paid in the form of stock. Dividend payments and earnings retention are subject to be determined by our Board of Directors, at its discretion, and within the regulatory framework promulgated by the Finance Agency. Our Retained Earnings and Dividends Policy outlined in the section titled Retained Earnings and Dividends under Part I, Item 1 of this Annual Report on Form 10-K provides additional information.
(1) Housing associates are defined as entities that (i) are approved mortgagees under Title II of the National Housing Act, (ii) are chartered under law and have succession, (iii) are subject to inspection and supervision by a governmental agency, (iv) lend their own funds as their principal activity in the mortgage field, and (v) have a financial condition such that advances may be safely made to that entity. At December 31, 2016, we had 9 housing associates as members. Advances made to housing associates totaled $5.6 million, and the mortgage loans acquired from housing associates were immaterial in any periods in this report.
Dividends from a calendar quarter’s earnings are paid (a) subsequent to the end of that calendar quarter as summarized below. Dividend payments reported below are on Class B Stock, which includes payments to non-members on capital stock reported as mandatorily redeemable capital stock in the Statements of Condition. (dollars in thousands):
|
|
|
2016 |
|
2015 |
|
2014 |
| |||||||||
|
Month Paid |
|
Amount |
|
Dividend Rate |
|
Amount |
|
Dividend Rate |
|
Amount |
|
Dividend Rate |
| |||
|
November |
|
$ |
71,991 |
|
5.00 |
% |
$ |
54,507 |
|
4.10 |
% |
$ |
57,287 |
|
4.05 |
% |
|
August |
|
65,437 |
|
4.75 |
|
53,294 |
|
4.10 |
|
55,693 |
|
4.05 |
| |||
|
May |
|
61,535 |
|
4.50 |
|
55,963 |
|
4.10 |
|
53,065 |
|
3.90 |
| |||
|
February |
|
61,572 |
|
4.65 |
|
64,499 |
|
4.60 |
|
65,604 |
|
4.75 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
|
|
|
$ |
260,535 |
(b) |
|
|
$ |
228,263 |
(b) |
|
|
$ |
231,649 |
(b) |
|
|
(a) The table above reports dividend on a paid basis and includes payments to former members as well as members. Dividends paid to former members were $1.6 million, $0.8 million and $0.9 million for the years ended December 31, 2016, 2015 and 2014.
(b) Includes dividends paid to non-members; payments to non-members are classified as interest expense for accounting purposes.
Dividends are accrued for former members, and recorded as interest expense on mandatorily redeemable capital stock held by former members, and is a charge to Net income. Dividends on capital stock held by members are not accrued. Dividends are paid in arrears typically in the second month after the quarter end in which the dividend is earned, and is a direct charge to Retained earnings.
Issuer Purchases of Equity Securities
We are exempt from disclosures of unregistered sales of common equity securities or securities issued through the Office of Finance that otherwise would have been required under Item 701 of the SEC’s Regulation S-K. By the same no-action letter, we are also exempt from disclosure of securities repurchases by the issuer that otherwise would have been required under Item 703 of Regulation S-K.
Item 6. Selected Financial Data.
|
Statements of Condition |
|
Years ended December 31, |
| |||||||||||||
|
(dollars in millions) |
|
2016 |
|
2015 |
|
2014 |
|
2013 |
|
2012 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Investments (a) |
|
$ |
30,939 |
|
$ |
26,167 |
|
$ |
25,201 |
|
$ |
20,084 |
|
$ |
17,459 |
|
|
Advances |
|
109,257 |
|
93,874 |
|
98,797 |
|
90,765 |
|
75,888 |
| |||||
|
Mortgage loans held-for-portfolio, net of allowance for credit losses (b) |
|
2,747 |
|
2,524 |
|
2,129 |
|
1,928 |
|
1,843 |
| |||||
|
Total assets |
|
143,606 |
|
123,239 |
|
132,825 |
|
128,333 |
|
102,989 |
| |||||
|
Deposits and borrowings |
|
1,241 |
|
1,350 |
|
1,999 |
|
1,929 |
|
2,054 |
| |||||
|
Consolidated obligations, net |
|
|
|
|
|
|
|
|
|
|
| |||||
|
Bonds |
|
84,785 |
|
67,716 |
|
73,536 |
|
73,275 |
|
64,784 |
| |||||
|
Discount notes |
|
49,358 |
|
46,850 |
|
50,044 |
|
45,871 |
|
29,780 |
| |||||
|
Total consolidated obligations |
|
134,143 |
|
114,566 |
|
123,580 |
|
119,146 |
|
94,564 |
| |||||
|
Mandatorily redeemable capital stock |
|
31 |
|
19 |
|
19 |
|
24 |
|
23 |
| |||||
|
AHP liability |
|
125 |
|
113 |
|
114 |
|
123 |
|
135 |
| |||||
|
Capital |
|
|
|
|
|
|
|
|
|
|
| |||||
|
Capital stock |
|
6,308 |
|
5,585 |
|
5,580 |
|
5,571 |
|
4,797 |
| |||||
|
Retained earnings |
|
|
|
|
|
|
|
|
|
|
| |||||
|
Unrestricted |
|
1,029 |
|
967 |
|
863 |
|
842 |
|
798 |
| |||||
|
Restricted |
|
383 |
|
303 |
|
220 |
|
157 |
|
96 |
| |||||
|
Total retained earnings |
|
1,412 |
|
1,270 |
|
1,083 |
|
999 |
|
894 |
| |||||
|
Accumulated other comprehensive loss |
|
(96 |
) |
(136 |
) |
(137 |
) |
(84 |
) |
(199 |
) | |||||
|
Total capital |
|
7,624 |
|
6,719 |
|
6,526 |
|
6,486 |
|
5,492 |
| |||||
|
Equity to asset ratio (c) |
|
5.31 |
% |
5.45 |
% |
4.91 |
% |
5.05 |
% |
5.33 |
% | |||||
|
Statements of Condition |
|
Years ended December 31, |
| |||||||||||||
|
Averages (See note below; dollars in millions) |
|
2016 |
|
2015 |
|
2014 |
|
2013 |
|
2012 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Investments (a) |
|
$ |
29,337 |
|
$ |
26,944 |
|
$ |
28,233 |
|
$ |
27,710 |
|
$ |
25,265 |
|
|
Advances |
|
96,201 |
|
91,401 |
|
93,550 |
|
80,245 |
|
72,720 |
| |||||
|
Mortgage loans held-for-portfolio, net of allowance for credit losses |
|
2,631 |
|
2,362 |
|
1,989 |
|
1,912 |
|
1,624 |
| |||||
|
Total assets |
|
129,260 |
|
122,155 |
|
125,632 |
|
112,780 |
|
102,821 |
| |||||
|
Interest-bearing deposits and other borrowings |
|
1,431 |
|
1,213 |
|
1,705 |
|
1,683 |
|
2,246 |
| |||||
|
Consolidated obligations, net |
|
|
|
|
|
|
|
|
|
|
| |||||
|
Bonds |
|
73,174 |
|
69,177 |
|
76,580 |
|
65,502 |
|
65,598 |
| |||||
|
Discount notes |
|
46,508 |
|
43,628 |
|
38,713 |
|
36,872 |
|
26,113 |
| |||||
|
Total consolidated obligations |
|
119,682 |
|
112,805 |
|
115,293 |
|
102,374 |
|
91,711 |
| |||||
|
Mandatorily redeemable capital stock |
|
24 |
|
19 |
|
22 |
|
24 |
|
38 |
| |||||
|
AHP liability |
|
114 |
|
107 |
|
117 |
|
124 |
|
131 |
| |||||
|
Capital |
|
|
|
|
|
|
|
|
|
|
| |||||
|
Capital stock |
|
5,712 |
|
5,299 |
|
5,530 |
|
5,054 |
|
4,634 |
| |||||
|
Retained earnings |
|
|
|
|
|
|
|
|
|
|
| |||||
|
Unrestricted |
|
977 |
|
875 |
|
840 |
|
808 |
|
752 |
| |||||
|
Restricted |
|
337 |
|
252 |
|
186 |
|
124 |
|
58 |
| |||||
|
Total retained earnings |
|
1,314 |
|
1,127 |
|
1,026 |
|
932 |
|
810 |
| |||||
|
Accumulated other comprehensive loss |
|
(181 |
) |
(149 |
) |
(108 |
) |
(149 |
) |
(200 |
) | |||||
|
Total capital |
|
6,845 |
|
6,277 |
|
6,448 |
|
5,837 |
|
5,244 |
| |||||
Note —Average balance calculation. For most components of the average balances, a daily weighted average balance is calculated for the period. When daily weighted average balance information is not available, a simple monthly average balance is calculated.
|
Operating Results and Other Data |
|
|
|
|
|
|
|
|
|
|
| |||||
|
(dollars in millions) |
|
|
|
|
|
|
|
|
|
|
| |||||
|
(except earnings and dividends per |
|
December 31, |
| |||||||||||||
|
share, and headcount) |
|
2016 |
|
2015 |
|
2014 |
|
2013 |
|
2012 |
| |||||
|
Net income |
|
$ |
401 |
|
$ |
415 |
|
$ |
315 |
|
$ |
305 |
|
$ |
361 |
|
|
Net interest income (d) |
|
556 |
|
554 |
|
444 |
|
421 |
|
467 |
| |||||
|
Dividends paid in cash (e) |
|
259 |
|
228 |
|
231 |
|
200 |
|
213 |
| |||||
|
AHP expense |
|
45 |
|
46 |
|
35 |
|
34 |
|
40 |
| |||||
|
Return on average equity (f)(i) |
|
5.86 |
% |
6.61 |
% |
4.88 |
% |
5.22 |
% |
6.88 |
% | |||||
|
Return on average assets (i) |
|
0.31 |
% |
0.34 |
% |
0.25 |
% |
0.27 |
% |
0.35 |
% | |||||
|
Net OTTI impairment losses |
|
— |
|
— |
|
— |
|
— |
|
(2 |
) | |||||
|
Other non-interest income |
|
7 |
|
25 |
|
6 |
|
13 |
|
33 |
| |||||
|
Total other income |
|
7 |
|
25 |
|
6 |
|
13 |
|
31 |
| |||||
|
Operating expenses (g) |
|
102 |
|
103 |
|
86 |
|
83 |
|
82 |
| |||||
|
Finance Agency and Office of Finance expenses |
|
13 |
|
14 |
|
14 |
|
13 |
|
14 |
| |||||
|
Total other expenses |
|
115 |
|
117 |
|
100 |
|
96 |
|
96 |
| |||||
|
Operating expenses ratio (h)(i) |
|
0.08 |
% |
0.08 |
% |
0.07 |
% |
0.07 |
% |
0.08 |
% | |||||
|
Earnings per share |
|
$ |
7.02 |
|
$ |
7.83 |
|
$ |
5.69 |
|
$ |
6.06 |
|
$ |
7.78 |
|
|
Dividends per share |
|
$ |
4.73 |
|
$ |
4.22 |
|
$ |
4.19 |
|
$ |
4.12 |
|
$ |
4.63 |
|
|
Headcount (Full/part time) |
|
280 |
|
273 |
|
258 |
|
258 |
|
272 |
| |||||
(a) Investments include trading securities, available-for-sale securities, held-to-maturity securities, securities purchased under agreements to resell, federal funds, loans to other FHLBanks, and other interest-bearing deposits.
(b) Allowances for credit losses were $1.6 million, $0.3 million, $4.5 million, $5.7 million and $7.0 million for the years ended December 31, 2016, 2015, 2014, 2013 and 2012.
(c) Equity to asset ratio is capital stock plus retained earnings and Accumulated other comprehensive income (loss) as a percentage of total assets.
(d) Net interest income is net interest income before the provision for credit losses on mortgage loans.
(e) Excludes dividends accrued to non-members classified as interest expense under the accounting standards for certain financial instruments with characteristics of both liabilities and equity.
(f) Return on average equity is net income as a percentage of average capital stock plus average retained earnings and average Accumulated other comprehensive income (loss).
(g) Operating expenses include Compensation and Benefits.
(h) Operating expenses as a percentage of total average assets.
(i) All percentage calculations are performed using amounts in thousands, and may not agree if calculations are performed using amounts in millions.
Supplementary financial data for each quarter for the years ended December 31, 2016 and 2015 are presented below (in thousands):
|
|
|
2016 (unaudited) |
| ||||||||||
|
|
|
4th Quarter (a) |
|
3rd Quarter |
|
2nd Quarter |
|
1st Quarter |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Interest income |
|
$ |
398,660 |
|
$ |
344,596 |
|
$ |
318,359 |
|
$ |
299,232 |
|
|
Interest expense |
|
238,046 |
|
204,950 |
|
189,375 |
|
172,066 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Net interest income |
|
160,614 |
|
139,646 |
|
128,984 |
|
127,166 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Provision/(Reversal) for credit losses on mortgage loans |
|
258 |
|
236 |
|
346 |
|
1,126 |
| ||||
|
Other income (loss) |
|
8,309 |
|
3,316 |
|
152 |
|
(4,924 |
) | ||||
|
Other expenses and assessments |
|
45,899 |
|
39,381 |
|
37,150 |
|
37,715 |
| ||||
|
Net other expenses |
|
37,848 |
|
36,301 |
|
37,344 |
|
43,765 |
| ||||
|
Net income |
|
$ |
122,766 |
|
$ |
103,345 |
|
$ |
91,640 |
|
$ |
83,401 |
|
|
|
|
2015 (unaudited) |
| ||||||||||
|
|
|
4th Quarter (a) |
|
3rd Quarter |
|
2nd Quarter |
|
1st Quarter |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Interest income |
|
$ |
344,153 |
|
$ |
220,790 |
|
$ |
211,319 |
|
$ |
221,410 |
|
|
Interest expense |
|
125,372 |
|
110,772 |
|
105,055 |
|
102,316 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Net interest income |
|
218,781 |
|
110,018 |
|
106,264 |
|
119,094 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
(Reversal)/Provision for credit losses on mortgage loans |
|
(10 |
) |
(12 |
) |
352 |
|
188 |
| ||||
|
Other income (loss) |
|
7,479 |
|
8,259 |
|
2,814 |
|
5,973 |
| ||||
|
Other expenses and assessments |
|
57,886 |
|
35,262 |
|
33,554 |
|
36,651 |
| ||||
|
Net other expenses |
|
50,397 |
|
26,991 |
|
31,092 |
|
30,866 |
| ||||
|
Net income |
|
$ |
168,384 |
|
$ |
83,027 |
|
$ |
75,172 |
|
$ |
88,228 |
|
Interim period — Infrequently occurring items recognized.
(a) Fourth quarter — 2016 fourth quarter Net income benefitted from higher Net interest income, which grew in part by lower cost of funding and in part by a growing book of advance business. Other expenses were higher in the quarter due to increase in Operating expenses; Assessments were higher due to increased funding allocated to the Affordable Housing Program (“AHP Program”) in line with higher Net income. 2015 fourth quarter Net income included $109.1 million in prepayment fees recorded as interest income from advances. 2015 fourth quarter Other expenses included a catch-up contribution for the Define Benefits pension plan, and AHP assessments were also higher in line with higher Net income.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking Statements
Statements contained in this Annual Report on Form 10-K, including statements describing the objectives, projections, estimates, or predictions of the Federal Home Loan Bank of New York (“we” “us,” “our,” “the Bank” or the “FHLBNY”) may be “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements may use forward-looking terminology, such as “anticipates,” “believes,” “could,” “estimates,” “may,” “should,” “will,” or other variations on these terms or their negatives. The Bank cautions that, by their nature, forward-looking statements are subject to a number of risks or uncertainties, including the Risk Factors set forth in Item 1A and the risks set forth below, and that actual results could differ materially from those expressed or implied in these forward-looking statements. As a result, you are cautioned not to place undue reliance on such statements. These forward-looking statements speak only as of the date they were made, and the Bank does not undertake to update any forward-looking statement herein. Forward-looking statements include, among others, the following:
· the Bank’s projections regarding income, retained earnings, dividend payouts, and the repurchase of excess capital stock;
· the Bank’s statements related to gains and losses on derivatives, future other-than-temporary impairment charges, and future classification of securities;
· the Bank’s expectations relating to future balance sheet growth;
· the Bank’s targets under the Bank’s retained earnings plan; and
· the Bank’s expectations regarding the size of its mortgage loan portfolio, particularly as compared to prior periods; and
· the Bank’s statements related to reform legislation.
Actual results may differ from forward-looking statements for many reasons, including but not limited to:
· changes in economic and market conditions;
· changes in demand for Bank advances and other products resulting from changes in members’ deposit flows and credit demands or otherwise;
· an increase in advance prepayments as a result of changes in interest rates (including negative interest rates) or other factors;
· the volatility of market prices, rates, and indices that could affect the value of collateral held by the Bank as security for obligations of Bank members and counterparties to interest rate exchange agreements and similar agreements;
· political events, including legislative developments that affect the Bank, its members, counterparties, and/or investors in the consolidated obligations (“COs”) of the FHLBanks;
· competitive forces including, without limitation, other sources of funding available to Bank members, other entities borrowing funds in the capital markets, and the ability to attract and retain skilled employees;
· the pace of technological change and the ability of the Bank to develop and support technology and information systems, including the internet, sufficient to manage the risks of the Bank’s business effectively;
· changes in investor demand for COs and/or the terms of interest rate exchange agreements and similar agreements;
· timing and volume of market activity;
· ability to introduce new or adequately adapt current Bank products and services and successfully manage the risks associated with those products and services, including new types of collateral used to secure advances;
· risk of loss arising from litigation filed against one or more of the FHLBanks;
· realization of losses arising from the Bank’s joint and several liability on COs;
· risk of loss due to fluctuations in the housing market;
· inflation or deflation;
· issues and events within the FHLBank System and in the political arena that may lead to regulatory, judicial, or other developments that may affect the marketability of the COs, the Bank’s financial obligations with respect to COs, and the Bank’s ability to access the capital markets;
· the availability of derivative financial instruments of the types and in the quantities needed for risk management purposes from acceptable counterparties;
· significant business disruptions resulting from natural or other disaster, acts of war or terrorism;
· the effect of new accounting standards, including the development of supporting systems;
· membership changes, including changes resulting from mergers or changes in the principal place of business of Bank members;
· the soundness of other financial institutions, including Bank members, nonmember borrowers, other counterparties, and the other FHLBanks; and
· the willingness of the Bank’s members to do business with the Bank whether or not the Bank is paying dividends or repurchasing excess capital stock.
Risks and other factors could cause actual results of the Bank to differ materially from those implied by any forward-looking statements. These risk factors are not exhaustive. The Bank operates in changing economic and regulatory environments, and new risk factors will emerge from time to time. Management cannot predict such new risk factors nor can it assess the impact, if any, of such new risk factors on the business of the Bank or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those implied by any forward-looking statements.
Organization of Management’s Discussion and Analysis (“MD&A”).
This MD&A is designed to provide information that will assist the readers in better understanding our financial statements, the changes in key items in our financial statements from year to year, the primary factors driving those changes as well as how accounting principles affect our financial statements. The MD&A is organized as follows:
|
|
Page |
|
22 | |
|
22 | |
|
24 | |
|
25 | |
|
25 | |
|
29 | |
|
31 | |
|
33 | |
|
37 | |
|
44 | |
|
46 | |
|
50 | |
|
51 | |
|
52 | |
|
Liquidity, Cash Flows, Short-Term Borrowings and Short-Term Debt |
57 |
|
61 | |
|
62 | |
|
64 | |
|
68 | |
|
70 | |
|
74 | |
|
Operating Expenses, Compensation and Benefits, and Other Expenses |
77 |
|
78 | |
|
79 |
MD&A TABLE REFERENCE
|
Table(s) |
|
Description |
|
Page(s) |
|
|
|
Selected Financial Data |
|
18 - 19 |
|
1.1 |
|
Market Interest Rates |
|
25 |
|
2.1 |
|
Financial Condition |
|
31 |
|
3.1 - 3.9 |
|
Advances |
|
33 - 37 |
|
4.1 - 4.12 |
|
Investments |
|
38 - 43 |
|
5.1 - 5.6 |
|
Mortgage Loans |
|
44 - 46 |
|
6.1 - 6.10 |
|
Consolidated Obligations |
|
47 - 50 |
|
6.11 |
|
FHLBNY Ratings |
|
50 |
|
7.1 - 7.3 |
|
Capital |
|
51 |
|
8.1 - 8.8 |
|
Derivatives |
|
52 - 57 |
|
9.1 - 9.3 |
|
Liquidity |
|
57 - 58 |
|
9.4 |
|
Short Term Debt |
|
59 |
|
9.5 - 9.7 |
|
Unpledged Asset Requirements, FHFA MBS Limits, and Core Mission Achievement |
|
60 - 61 |
|
10.1 - 10.16 |
|
Results of Operations |
|
62 - 77 |
|
11.1 |
|
Assessments |
|
78 |
This overview of management’s discussion and analysis highlights selected information and may not contain all of the information that is important to readers of this Form 10-K. For a more complete understanding of events, trends and uncertainties, as well as the liquidity, capital, credit and market risks, and critical accounting estimates, affecting the Federal Home Loan Bank of New York (“FHLBNY” or “Bank”), this Form 10-K should be read in its entirety.
Cooperative business model. As a cooperative, we seek to maintain a balance between our public policy mission and our ability to provide adequate returns on the capital supplied by our members. We achieve this balance by delivering low-cost financing to members to help them meet the credit needs of their communities and 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.
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. 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
|
|
|
December 31, |
|
Net change in dollar amount |
| |||||||||||
|
(Dollars in millions, except per share data) |
|
2016 |
|
2015 |
|
2014 |
|
2016 |
|
2015 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Net interest income before provision for credit losses |
|
$ |
556 |
|
$ |
554 |
|
$ |
444 |
|
$ |
2 |
|
$ |
110 |
|
|
Provision/(Reversal) for credit losses on mortgage loans |
|
2 |
|
— |
|
(1 |
) |
2 |
|
1 |
| |||||
|
Other non-interest income |
|
7 |
|
25 |
|
6 |
|
(18 |
) |
19 |
| |||||
|
Operating expenses |
|
33 |
|
30 |
|
27 |
|
3 |
|
3 |
| |||||
|
Compensation and benefits |
|
69 |
|
73 |
|
59 |
|
(4 |
) |
14 |
| |||||
|
Net income |
|
$ |
401 |
|
$ |
415 |
|
$ |
315 |
|
$ |
(14 |
) |
$ |
100 |
|
|
Earnings per share |
|
$ |
7.02 |
|
$ |
7.83 |
|
$ |
5.69 |
|
$ |
(0.81 |
) |
$ |
2.14 |
|
|
Dividend per share |
|
$ |
4.73 |
|
$ |
4.22 |
|
$ |
4.19 |
|
$ |
0.51 |
|
$ |
0.03 |
|
Net Income — Net income for the twelve months ended December 31, 2016 was $401.2 million, and decreased by $13.7 million, or 3.3%, compared to the year-to-date period in the prior year. Summarized below are the primary components of our Net income:
Net interest income — Net interest income was $556.4 million in the current year, an increase of $2.3 million, or 0.4%, from the prior year. Net interest spread, which is the yield from earning assets minus interest paid to fund earning assets, was 40 basis points in 2016, a slight decrease from 43 basis points in 2015.
In 2016, our LIBOR-indexed assets, primarily ARC advances and floating-rate investments in mortgage-backed securities, benefited from the rising LIBOR. Our overnight investments in the federal funds and the overnight repurchase agreements benefited from rising yields in the overnight markets. While our funding costs were also higher in line with the rising rate environment, however, on a relative basis our cost of funding in 2016 benefited from favorable investor demand for Consolidated obligation discount notes and floating-rate bonds. Strong money market fund investor demand enabled us to issue discount notes and shorter-term floating-rate bonds at favorable sub-LIBOR spreads or at relatively lower yields than would be possible otherwise.
Other Income (Loss) — Other Income/(loss) reported a gain of $6.9 million in the current year, compared to a gain of $24.5 million in the prior year. Other Income comprised of Service fees, net gains and losses from Derivatives and hedging activities, net fair value gains and losses recorded on instruments elected under the Fair Value Option, and charges from early extinguishment of the FHLBank debt.
· Service fees and other, primarily correspondent banking fees and fee revenues from financial letters of credit were $13.8 million in the current year, compared to $12.1 million in the prior year.
· Financial instruments carried at fair values reported a net valuation loss of $1.9 million in the current year, compared to a net gain of $9.9 million in the prior year.
· Derivative and hedging activities reported a net loss of $1.7 million in the current year, compared to a net gain of $12.6 million in the prior year.
· Debt repurchases and transfers in the current year reported a $3.6 million charge to earnings, compared to a $9.8 million charge in the prior year.
Other Expenses were $115.4 million in 2016, compared to $117.2 million in the prior year.
· Operating expenses were $33.4 million in the current year, up from $29.8 million in the prior year.
· Compensation and benefits expenses were $69.1 million in the current year, down from $73.6 million in the prior year.
· Allocated expenses for our share of the costs to operate the Office of Finance and the Federal Housing Finance Agency were $12.9 million in the current year, compared to $13.7 million in the prior year.
Affordable Housing Program assessments allocated from net income were $44.8 million in the current year, compared to $46.2 million in the prior year.
Dividend payments — Four quarterly cash dividends were paid that in aggregate was $4.73 per share of capital in 2016, compared to $4.22 per share of capital in 2015 and $4.19 in 2014.
Financial Condition — December 31, 2016 compared to December 31, 2015
Total assets increased to $143.6 billion at December 31, 2016 from $123.2 billion at December 31, 2015, an increase of $20.4 billion, or 16.5%. Advances to members increased to $109.3 billion at December 31, 2016 from $93.9 billion at December 31, 2015, an increase of $15.4 billion, or 16.4%.
Advances — Par balances increased at December 31, 2016 to $109.2 billion, compared to $93.5 billion at December 31, 2015. ARC advances, which are adjustable-rate borrowings, grew by 60.9% to $42.7 billion.
Long-term investment securities — Long-term investment securities are designated as available-for-sale (“AFS”) or held-to-maturity (“HTM”). The heavy concentration of GSE and Agency issued (“GSE-issued”) securities, and a declining balance of private-label MBS, less than 2%, is our investment profile.
In the AFS portfolio, long-term investments at December 31, 2016 were floating-rate GSE-issued mortgage-backed securities carried on the balance sheet at fair values of $656.1 million, compared to $957.3 million at December 31, 2015. The FHLBNY owns a grantor trust that invests in highly-liquid registered mutual funds, which were classified as AFS; funds were carried on the balance sheet at fair values of $41.7 million at December 31, 2016 and $32.9 million at December 31, 2015.
In the HTM portfolio, long-term investments at December 31, 2016 were GSE-issued fixed- and floating-rate mortgage-backed securities, and housing finance agency bonds. Carrying values of HTM securities are reported at amortized cost adjusted for credit and non-credit OTTI. MBS were carried at $15.0 billion at December 31, 2016 and $13.1 billion at December 31, 2015. Private-label issued MBS were less than 2.0% of the HTM portfolio of mortgage-backed securities at December 31, 2016 and December 31, 2015. Housing finance agency bonds, primarily New York and New Jersey, were carried at an amortized cost basis of $1.1 billion at December 31, 2016 and $825.1 million at December 31, 2015.
Short-term and Overnight investments - Money Market investments at December 31, 2016 were $6.7 billion in federal funds sold and $7.2 billion in overnight resale agreements. Money Market investments at December 31, 2015 were $7.2 billion in federal funds and $4.0 billion in overnight resale agreements.
Trading securities (Securities liquidity portfolio) — In December 2016, Management approved a trading portfolio to meet short-term contingency liquidity needs. We invested in highly liquid U.S. Treasury and GSE issued securities, which were carried at a fair value of $131.2 million at December 31, 2016. We will periodically evaluate our liquidity needs and may dispose these liquidity investments as deemed prudent by liquidity and market conditions. The Finance Agency prohibits speculative trading practices but allows permitted securities to be deemed held for liquidity if invested in a trading portfolio.
Mortgage loans held-for-portfolio — Mortgage loans were investments in Mortgage Partnership Finance loans (“MPF” or “MPF Program”). Unpaid principal balances of loans under this program stood at $2.7 billion at December 31, 2016, up a little from the balance at December 31, 2015. Loans are primarily fixed-rate, single-family mortgages acquired through the MPF Program. Credit performance has been strong and delinquency low. Loan origination by members and acceptable pricing are key factors that drive acquisitions. Residential collateral values have remained stable in the New York and New Jersey sectors, the primary geographic concentration for our MPF portfolio, and historical loss experience remains very low.
Capital ratios — Our capital position remains strong. At December 31, 2016, actual risk-based capital was $7.8 billion, compared to required risk-based capital of $747.9 million.
Liquidity and Debt — Our liquidity position remains strong, and in compliance with all regulatory requirements, and we do not foresee any changes to that position. In addition to the trading portfolio maintained for liquidity, liquid assets at December 31, 2016 included $60.9 million as demand cash balances at the FRBNY, $90.4 million as compensating cash balances at Citibank that could be withdrawn at short notice, $13.8 billion in short-term and overnight loans in the federal funds and the repo markets, and $0.8 billion of high credit quality GSE-issued available-for-sale securities that are investment quality, and readily marketable.
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.
Earnings — We project 2017 Net income to be a little higher than earned in 2016. We expect the favorable funding condition to continue through 2017, specifically for consolidated obligation discount notes and short and intermediate-term consolidated obligation floating-rate bonds.
Advances — We project continued strong demand from our membership and project a stable book of advance business through 2017. The pace of balance sheet growth in 2016 was primarily driven by the borrowing activities of a few large members. We cannot predict if advances borrowed by our larger members will be rolled over at maturity or prepaid prior to maturity in 2017. At December 31, 2016, three members’ advance borrowings exceeded 10.0% of total advances outstanding — Citibank, N.A. 30.7% (15.8% at December 31, 2015), Metropolitan Life Insurance Company 13.2% (13.4% at December 31, 2015), and New York Community Bank/New York Commercial Bank 10.7% (14.4% at December 31, 2015).
We expect continued demand for variable-rate advances and short-term fixed-rate advances. We expect limited demand for large, intermediate and long-term advances because many members have adequate liquidity. Member banks are also likely to develop liquidity strategies to address regulatory liquidity frameworks, and those strategies may lead certain member banks to prepay advances ahead of their maturities. Because of the complex interactions among a number of factors driving large banking institutions to address regulatory liquidity guidance, we are unable to predict future trends particularly with respect to borrowings by our larger members. When advances are prepaid, we receive prepayment penalty fees to make us economically whole, and the FHLBNY’s earnings may not be adversely impacted in the periods when prepayments occur, but may impact revenue streams in future periods.
Demand for FHLBank debt — Our primary source of funds is the sale of Consolidated obligations in the capital markets. Our ability to obtain funds through the issuance of Consolidated obligations depends in part on prevailing conditions in the capital markets, which are beyond our control. If we cannot access funding when needed on acceptable terms, our ability to support and continue operations could be adversely affected, which could negatively affect our financial condition and results of operations. The pricing of our longer-term debt remains at levels that are still unfavorable. 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 to the 3-month LIBOR, borrowing choices may also be less economical for our members, potentially affecting their demand for advances.
The cost of FHLBank debt is a key driver of profitability, and we expect to be able to issue CO bonds and discount notes at reasonable spreads to yields earned from advances and investments. Consolidated obligation discount notes and floating-rate notes have been in demand by investors, and pricing and yields have been attractive, specifically relative to LIBOR. Our business plans and funding strategies are predicated on the expectation that investor demand will continue.
Rating — The U.S. Government’s credit is rated by Moody’s as Aaa with the outlook as stable, and AA+ and stable by Standard & Poor’s (“S&P”). Consolidated obligations of FHLBanks are rated Aaa/P-1 by Moody’s, and AA+/A-1+ by S& P. Any rating actions on the US Government would likely result in all individual FHLBanks’ long-term deposit ratings and the FHLBank System long-term bond rating moving in lock step with any US sovereign rating action. See FHLBNY Ratings Table 6.11 for more details about ratings and recent rating actions by Moody’s and S&P.
Other Developments
Commonwealth of Puerto Rico — Our district is comprised of the states of New Jersey and New York, as well as the Commonwealth of Puerto Rico and the U.S. Virgin Islands. With respect to the Puerto Rico government debt crisis, we do not own any debt issued by the government of Puerto Rico or its agencies. In addition, lending to all Bank customers, including our Puerto Rico customers, is made on a secured basis. In this regard, we note that lending to Puerto Rico-based members was immaterial, compared to total outstanding advances as of December 31, 2016. Based on the foregoing, we do not expect the financial condition of the government of Puerto Rico to have a material impact on the Bank’s credit or business activities.
Trends in the Financial Markets
Conditions in Financial Markets. The primary external factors that affect net interest income are market interest rates and the general state of the economy. The following table presents changes in key rates over the course of 2016 and 2015 (rates in percent):
Table 1.1: Market Interest Rates
|
|
|
December 31, |
| ||||||
|
|
|
2016 |
|
2015 |
|
2016 |
|
2015 |
|
|
|
|
Average |
|
Average |
|
Ending Rate |
|
Ending Rate |
|
|
Federal Funds Target Rate (a) |
|
0.51 |
% |
0.26 |
% |
0.75 |
% |
0.50 |
% |
|
Federal Funds Effective Rate (b) |
|
0.39 |
|
0.13 |
|
0.55 |
|
0.20 |
|
|
3-Month LIBOR (a) |
|
0.74 |
|
0.32 |
|
1.00 |
|
0.61 |
|
|
2-Year U.S.Treasury (a) |
|
0.83 |
|
0.69 |
|
1.20 |
|
1.06 |
|
|
5-Year U.S.Treasury (a) |
|
1.33 |
|
1.53 |
|
1.93 |
|
1.76 |
|
|
10-Year U.S.Treasury (a) |
|
1.84 |
|
2.14 |
|
2.45 |
|
2.27 |
|
|
15-Year Residential Mortgage Note Rate (a) |
|
2.81 |
|
3.00 |
|
3.24 |
|
3.13 |
|
|
30-Year Residential Mortgage Note Rate (a) |
|
3.64 |
|
3.90 |
|
4.06 |
|
3.90 |
|
(a) Source: Bloomberg L.L.P.
(b) Source: Board of Governors Federal Reserve System.
Impact of general level of interest rates on the FHLBNY. The level of interest rates during a reporting period impacts our profitability, due primarily to the relatively shorter-term structure of earning assets and the impact of interest rates on invested capital. We invest in Federal funds sold and repurchase agreements that typically are overnight investments. We also used derivatives to effectively change the repricing characteristics of a significant proportion of our advances and consolidated obligation debt to match shorter-term LIBOR rates that repriced at intervals of three month or less. Consequently, the current level of short-term interest rates, as represented by the overnight Federal funds target rate and the 3-month LIBOR rate, has an impact on profitability.
The level of interest rates also directly affects our earnings on invested capital. Compared to other banking institutions, we operate at comparatively low net spreads between the yield we earn on assets and the cost of our liabilities. Therefore, we generate a relatively higher proportion of our income from the investment of member-supplied capital at the average asset yield. As a result, changes in asset yields tend to have a greater effect on our profitability than they do on the profitability of other banking institutions.
In summary, our average asset yields and the returns on capital invested in these assets largely reflect the short-term interest rate environment because the maturities of our assets are generally short-term in nature, have rate resets that reference short-term rates, or have been hedged with derivatives in which a short-term rate is received. Changes in rates paid on consolidated obligations and the spread of these rates relative to LIBOR and U.S. Treasury securities may also impact profitability. The rate and price at which we are able to issue consolidated obligations, and their relationship to other products such as Treasury securities and LIBOR, change frequently and are affected by a multitude of factors including: overall economic conditions; volatility of market prices, rates, and indices; the level of interest rates and shape of the Treasury curve; the level of asset swap rates and shape of the swap curve; supply from other issuers (including GSEs such as Fannie Mae and Freddie Mac, supra/sovereigns, and other highly-rated borrowers); the rate and price of other products in the market such as mortgage-backed securities, repurchase agreements, and commercial paper; investor preferences; the total volume, timing, and characteristics of issuance by the FHLBanks; the amount and type of advance demand from our members; political events, including legislation and regulatory action; press interpretations of market conditions and issuer news; the presence of inflation or deflation; and actions by the Federal Reserve.
Recently Issued Accounting Standards and Interpretations and Significant Accounting Policies and Estimates.
Recently issued Accounting Standards and Interpretations
For a discussion of recently issued accounting standards and interpretations, see financial statements, Note 2. Recently Issued Accounting Standards and Interpretations.
Significant Accounting Policies and Estimates
We have identified certain accounting policies that we believe 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 fair values of certain assets and liabilities, evaluating the impairment of our securities portfolios, estimating the allowance for credit losses on the advance and mortgage loan portfolios, and accounting for derivatives and hedging activities. We have discussed each of these significant accounting policies, the related estimates and its judgment with the Audit Committee of the Board of Directors. For additional discussion regarding the application of these and other accounting policies, see financial statements, Note 1. Significant Accounting Policies and Estimates.
Fair Value Measurements and Disclosures
The accounting standards on fair value measurements and disclosures discuss how entities should measure fair value based on whether the inputs to those valuation techniques are observable or unobservable. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction in the principal or most advantageous market for the asset or liability between market participants at the measurement date. This definition is based on an exit price rather than transaction or entry price.
The FHLBNY complied with the accounting guidance on fair value measurements and disclosures and has established a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability, and would be based on market data obtained from independent sources. Unobservable inputs are inputs that reflect our assumptions about the parameters market participants would use in pricing the asset or liability, and would be based on the best information available in the circumstances. Our pricing models are subject to quarterly and annual validations, and we periodically review and refine, as appropriate, our assumptions and valuation methodologies to reflect market indications as closely as possible. We have the appropriate personnel, technology, and policies and procedures in place to value our financial instruments in a reasonable and consistent manner and in accordance with established accounting policies.
Valuation of Financial Instruments — The following summarizes the valuation techniques for our significant assets and liabilities. (For more information about fair values of other assets and liabilities, see financial statements, Note 17. Fair Values of Financial Instruments):
· Fair values of derivative instruments — Derivative instruments are valued using internal valuation techniques as no quoted market prices exist for such instruments, and we employ industry standard option adjusted valuation models that generate fair values of interest rate derivatives.
· Fair values of hedged assets and liabilities — Fair values of hedged advances and consolidated obligation debt are valued using the Bank’s industry standard option adjusted models. A significant percentage of fixed-rate advances and consolidated obligation debt are hedged to mitigate the risk of fair value changes that are attributable solely to changes in LIBOR, which is our designated benchmark interest rate.
· Fair values of instruments elected under the Fair Value Option — Certain debt and advances elected under the FVO are recorded at their fair values. Fair values of such instruments are valued using the Bank’s industry standard option adjusted models.
· Fair values of mortgage-backed securities — We request prices for all mortgage-backed securities from four specific third-party vendors. Depending on the number of prices received from the four vendors for each security, we select a median or average price as defined by the methodology. The methodologies also incorporated variance thresholds to assist in identifying median or average prices that may require our further review. When prices fall outside of variance thresholds, we analyze for reasonableness and incorporate other relevant factors that would be considered by market participants to arrive at a fair value estimate.
· Fair values of housing finance agency bonds — Fair values of such instruments are computed using third-party vendor prices, which is reviewed by management.
· Fair values of mortgage loans in the MPF program — The FHLBNY calculates the fair value of the mortgage loan portfolio (held-for-portfolio) using internal valuation techniques. Loans are aggregated into synthetic pass-through securities based on product type, loan origination year, gross coupon and loan term. The fair values are based on TBA rates (or agency commitment rates), and adjusted primarily for seasonality. The fair values of impaired MPF are also based on TBA rates and are adjusted for a haircut value on the underlying collateral value.
Other-Than-Temporary Impairment (“OTTI”)
We evaluate our investments quarterly for impairment to determine if unrealized losses are temporary. Our evaluation is based in part on the creditworthiness of the issuers, and in part on the underlying collateral within the structure of the security and the cash flows expected to be collected on the security. An OTTI has occurred if cash flow analysis determines that a credit loss exists. To determine if a credit loss exists, management compares the present value of the cash flows expected to be collected to the amortized cost basis of the security. If the present value of the cash flows expected to be collected is less than the security’s amortized cost, an OTTI exists, irrespective of whether management will be required to sell such a security.
For additional discussion regarding FHLBank impairment and pricing policies for mortgage-backed securities, see financial statements, Note 1. Significant Accounting Policies and Estimates. For more information about credit losses due to OTTI, also see Note 7. Held-to-Maturity Securities.
Bond Insurer Analysis — Certain HTM private-label MBS owned by the FHLBNY are insured by third-party bond insurers (“monoline insurers”). For such investments, the monoline insurers guarantee the timely payments of principal and interest if these payments cannot be satisfied from the cash flows of the underlying mortgage pool. The FHLBNY performs cash flow credit impairment tests on all of its private-label insured securities, and the analysis of the MBS protected by such third-party insurance looks first to the performance of the underlying security, and considers its embedded credit enhancements in the form of excess spread, overcollateralization, and credit subordination, to determine the collectability of all amounts due. If the embedded credit enhancement protections are deemed insufficient to make timely payment of all amounts due, then the FHLBNY considers the capacity of the third-party bond insurer to cover any shortfalls.
Certain monoline insurers have been subject to adverse ratings, rating downgrades, and weakening financial performance measures. In estimating the insurers’ capacity to provide credit protection in the future to cover any shortfall in cash flows expected to be collected for securities deemed to be OTTI, the FHLBNY has developed a methodology to assess the ability of the monoline insurers to meet future insurance obligations. Based on analysis, we have concluded that bond insurer Assured Guaranty Municipal Corp., can be relied upon for cash flow support for the life of the insured bond. For MBIA Insurance Corp (“MBIA”), financial guarantee is at risk. However, based on financial resources and near term liquidity issues, no financial guarantees are assumed in 2017. For Ambac Assurance Corp (“AMBAC”), the reliance period is 45% of the shortfall through December 31, 2020.
Provision for Credit Losses
The provision for credit losses for advances (none) and mortgage loans, including those acquired under the Mortgage Partnership Finance Program (“MPF”), represents management’s estimate of the probable credit losses inherent in these two portfolios. Determining the amount of the provision for credit losses is considered a critical accounting estimate because management’s evaluation of the adequacy of the provision is subjective and requires significant estimates, including the amounts and timing of estimated future cash flows, estimated losses based on historical loss experience, and consideration of current economic trends, all of which are susceptible to change. These assumptions and judgments on our provision for credit losses are based on information available as of the date of the financial statements. Actual losses could differ from these estimates.
Advances — No provisions for credit losses were necessary. We have policies and procedures in place to manage our credit risk effectively. Outlined below are the underlying factors that we use for evaluating our exposure to credit loss.
· Monitoring the creditworthiness and financial condition of the institutions to which we lend funds.
· Reviewing the quality and value of collateral pledged by members.
· Estimating borrowing capacity based on collateral value and type for each member, including assessment of margin requirements based on factors such as cost to liquidate and inherent risk exposure based on collateral type.
· Evaluating historical loss experience.
We are required by Finance Agency regulations to obtain sufficient collateral on advances to protect against losses, and to accept only certain kinds of collateral on its advances, such as U.S. government or government-agency securities, residential mortgage loans, deposits, and other real estate related assets. We have never experienced a credit loss on an advance. Based on the collateral held as security for advances, management’s credit analyses, and prior repayment history, no allowance for credit losses on advances was deemed necessary by management at December 31, 2016, 2015 and 2014. At those dates, we had the rights to collateral, either loans or securities, on a member-by-member basis, with an estimated liquidation value in excess of outstanding advances.
Significant changes to any of the factors described above could materially affect our provision for losses on advances. For example, our current assumptions about the financial strength of any member may change due to various circumstances, such as new information becoming available regarding the member’s financial strength or future changes in the national or regional economy. New information may require us to place a member on credit watch and require collateral to be delivered, adjust our current margin requirement, or provide for losses on advances.
For additional discussion regarding underwriting standards, including collateral held to support advances, see Tables 3.3 and 3.4 and accompanying discussions in this MD&A.
Mortgage Loans — MPF Program. We have policies and procedures in place to manage our credit risk effectively. These include:
· Evaluation of members to ensure that they meet the eligibility standards for participation in the MPF Program.
· Evaluation of the purchased and originated loans to ensure that they are qualifying conventional, conforming fixed-rate, first lien mortgage loans with fully amortizing loan terms of up to 30 years, secured by owner-occupied, single-family residential properties.
· Estimation of loss exposure and historical loss experience to establish an adequate level of loss reserves.
We assign a mortgage loan a non-accrual status when the collection of the contractual principal or interest is 90 days or more past due. When a mortgage loan is placed on non-accrual status, accrued but uncollected interest is reversed against interest income. For additional discussion regarding underwriting standards, allowances for credit losses and credit quality metrics, see financial statements, Note 9. Mortgage Loans Held-for-portfolio. Also, see Tables 5.1 to 5.6 and accompanying discussions in this MD&A.
Accounting for Derivatives
We record and report our hedging activities in accordance with accounting standards for derivatives and hedging. In compliance with the standards, the accounting for derivatives requires us to make the following assumptions and estimates: (i) assessing whether the hedging relationship qualifies for hedge accounting, (ii) assessing whether an embedded derivative should be bifurcated, (iii) calculating the effectiveness of the hedging relationship, (iv) evaluating exposure associated with counterparty credit risk, and (v) estimating the fair value of the derivatives. Our assumptions and judgments include subjective estimates based on information available as of the date of the financial statements and could be materially different based on different assumptions, calculations, and estimates. We specifically identify the hedged asset or liability and the associated hedging strategy. Prior to execution of each transaction, we document the following items:
· Hedging strategy
· Identification of the item being hedged
· Determination of the accounting designation
· Determination of method used to assess the effectiveness of the hedge relationship
· Assessment that the hedge is expected to be effective in the future if designated as a qualifying hedge accounting standards for derivatives and hedging.
All derivatives are recorded on the Statements of Condition at their fair value 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 execute derivative contracts, which are economically effective in reducing risk, either because a qualifying hedge is not available or because the cost of a qualifying hedge is not economical. Changes in the fair values of a derivative that qualifies as a fair value hedge are recorded in current period earnings or in AOCI if the derivative qualifies as a cash flow hedge.
For more information, see financial statements, Note 1. Significant Accounting Policies and Estimates, and Note 16. Derivatives and Hedging Activities.
Legislative and Regulatory Developments
FHFA Final Rule on Acquired Member Assets. On December 19, 2016, the FHFA published the final Acquired Member Assets (AMA) rule, which governs a FHLBank’s ability to purchase and hold certain types of mortgage loans from its members. The final rule, effective January 18, 2017, has, among other things:
· expanded the types of assets that will qualify as AMA to include mortgage loans insured or guaranteed by a department or agency of the U.S. government that exceed the conforming loan limits and certificates representing interests in whole loans under certain conditions;
· enhanced the credit risk sharing requirement by allowing a FHLBank to utilize its own model to determine the credit enhancement for AMA loan assets and pool loans in lieu of a nationally recognized statistical ratings organization (NRSRO) ratings model. The assets delivered must now be credit enhanced by the member up to the FHLBank determined “AMA investment grade” instead of a specific NRSRO rating; and
· retained the option to allow a member to meet its credit enhancement obligation by purchasing loan level supplemental mortgage insurance (SMI) or pool level insurance once a FHLBank has established standards for qualified insurers.
The Bank does not anticipate that the final rule will have a negative impact on the volume of AMA loan assets or on our costs of operation.
FHFA Final Rule on New Business Activities. On December 19, 2016, the FHFA issued a final rule effective January 18, 2017, that, among other things, reduces the scope of new business activities (NBAs) for which a FHLBank must seek approval from the FHFA. In addition, the final rule establishes certain timelines for FHFA review and approval of NBA notices. The final rule also clarifies the protocol for FHFA review of NBAs. Under the final rule, acceptance of new types of legally permissible collateral by the FHLBanks would not constitute a new business activity or require approval from the FHFA prior to acceptance. Instead, the FHFA would review new collateral types as part of the annual exam process.
The Bank does not anticipate that the final rule will materially impact the Bank.
FHFA Proposed Rule on Minority and Women Inclusion. On October 27, 2016, the FHFA proposed amendments to its Minority and Women Inclusion regulations that, if adopted, would clarify the scope of the FHLBanks’ obligation to promote diversity and ensure inclusion. These proposed amendments update existing FHFA regulations aimed at promoting diversity and the inclusion and utilization of minorities, women, and individuals with disabilities in all Bank business and activities, including management, employment and contracting.
The proposed amendments would:
· require the FHLBanks to develop standalone diversity and inclusion strategic plans or incorporate diversity and inclusion into their existing strategic planning processes and adopt strategies for promoting diversity and ensuring inclusion;
· encourage the FHLBanks to expand contracting opportunities for minorities, women, and individuals with disabilities through subcontracting arrangements;
· require the FHLBanks to amend their policies on equal opportunity in employment and contracting by adding sexual orientation, gender identity, and status as a parent to the list of protected classifications; and
· require the FHLBanks to provide information in their annual reports to the FHFA about their efforts to advance diversity and inclusion through capital market transactions, affordable housing and community investment programs, initiatives to improve access to mortgage credit, and strategies for promoting the diversity of supervisors and managers.
The Bank submitted a joint comment letter with the other FHLBanks and the Office of Finance on December 27, 2016, which primarily related to the proposed rule’s enhanced reporting and contract requirements. The proposed rule, if adopted, may substantially increase the amount of tracking, monitoring, and reporting that would be required of each FHLBank.
FHFA Proposed Rule on FHLB Membership for Non-Federally-Insured Credit Unions. On September 28, 2016, the FHFA proposed amendments to regulations governing FHLBank membership that would implement statutory amendments to the Federal Home Loan Bank Act (the “Bank Act”) authorizing FHLBanks to accept applications for membership from state-chartered credit unions without federal share insurance, provided that certain prerequisites have been met. The new rule, if adopted, would generally treat these credit unions the same as other depository institutions with an additional requirement that they obtain an affirmative statement from their state regulator that they meet the requirements for federal insurance as of the date of their application for FHLBank membership; a written statement from the state regulator that it cannot or will not make any determination regarding eligibility for federal insurance; or if the regulator fails or refuses to respond to the credit union’s request within six months, confirmation of the failure to receive a response.
The Bank is continuing to assess the impact of the proposed rule, but does not anticipate that, if adopted, it would materially impact the Bank.
FHFA Proposed Rule on Indemnification Payments. On September 20, 2016, the FHFA issued a re-proposed rule that, if adopted, would establish standards for identifying whether an indemnification payment by a FHLBank or the Office of Finance to an officer, director, employee, or other entity-affiliated party in connection with an administrative proceeding or civil action instituted by the FHFA is prohibited or permissible. Under the proposed rule, those payments with respect to an administrative proceeding or civil action instituted by the FHFA are only permitted if they relate to:
· premiums for professional liability insurance or fidelity bonds for directors and officers, to the extent that the insurance or fidelity bond covers expenses and restitution, but not a judgment in favor of the FHFA or a civil money penalty;
· expenses of defending an action, subject to an agreement to repay those expenses in certain instances; and
· amounts due under an indemnification agreement entered into on or prior to September 20, 2016.
The proposed rule also outlines the process a board of directors must undertake prior to making any permitted indemnification payment for expenses of defending an action initiated by the FHFA.
The Bank submitted a joint comment letter with the other FHLBanks and the Office of Finance on the proposed rule on December 21, 2016. The Bank is continuing to assess the effect the proposed rule but does not anticipate that, if adopted, it would materially affect the Bank.
Table 2.1: Statements of Condition — Period-Over-Period Comparison
|
|
|
|
|
|
|
Net change in |
|
Net change in |
| |||
|
(Dollars in thousands) |
|
December 31, 2016 |
|
December 31, 2015 |
|
dollar amount |
|
percentage |
| |||
|
Assets |
|
|
|
|
|
|
|
|
| |||
|
Cash and due from banks |
|
$ |
151,769 |
|
$ |
327,482 |
|
$ |
(175,713 |
) |
(53.66 |
)% |
|
Securities purchased under agreements to resell |
|
7,150,000 |
|
4,000,000 |
|
3,150,000 |
|
78.75 |
| |||
|
Federal funds sold |
|
6,683,000 |
|
7,245,000 |
|
(562,000 |
) |
(7.76 |
) | |||
|
Trading securities |
|
131,151 |
|
— |
|
131,151 |
|
NM |
| |||
|
Available-for-sale securities |
|
697,812 |
|
990,129 |
|
(292,317 |
) |
(29.52 |
) | |||
|
Held-to-maturity securities |
|
16,022,293 |
|
13,932,372 |
|
2,089,921 |
|
15.00 |
| |||
|
Advances |
|
109,256,625 |
|
93,874,211 |
|
15,382,414 |
|
16.39 |
| |||
|
Mortgage loans held-for-portfolio |
|
2,746,559 |
|
2,524,285 |
|
222,274 |
|
8.81 |
| |||
|
Loans to other FHLBanks |
|
255,000 |
|
— |
|
255,000 |
|
NM |
| |||
|
Derivative assets |
|
328,875 |
|
181,676 |
|
147,199 |
|
81.02 |
| |||
|
Other assets |
|
183,198 |
|
163,476 |
|
19,722 |
|
12.06 |
| |||
|
|
|
|
|
|
|
|
|
|
| |||
|
Total assets |
|
$ |
143,606,282 |
|
$ |
123,238,631 |
|
$ |
20,367,651 |
|
16.53 |
% |
|
|
|
|
|
|
|
|
|
|
| |||
|
Liabilities |
|
|
|
|
|
|
|
|
| |||
|
Deposits |
|
|
|
|
|
|
|
|
| |||
|
Interest-bearing demand |
|
$ |
1,183,468 |
|
$ |
1,308,923 |
|
$ |
(125,455 |
) |
(9.58 |
)% |
|
Non-interest-bearing demand |
|
22,281 |
|
15,493 |
|
6,788 |
|
43.81 |
| |||
|
Term |
|
35,000 |
|
26,000 |
|
9,000 |
|
34.62 |
| |||
|
Total deposits |
|
1,240,749 |
|
1,350,416 |
|
(109,667 |
) |
(8.12 |
) | |||
|
|
|
|
|
|
|
|
|
|
| |||
|
Consolidated obligations |
|
|
|
|
|
|
|
|
| |||
|
Bonds |
|
84,784,664 |
|
67,715,952 |
|
17,068,712 |
|
25.21 |
| |||
|
Discount notes |
|
49,357,894 |
|
46,849,868 |
|
2,508,026 |
|
5.35 |
| |||
|
Total consolidated obligations |
|
134,142,558 |
|
114,565,820 |
|
19,576,738 |
|
17.09 |
| |||
|
|
|
|
|
|
|
|
|
|
| |||
|
Mandatorily redeemable capital stock |
|
31,435 |
|
19,499 |
|
11,936 |
|
61.21 |
| |||
|
|
|
|
|
|
|
|
|
|
| |||
|
Derivative liabilities |
|
144,985 |
|
210,113 |
|
(65,128 |
) |
(31.00 |
) | |||
|
Other liabilities |
|
422,474 |
|
373,301 |
|
49,173 |
|
13.17 |
| |||
|
Total liabilities |
|
135,982,201 |
|
116,519,149 |
|
19,463,052 |
|
16.70 |
| |||
|
Capital |
|
7,624,081 |
|
6,719,482 |
|
904,599 |
|
13.46 |
| |||
|
Total liabilities and capital |
|
$ |
143,606,282 |
|
$ |
123,238,631 |
|
$ |
20,367,651 |
|
16.53 |
% |
NM — Not meaningful.
Balance Sheet overview December 31, 2016 compared to December 31, 2015
Total assets increased to $143.6 billion at December 31, 2016 from $123.2 billion at December 31, 2015, an increase of $20.4 billion, or 16.5%. Advances to members increased to $109.3 billion at December 31, 2016 from $93.9 billion at December 31, 2015, an increase of $15.4 billion, or 16.4%.
Cash at banks was $151.8 million at December 31, 2016, compared to $327.5 million at December 31, 2015. The cash balance at December 31, 2016, included $90.4 million at Citibank that was maintained as a compensating balance in lieu of fees for certain outsourced processes, and the remaining liquidity was at the Federal Reserve Bank of New York (“FRBNY”).
Money Market investments at December 31, 2016 were $6.7 billion in federal funds sold and $7.2 billion in overnight resale agreements. Money Market investments at December 31, 2015 were $7.2 billion in federal funds and $4.0 billion in overnight resale agreements. In years prior to those in this Form 10-K, opportunities for investing in short-term assets and meeting our risk/reward preferences were limited, with a tradeoff between maintaining liquidity at the FRBNY or investing at the prevailing low overnight rates at financial institutions. Market yields for overnight investments have improved, creating opportunities for earning a positive margin, and at the same time fulfilling our liquidity targets. Additionally, with the success of the tri-party repo infrastructure reform efforts in the repo markets, the FHLBNY has leveraged the infrastructure, and specifically has utilized the Bank of New York (“BONY”) as its tri-party custodian bank to transact in a streamlined process for exchanging “repo cash” for securities collateral. We are also eligible to engage in the FRBNY’s reverse repurchase transactions (“RRP”). At December 31, 2016, overnight investments in the securities purchased under agreements to resell included $6.3 billion in the RRP program with BONY as the custodian. With these processes in place at the FHLBNY, we are better positioned to manage our liquidity practices, from a risk/reward perspective, and earn higher income from investing excess liquidity.
Advances — Par balances increased at December 31, 2016 to $109.2 billion, compared to $93.5 billion at December 31, 2015. ARC advances, which are adjustable-rate borrowings, grew by 60.9% to $42.7 billion.
Long-term investment securities — Long-term investment securities are designated as available-for-sale (“AFS”) or held-to-maturity (“HTM”). The heavy concentration of GSE and Agency issued (“GSE-issued”) securities, and a declining balance of private-label MBS, less than 2%, is our investment profile.
In the AFS portfolio, long-term investments at December 31, 2016 were floating-rate GSE-issued mortgage-backed securities carried on the balance sheet at fair values of $656.1 million, compared to $957.3 million at December 31, 2015.
The FHLBNY owns a grantor trust that invests in highly-liquid registered mutual funds, which were classified as AFS; funds were carried on the balance sheet at fair values of $41.7 million at December 31, 2016 and $32.9 million at December 31, 2015.
In the HTM portfolio, long-term investments at December 31, 2016 were predominantly GSE-issued fixed- and floating-rate mortgage-backed securities, and housing finance agency bonds. Carrying values of HTM securities are reported at amortized cost adjusted for credit and non-credit OTTI. MBS were carried at $15.0 billion at December 31, 2016 and $13.1 billion at December 31, 2015. Private-label issued MBS were less than 2.0% of the HTM portfolio of mortgage-backed securities at December 31, 2016 and December 31, 2015. Housing finance agency bonds, primarily New York and New Jersey, were carried at an amortized cost basis of $1.1 billion at December 31, 2016 and $825.1 million at December 31, 2015.
Trading securities (Securities liquidity portfolio) — In December 2016, Management approved a trading portfolio to meet short-term contingency liquidity needs. We invested in highly liquid U.S. Treasury and GSE issued securities, which were carried at a fair value of $131.2 million at December 31, 2016. We will periodically evaluate our liquidity needs and may dispose these liquidity investments as deemed prudent by liquidity and market conditions. The Finance Agency prohibits speculative trading practices but allows permitted securities to be deemed held for liquidity if invested in a trading portfolio.
Mortgage loans held-for-portfolio — Mortgage loans were investments in Mortgage Partnership Finance loans (“MPF” or “MPF Program”). Unpaid principal balances of loans under this program stood at $2.7 billion at December 31, 2016, up a little from the balance at December 31, 2015. Loans are primarily fixed-rate, single-family mortgages acquired through the MPF Program. Pay downs in 2016 were $330.7 million, compared to $270.6 million in the prior year. Acquisitions in 2016 were $564.1 million, compared to $675.0 million in the prior year. Credit performance has been strong and delinquency low. Loan origination by members and acceptable pricing are key factors that drive acquisitions. Residential collateral values have remained stable in the New York and New Jersey sectors, the primary geographic concentration for our MPF portfolio, and historical loss experience remains very low.
Stress test results — Pursuant to the Dodd-Frank Act, the FHFA, regulator of the Federal Home Loan Banks (FHLBanks), has adopted supervisory stress tests for the FHLBanks. The FHFA requires the annual stress testing for the FHLBanks based on the FHFA’s scenarios, summary instructions and guidance. The tests are designed to determine whether the FHLBanks have the capital to absorb losses as a result of adverse economic conditions. The FHFA rules require that the FHLBanks take the results of the annual stress test into account in making any changes, as appropriate, to its capital structure (including the level and composition of capital); its exposure, concentration, and risk positions; any plans for recovery and resolution; and to improve overall risk management. Consultation with FHFA supervisory staff is expected in making such improvements. In accordance with these rules, the FHLBNY executed its third annual stress test, and publicly disclosed the stress test results on November 17, 2016 by posting on our website (www.fhlbny.com).
The stress test results in all scenarios, including the scenario run under the FHFA’s severely adverse economic scenario, demonstrated capital adequacy.
Capital ratios — Our capital position remains strong. At December 31, 2016, actual risk-based capital was $7.8 billion, compared to required risk-based capital of $747.9 million. To support $143.6 billion of total assets at December 31, 2016, the required minimum regulatory risk-based capital was $5.7 billion or 4.0% of assets. Our actual regulatory risk-based capital was $7.8 billion, exceeding required capital by $2.1 billion. These ratios have remained consistently above the required regulatory ratios through all periods in this report. For more information, see financial statements, Note 13. Capital Stock, Mandatorily Redeemable Capital Stock and Restricted Retained Earnings.
Leverage — At December 31, 2016, balance sheet leverage (based on U.S. GAAP) was 18.8 times shareholders’ equity, compared to 18.3 times at December 31, 2015. Balance sheet leverage has generally remained steady over the last several years, although from time to time we have maintained excess liquidity in highly liquid investments, or cash balances at the FRBNY to meet unexpected member demand for funds. Increases or decreases in investments have a direct impact on leverage, but generally growth in or shrinkage of advances does not significantly impact balance sheet leverage under existing capital stock management practices. Members are required to purchase activity-based capital stock to support their borrowings from us, and when activity-based capital stock is in excess of the amount that is required to support advance borrowings, we redeem the excess capital stock immediately. Therefore, stockholders’ capital increases and decreases with members’ advance borrowings, and the capital to asset ratio remains relatively unchanged.
Liquidity and Debt — In addition to the trading portfolio maintained for liquidity, liquid assets at December 31, 2016 included $60.9 million as demand cash balances at the FRBNY, $90.4 million as compensating cash balances at Citibank that could be withdrawn at short notice, $13.8 billion in short-term and overnight loans in the federal funds and the repo markets, and $0.8 billion of high credit quality GSE-issued available-for-sale securities that are investment quality, and readily marketable. In December 2016, we established a trading portfolio with the primary objective of increasing our liquidity. The trading portfolio is invested in highly-liquid U.S. Treasury bonds and GSE issued securities. Our liquidity position remains strong, and in compliance with all regulatory requirements, and we do not foresee any changes to that position.
The primary source of our funds is the issuance of consolidated obligation bonds and discount notes to the public. Our GSE status enables the FHLBanks to raise funds at rates that are typically at a small to moderate spread above U.S. Treasury security yields. Our ability to access the capital markets, which has a direct impact on our cost of funds, is dependent to a degree on our credit ratings from the major ratings organizations. The FHLBank debt
performance has withstood the impact of the rating downgrade in the recent past and the controversy surrounding the debt ceiling. However, 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.
Among other liquidity measures, the Finance Agency requires FHLBanks 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 during that period members do not renew their maturing, prepaid and called advances. The second scenario assumes that we cannot access the capital markets for five days, and during that period, members renew maturing advances. We remain in compliance with regulations under both scenarios.
We also hold contingency liquidity in an amount sufficient to meet our liquidity needs if we are unable to access the consolidated obligation debt market for at least 5 days. The actual contingency liquidity under the 5-day scenario in the 2016 fourth quarter was $26.3 billion, well in excess of the required $2.4 billion.
We also have other liquidity measures in place, deposit liquidity and operational liquidity, and those liquidity buffers remain 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.
Our primary business is making collateralized loans to members, referred to as advances. Generally, the growth or decline in advances is reflective of demand by members for both short-term liquidity and term funding. This demand is driven by economic factors such as availability of alternative funding sources that are more attractive, or by the interest rate environment and the outlook for the economy. Members may choose to prepay advances (which may generate prepayment penalty fees) based on their expectations of interest rate changes and demand for liquidity.
Advance volume is also influenced by merger activity, where members are either acquired by non-members or acquired by members of another FHLBank. When our members are acquired by members of another FHLBank or by non-members, these former members no longer qualify for membership and we may not offer renewals or additional advances to the former members. If maturing advances are not replaced, it will have an impact on business volume.
The increase in amounts outstanding at December 31, 2016, relative to December 31, 2015 has been largely driven by growth of adjustable-rate advances.
Table 3.1: Advance Trends
Advance Trends
Member demand for advance products
Par amount of advances outstanding was $109.2 billion at December 31, 2016, compared to $93.5 billion at December 31, 2015. Carrying value of advances outstanding at December 31, 2016 was $109.3 billion, compared to $93.9 billion at December 31, 2015. Carrying values included unrealized net fair value hedging basis adjustments and full fair values of advances elected under the FVO. For advances hedged under a qualifying hedging rule, a net
fair value basis adjustment gain of $2.0 million was recorded at December 31, 2016 and $336.5 million at December 31, 2015. The basis adjustments are computed based on changes in the LIBOR benchmark rate and amortization of previously recorded basis on advances that had been de-designated in hedge relationships. For advances elected under the fair value option (“FVO”) net unrealized valuation gains were $13.7 million at December 31, 2016 and $0.3 million at December 31, 2015. The valuation gains included accrued interest receivable.
Advances — Product Types
The following table summarizes par values of advances by product type (dollars in thousands):
Table 3.2: Advances by Product Type
|
|
|
December 31, 2016 |
|
December 31, 2015 |
| ||||||
|
|
|
|
|
Percentage |
|
|
|
Percentage |
| ||
|
|
|
Amounts |
|
of Total |
|
Amounts |
|
of Total |
| ||
|
|
|
|
|
|
|
|
|
|
| ||
|
Adjustable Rate Credit - ARCs |
|
$ |
42,716,370 |
|
39.10 |
% |
$ |
26,547,890 |
|
28.38 |
% |
|
Fixed Rate Advances |
|
46,180,158 |
|
42.28 |
|
45,857,975 |
|
49.03 |
| ||
|
Short-Term Advances |
|
10,831,782 |
|
9.92 |
|
11,617,757 |
|
12.42 |
| ||
|
Mortgage Matched Advances |
|
407,731 |
|
0.37 |
|
490,716 |
|
0.52 |
| ||
|
Overnight & Line of Credit (OLOC) Advances |
|
2,962,224 |
|
2.71 |
|
3,738,527 |
|
4.00 |
| ||
|
All other categories |
|
6,142,727 |
|
5.62 |
|
5,284,544 |
|
5.65 |
| ||
|
|
|
|
|
|
|
|
|
|
| ||
|
Total par value |
|
109,240,992 |
|
100.00 |
% |
93,537,409 |
|
100.00 |
% | ||
|
|
|
|
|
|
|
|
|
|
| ||
|
Hedge valuation basis adjustments |
|
1,980 |
|
|
|
336,489 |
|
|
| ||
|
Fair value option valuation adjustments and accrued interest |
|
13,653 |
|
|
|
313 |
|
|
| ||
|
|
|
|
|
|
|
|
|
|
| ||
|
Total |
|
$ |
109,256,625 |
|
|
|
$ |
93,874,211 |
|
|
|
Adjustable Rate Credit Advances (“ARC Advances”) — 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. The ARC interest rate is set and reset (depending upon the maturity of the advance and the type of index) at a spread to LIBOR. Principal is due at maturity and interest payments are due at each reset date, including the final payment date. 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. Some members may elect to use ARC Advances as part of a cash flow hedge strategy, where they will synthetically convert the floating-rate borrowing to fixed-rate with the use of interest rate swaps.
Fixed-rate Advances — Medium and long-term fixed-rate advances, comprising putable and non-putable advances, remain the largest category of advances. Fixed-rate advances are offered in maturities of one year or longer. Member demand for fixed-rate advances has remained steady through the four quarters of 2016, with maturing advances replaced by new borrowings. We believe that members still 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 include advances with a “put” option feature (“putable advance”). Putable advances were $2.5 billion at December 31, 2016, compared to $3.7 billion at December 31, 2015. Historically, in years prior to periods in this report, fixed-rate putable advances had been more competitively priced relative to fixed-rate “bullet” advances (without put option) because the “put” feature (that we have purchased from the member) reduces the coupon on the advance. The price advantage of a putable advance increases with the number of puts sold and the length of the term of a putable advance. With a putable 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 and member demand was weak.
Short-term Advances — Member demand for short-term fixed-rate advances was steady during the last three quarters of 2016 after a decline in the first quarter. Outstanding balances were $10.8 billion at December 31, 2016 after a decline to $7.8 billion at March 31, 2016, compared to $11.6 billion at December 31, 2015. Short term advances are fixed-rate advances with original maturities of one year or less.
Overnight Advances — Overnight advance balances were $3.0 billion at December 31, 2016, compared to $3.7 billion at December 31, 2015. Fluctuations in demand reflect 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.
Collateral Security
Our member borrowers are required to maintain an amount of eligible collateral that adequately secures their outstanding obligations with the FHLBNY. Eligible collateral includes: (1) one-to-four-family and multi-family mortgages; (2) Treasury and U.S. government agency securities; (3) mortgage-backed securities; and (4) certain other collateral that is real estate-related, provided that such collateral has a readily ascertainable value and the Bank can perfect a security interest in that collateral. We also have a statutory lien priority with respect to certain member assets under the FHLBank Act as well as a claim on FHLBNY capital stock held by our members.
The FHLBNY’s loan and collateral agreements give us a security interest in assets held by borrowers that is sufficient to cover their obligations to the FHLBNY. We may supplement this security interest by imposing additional reporting, segregation or delivery requirements on the borrower. We assign specific collateral requirements to a borrower, based on a number of factors. These include, but are not limited to: (1) the borrower’s overall financial condition; (2) the degree of complexity involved in the pledging, verifying, and reporting of collateral between the borrower and the FHLBNY, especially when third-party pledges, custodians, outside service providers and pledges to other entities are involved; and (3) the type of collateral pledged.
In order to ensure that the FHLBNY has sufficient collateral to cover credit extensions, the Bank has established a Collateral Lendable Value methodology. This methodology determines the lendable value or amount of borrowing capacity assigned to each specific type of collateral. Key components of the Lendable Value include measures of Market, Credit, Price Volatility and Operational Risk associated with the unique collateral types pledged to the FHLBNY. Lendable Values are periodically adjusted to reflect current market and business conditions.
The following table summarizes pledged collateral at December 31, 2016 and 2015 (in thousands):
Table 3.3: Collateral Supporting Indebtedness to Members
|
|
|
Indebtedness |
|
Collateral (a) |
| ||||||||||||||
|
|
|
Advances (b) |
|
Other |
|
Total |
|
Mortgage |
|
Securities and |
|
Total (d) |
| ||||||
|
December 31, 2016 |
|
$ |
109,240,992 |
|
$ |
12,900,453 |
|
$ |
122,141,445 |
|
$ |
268,726,098 |
|
$ |
36,011,798 |
|
$ |
304,737,896 |
|
|
December 31, 2015 |
|
$ |
93,537,409 |
|
$ |
12,582,175 |
|
$ |
106,119,584 |
|
$ |
249,429,210 |
|
$ |
32,928,754 |
|
$ |
282,357,964 |
|
(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.
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):
Table 3.4: Location of Collateral Held
|
|
|
Estimated Market Values |
| ||||||||||
|
|
|
Collateral in |
|
Collateral |
|
Collateral Pledged |
|
Total |
| ||||
|
December 31, 2016 |
|
$ |
38,416,691 |
|
$ |
266,321,205 |
|
$ |
— |
|
$ |
304,737,896 |
|
|
December 31, 2015 |
|
$ |
36,745,986 |
|
$ |
245,675,561 |
|
$ |
63,583 |
|
$ |
282,357,964 |
|
(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 it to its AHP exposure. Borrowers are required to provide a detailed listing of all loans pledged as collateral to the FHLBNY.
(b) The Total Collateral Received excludes Collateral Pledged for AHP.
Advances — Interest Rate Terms
The following table summarizes interest-rate payment terms for advances (dollars in thousands):
Table 3.5: Advances by Interest-Rate Payment Terms
|
|
|
December 31, 2016 |
|
December 31, 2015 |
| ||||||
|
|
|
|
|
Percentage |
|
|
|
Percentage |
| ||
|
|
|
Amount |
|
of Total |
|
Amount |
|
of Total |
| ||
|
|
|
|
|
|
|
|
|
|
| ||
|
Fixed-rate (a) |
|
$ |
66,458,757 |
|
60.84 |
% |
$ |
66,951,089 |
|
71.57 |
% |
|
Variable-rate (b) |
|
42,774,847 |
|
39.15 |
|
26,580,320 |
|
28.42 |
| ||
|
Variable-rate capped or floored (c) |
|
6,000 |
|
0.01 |
|
6,000 |
|
0.01 |
| ||
|
Overdrawn demand deposit accounts |
|
1,388 |
|
— |
|
— |
|
— |
| ||
|
Total par value |
|
109,240,992 |
|
100.00 |
% |
93,537,409 |
|
100.00 |
% | ||
|
|
|
|
|
|
|
|
|
|
| ||
|
Hedge valuation basis adjustments |
|
1,980 |
|
|
|
336,489 |
|
|
| ||
|
Fair value option valuation adjustments and accrued interest |
|
13,653 |
|
|
|
313 |
|
|
| ||
|
|
|
|
|
|
|
|
|
|
| ||
|
Total |
|
$ |
109,256,625 |
|
|
|
$ |
93,874,211 |
|
|
|
(a) Fixed-rate borrowings remained the largest category of advances borrowed by members. The presentation above includes long-term and short-term fixed-rate advances. Long-term advances remain a small segment of the portfolio at December 31, 2016, with only 3.9% of advances in the remaining maturity bucket of greater than 5 years (4.4% at December 31, 2015).
(b) ARC advances are typically indexed to LIBOR. The FHLBNY’s larger members are generally borrowers of variable-rate advances.
(c) Category represents ARCs with options that “cap” increase or “floor” decrease in the LIBOR index at predetermined strikes (We have also purchased cap/floor options that mirror the terms of the options embedded in the advances sold to members, offsetting our exposure on the advance).
The following table summarizes maturity and yield characteristics of advances (dollars in thousands):
Table 3.6: Advances by Maturity and Yield Type
|
|
|
December 31, 2016 |
|
December 31, 2015 |
| ||||||
|
|
|
|
|
Percentage |
|
|
|
Percentage |
| ||
|
|
|
Amount |
|
of Total |
|
Amount |
|
of Total |
| ||
|
|
|
|
|
|
|
|
|
|
| ||
|
Fixed-rate |
|
|
|
|
|
|
|
|
| ||
|
Due in one year or less |
|
$ |
30,023,712 |
|
27.49 |
% |
$ |
28,844,057 |
|
30.84 |
% |
|
Due after one year |
|
36,435,045 |
|
33.35 |
|
38,107,032 |
|
40.74 |
| ||
|
Total Fixed-rate |
|
66,458,757 |
|
60.84 |
|
66,951,089 |
|
71.58 |
| ||
|
|
|
|
|
|
|
|
|
|
| ||
|
Variable-rate |
|
|
|
|
|
|
|
|
| ||
|
Due in one year or less |
|
20,238,586 |
|
18.52 |
|
8,164,490 |
|
8.73 |
| ||
|
Due after one year |
|
22,543,649 |
|
20.64 |
|
18,421,830 |
|
19.69 |
| ||
|
Total Variable-rate |
|
42,782,235 |
|
39.16 |
|
26,586,320 |
|
28.42 |
| ||
|
Total par value |
|
109,240,992 |
|
100.00 |
% |
93,537,409 |
|
100.00 |
% | ||
|
|
|
|
|
|
|
|
|
|
| ||
|
Hedge valuation basis adjustments (a) |
|
1,980 |
|
|
|
336,489 |
|
|
| ||
|
Fair value option valuation adjustments and accrued interest (b) |
|
13,653 |
|
|
|
313 |
|
|
| ||
|
Total |
|
$ |
109,256,625 |
|
|
|
$ |
93,874,211 |
|
|
|
Fair value basis and valuation adjustments — Key determinants of valuation adjustments are factors such as volume, the forward swap curve, the volatility of the swap rates, the remaining duration to maturity, and for advances elected under the FVO, the changes in the spread between the swap rate and the consolidated obligation debt yields, and changes in interest receivable, which is a component of the entire fair value of FVO advances.
(a) Hedging valuation basis adjustments — The reported carrying value of hedged advances is adjusted for changes in their fair values (fair value basis adjustments or fair value) that are attributable to the risk being hedged, which is LIBOR for the FHLBNY, and is the discounting basis for computing changes in fair values for hedges of advances. The application of this accounting methodology resulted in the recognition of unrealized hedge valuation gains at December 31, 2016 and December 31, 2015 (See Table 3.6 above). Hedging valuation basis adjustments resulted in a net gain of $2.0 million at December 31, 2016, and $336.5 million at December 31, 2015. Fair value basis adjustments (gains) declined at December 31, 2016, primarily due to the rapid steepening of the swap curve. The benchmark swap curve, which is the discounting/pricing basis for valuing hedged advances, steepened all along its term points at December 31, 2016, causing fair value basis gains to decline. When the benchmark swap rates rise or fall, the fair values of fixed-rate advances move in the opposite direction and valuation basis adjustments will decline or rise. Unrealized gains due to fair value basis adjustments on hedged advances were almost entirely offset by net fair value unrealized losses on the derivatives hedging the advances, thereby achieving our hedging objectives of mitigating fair value basis risk. For more information, see Table 10.14: Earnings Impact of Derivatives and Hedging Activities — By Financial Instrument Type.
(b) FVO fair values — Valuation basis adjustments are recorded to recognize changes in the entire fair values of advances elected under the FVO, including accrued interest payable. The discounting basis for computing fair values of FVO advances is the Advance pricing curve, which is primarily derived from the FHLBNY’s cost of funds (yields paid on consolidated obligation debt). Fair value basis of a FVO advance reflect changes in the term structure and shape of the Advance pricing curve at the measurement dates, and includes accrued interest receivable.
Valuation adjustments and interest accrued receivable together reported net increases (a gain) in the basis of advances of $13.7 million at December 31, 2016 and $0.3 million at December 31, 2015. Accrued interest was $7.9 million at December 31, 2016 and $4.8 million at December 31, 2015. Valuation adjustments, excluding accrued interest, were not significant relative to the par amounts of the FVO advance. Advances elected under the FVO were either variable rate LIBOR indexed advances, which re-priced frequently to market indices, or fixed-rate medium- term, and valuation basis remained near to par. The increase in fair value basis at December 31, 2016 was primarily due to the increase in the forward LIBOR yield curve, which is the index on the variable-rate ARCs. The notional amount of the FVO advance portfolio was $9.9 billion at December 31, 2016, compared to $9.5 billion at December 31, 2015. We have elected the FVO on an instrument-by-instrument basis. With respect to credit risk, we have concluded that it was not necessary to estimate changes attributable to instrument-specific credit risk, as we consider our advances to remain fully collateralized through to maturity. For more information, see financial statements, Fair Value Option Disclosures in Note 17. Fair Values of Financial Instruments.
Hedge volume — We hedge putable advances and certain “bullet” fixed-rate advances under the hedge accounting provisions when they qualify under those standards and as economic hedges when the hedge accounting provisions are operationally difficult to establish or a high degree of hedge effectiveness cannot be asserted. The following table summarizes hedged advances by type of option feature (in thousands):
Table 3.7: Hedged Advances by Type
|
Par Amount |
|
December 31, 2016 |
|
December 31, 2015 |
| ||
|
Qualifying Hedges |
|
|
|
|
| ||
|
Fixed-rate bullets (a) |
|
$ |
38,554,066 |
|
$ |
39,671,761 |
|
|
Fixed-rate putable (b) |
|
2,497,850 |
|
3,583,600 |
| ||
|
Fixed-rate callable |
|
5,000 |
|
— |
| ||
|
Fixed-rate with embedded cap |
|
180,075 |
|
180,075 |
| ||
|
Total Qualifying Hedges |
|
$ |
41,236,991 |
|
$ |
43,435,436 |
|
|
|
|
|
|
|
| ||
|
Aggregate par amount of advances hedged (c) |
|
$ |
41,334,436 |
|
$ |
43,444,011 |
|
|
Fair value basis (Qualifying hedging adjustments) |
|
$ |
1,980 |
|
$ |
336,489 |
|
(a) Generally, non-callable fixed-rate medium and longer term advances are hedged to mitigate the risk in fixed-rate lending.
(b) Putable advances are hedged by cancellable swaps, and the paired long put and short call options mitigate the put/call option risks; additionally, fixed-rate is synthetically converted to LIBOR, mitigating the risk in fixed-rate lending for the FHLBNY. In a rising rate environment, swap dealers would likely exercise their call option, and the FHLBNY will exercise its put option with the member and both instruments terminate at par. Members may borrow new advances at the then prevailing rate.
(c) Except for an insignificant amount of derivatives that were designated as economic hedges of advances, long-term fixed-rate advances were in a qualifying hedging relationship.
Advances elected under the FVO — Advances elected under the FVO were adjustable-rate and fixed-rate advances. By electing the FVO for an asset instrument (the advance), the objective is to offset some of the volatility in earnings due to the designation of debt (liability) under the FVO. Changes in the fair values of the advance were recorded through earnings, and the offset was recorded as a fair value basis adjustment to the carrying values of the advances.
The following table summarizes par amounts of advances elected under the FVO (in thousands):
Table 3.8: Advances under the Fair Value Option (FVO)
|
|
|
Advances |
| ||||
|
Par Amount |
|
December 31, 2016 |
|
December 31, 2015 |
| ||
|
Advances designated under FVO (a) |
|
$ |
9,859,504 |
|
$ |
9,532,240 |
|
(a) Notional amounts of advances elected under the FVO have increased somewhat as maturing FVO ARC advances were replaced by new FVO designated advances; additionally, new advances were designated as FVO. FVO advances at December 31, 2016, in the main, were Adjustable Rate Credit (“ARCs”) $9.4 billion; and Fixed-rate, $0.5 billion. At December 31, 2015, FVO ARCs were $5.8 billion; Fixed-rate, $3.7 billion.
The following table summarizes par amounts of advances that were still putable or callable, with one or more pre-determined option exercise dates remaining (par amounts in thousands):
Table 3.9: Putable and Callable Advances
|
|
|
Advances |
| ||||
|
Par Amount |
|
December 31, 2016 |
|
December 31, 2015 |
| ||
|
Putable/callable |
|
$ |
2,517,100 |
|
$ |
3,583,600 |
|
|
No-longer putable/callable |
|
$ |
1,088,000 |
|
$ |
1,574,500 |
|
Member demand has been weak for putable advances, which are typically medium- and long-term.
We maintain long-term investment portfolios, which are principally mortgage-backed securities issued by GSEs and U.S. Agency (hereinafter referred to as “GSE-issued”). Investments include a small portfolio of MBS issued by private enterprises, and bonds issued by state or local housing finance agencies. We also maintain short-term investments for our liquidity resources, for funding daily stock repurchases and redemptions, for ensuring the availability of funds to meet the credit needs of our members, and to provide additional earnings. In December 2016 Management approved a trading portfolio, the purpose of which was to augment our liquidity needs. Investments in the trading portfolio at December 31, 2016 were U.S. Treasury securities and GSE issued securities that were carried at their fair values. The Finance Agency prohibits speculative investments, but allows the designation of a trading portfolio for liquidity purposes. We may dispose such investments if liquidity needs are met and market conditions deem the sale as advantageous.
We are subject to credit risk on our investments, generally transacted with GSEs and large financial institutions that are considered to be of investment quality. The Finance Agency defines investment quality as a security with adequate financial backings so that full and timely payment of principal and interest on such security is expected and there is minimal risk that the timely payment of principal and interest would not occur because of adverse changes in economic and financial conditions during the projected life of the security.
The following table summarizes changes in investments by categories: Trading securities, Held-to-maturity securities, Available-for-sale securities, and money market investments (Carrying values in thousands):
Table 4.1: Investments by Categories
|
|
|
December 31, |
|
December 31, |
|
Dollar |
|
Percentage |
| |||
|
|
|
2016 |
|
2015 |
|
Variance |
|
Variance |
| |||
|
|
|
|
|
|
|
|
|
|
| |||
|
State and local housing finance agency obligations (a) |
|
$ |
1,063,500 |
|
$ |
825,050 |
|
$ |
238,450 |
|
28.90 |
% |
|
Trading securities (b) |
|
131,151 |
|
— |
|
131,151 |
|
NM |
| |||
|
Mortgage-backed securities |
|
|
|
|
|
|
|
|
| |||
|
Available-for-sale securities, at fair value (c) |
|
656,094 |
|
957,256 |
|
(301,162 |
) |
(31.46 |
) | |||
|
Held-to-maturity securities, at carrying value (c) |
|
14,958,793 |
|
13,107,322 |
|
1,851,471 |
|
14.13 |
| |||
|
Total securities |
|
16,809,538 |
|
14,889,628 |
|
1,919,910 |
|
12.89 |
| |||
|
|
|
|
|
|
|
|
|
|
| |||
|
Grantor trust (d) |
|
41,718 |
|
32,873 |
|
8,845 |
|
26.91 |
| |||
|
Securities purchased under agreements to resell |
|
7,150,000 |
|
4,000,000 |
|
3,150,000 |
|
78.75 |
| |||
|
Federal funds sold |
|
6,683,000 |
|
7,245,000 |
|
(562,000 |
) |
(7.76 |
) | |||
|
|
|
|
|
|
|
|
|
|
| |||
|
Total investments |
|
$ |
30,684,256 |
|
$ |
26,167,501 |
|
$ |
4,516,755 |
|
17.26 |
% |
|
(a) |
State and local housing finance agency bonds — Bonds are classified as HTM and are carried at amortized cost. Acquisitions of $269.0 million were made in 2016. |
|
(b) |
U.S. Treasury securities and GSE securities. Trading portfolio is for liquidity and not for speculative purposes. |
|
(c) |
Mortgage-backed securities classified as AFS — No acquisitions were made in 2016. AFS securities outstanding are GSE issued floating-rate MBS carried at fair value. |
|
|
Mortgage-backed securities classified as HTM — $3.8 billion of GSE-issued MBS were acquired in 2016 and designated as HTM. Approximately 98.0% of HTM mortgage-backed securities are GSE issued securities. |
|
(d) |
The grantor trust is classified as AFS. Additional financing of $8.1 million was made to the grantor trust in 2016. Trust fund balances represent investments in registered mutual funds and other fixed-income and equity funds. Funds are highly liquid and readily redeemable at their NAVs, which are the fair values of the investments. The fund is owned by the FHLBNY, and the intent is to utilize investments to fund current and potential future payment obligations of the non-qualified Benefits Equalization Pension plan. For more information about the pension plan, see financial statements, Note 15. Employee Retirement Plans. |
NM — Not meaningful.
Long-Term Investment Securities
Acquisition pricing of GSE-issued MBS has remained largely unfavorable, and purchases were made only when pricing justified our risk/reward criteria. Unpaid principal balances of investments in MBS (Investment portfolios of held-to-maturity and available-for-sale securities) were in aggregate $15.6 billion at December 31, 2016, an increase of $1.5 billion (net of paydowns), compared to December 31, 2015. By policy, we acquire only GSE-issued RMBS and CMBS.
The long-term investment securities at December 31, 2016 comprised of a portfolio of GSE-issued MBS, a small portfolio of vintage private label MBS, and a small portfolio of housing finance agency bonds, as summarized below:
· The AFS portfolio of GSE-issued floating-rate MBS were carried at their fair values of $656.1 million at December 31, 2016, compared to $957.3 million at December 31, 2015. Unpaid principal balances decreased by $295.5 million in 2016. No acquisitions were designated to the AFS portfolio in the period; we sold $116.4 million at a small gain in 2016. Fair values of the AFS securities were substantially all in unrealized fair value gain positions at December 31, 2016 and December 31, 2015. The AFS securities are indexed to LIBOR, and certain securities are capped, typically between 6.5% and 7.5%. The risk arising from the capped floating-rate MBS in our portfolios of available-for-sale and held-to-maturity securities is economically hedged by $2.7 billion notional amounts of interest rate caps. For more information about the interest rate caps, see financial statements, Note 16. Derivatives and Hedging Activities, and Table 8.4 Derivative Hedging Strategies — Balance Sheet and Intermediation in this MD&A. No AFS securities were determined to be OTTI in any periods in this report. For more information about AFS securities, see financial statements, Note 6. Available-for-Sale Securities.
· The HTM portfolio of MBS comprised of portfolios of GSE issued fixed and floating-rate MBS, and a small portfolio of Private label MBS (98.0% were GSE-issued; 2.0%, PLMBS). Securities classified as HTM are carried at amortized cost less adjustments for credit and non-credit OTTI losses and OTTI recoveries. Unpaid principal balance of fixed-rate MBS was $7.3 billion at December 31, 2016 and December 31, 2015. Acquisitions totaling $509.9 million (par amounts) were designated to the fixed-rate portfolio in 2016; paydowns were $495.0 million. Unpaid principal balance of floating-rate MBS was $7.7 billion at December 31, 2016 and $5.9 billion at December 31, 2015. In 2016, we acquired $3.3 billion of floating-rate securities, ahead of $1.4 billion in paydowns. HTM floating-rate securities are typically indexed to the 1-month LIBOR, and certain securities are capped, typically between 6.5% and 7.5%. As discussed in the previous bullet, the risk arising from capped AFS and HTM floating-rate securities is economically hedged by the purchased interest rate caps. For more information about HTM securities, see financial statements, Note 7. Held-to-Maturity Securities.
· Housing finance agency bonds (“HFA bonds”), all designated as HTM, were carried at amortized cost basis of $1.1 billion and $825.1 million at December 31, 2016 and December 31, 2015. We acquired $269.0 million of HFA bonds in 2016. HFA bonds are primarily floating rate instruments indexed to LIBOR. No HFA bonds were determined to be OTTI in any periods in this report.
Mortgage-Backed Securities — By Issuer
The following table summarizes our investment securities issuer concentration (dollars in thousands):
Table 4.2: Investment Securities Issuer Concentration
|
|
|
December 31, 2016 |
|
December 31, 2015 |
| ||||||||||||
|
|
|
|
|
|
|
Carrying value as a |
|
|
|
|
|
Carrying value as a |
| ||||
|
|
|
Carrying (a) |
|
|
|
Percentage |
|
Carrying (a) |
|
|
|
Percentage |
| ||||
|
Long Term Investment (c) |
|
Value |
|
Fair Value |
|
of Capital |
|
Value |
|
Fair Value |
|
of Capital |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
MBS |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Fannie Mae |
|
$ |
5,144,656 |
|
$ |
5,156,990 |
|
67.48 |
% |
$ |
5,356,075 |
|
$ |
5,401,014 |
|
79.71 |
% |
|
Freddie Mac |
|
10,200,222 |
|
10,294,017 |
|
133.79 |
|
8,377,753 |
|
8,492,476 |
|
124.68 |
| ||||
|
Ginnie Mae |
|
36,630 |
|
36,755 |
|
0.48 |
|
48,584 |
|
48,887 |
|
0.72 |
| ||||
|
All Others - PLMBS |
|
233,379 |
|
288,620 |
|
3.06 |
|
282,166 |
|
346,327 |
|
4.20 |
| ||||
|
Non-MBS (b) |
|
1,105,218 |
|
1,068,401 |
|
14.50 |
|
857,923 |
|
815,647 |
|
12.77 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Total Investment Securities |
|
$ |
16,720,105 |
|
$ |
16,844,783 |
|
219.31 |
% |
$ |
14,922,501 |
|
$ |
15,104,351 |
|
222.08 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Categorized as: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Available-for-Sale Securities |
|
$ |
697,812 |
|
$ |
697,812 |
|
|
|
$ |
990,129 |
|
$ |
990,129 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Held-to-Maturity Securities |
|
$ |
16,022,293 |
|
$ |
16,146,971 |
|
|
|
$ |
13,932,372 |
|
$ |
14,114,222 |
|
|
|
(a) Carrying values include fair values for AFS securities.
(b) Non-MBS consists of housing finance agency bonds and a grantor trust.
(c) Excludes Trading portfolio.
External rating information of the held-to-maturity portfolio was as follows (carrying values in thousands):
Table 4.3: External Rating of the Held-to-Maturity Portfolio
|
|
|
December 31, 2016 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
Below |
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
Investment |
|
|
| ||||||
|
|
|
AAA-rated (a) |
|
AA-rated (b) |
|
A-rated |
|
BBB-rated |
|
Grade |
|
Total |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Mortgage-backed securities |
|
$ |
1,185 |
|
$ |
14,729,099 |
|
$ |
140,579 |
|
$ |
25,805 |
|
$ |
62,125 |
|
$ |
14,958,793 |
|
|
State and local housing finance agency obligations |
|
47,800 |
|
986,625 |
|
29,075 |
|
— |
|
— |
|
1,063,500 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Total Long-term securities |
|
$ |
48,985 |
|
$ |
15,715,724 |
|
$ |
169,654 |
|
$ |
25,805 |
|
$ |
62,125 |
|
$ |
16,022,293 |
|
|
|
|
December 31, 2015 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
Below |
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
Investment |
|
|
| ||||||
|
|
|
AAA-rated (a) |
|
AA-rated (b) |
|
A-rated |
|
BBB-rated |
|
Grade |
|
Total |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Mortgage-backed securities |
|
$ |
1,443 |
|
$ |
12,833,230 |
|
$ |
168,531 |
|
$ |
28,572 |
|
$ |
75,546 |
|
$ |
13,107,322 |
|
|
State and local housing finance agency obligations |
|
53,000 |
|
739,590 |
|
32,460 |
|
— |
|
— |
|
825,050 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Total Long-term securities |
|
$ |
54,443 |
|
$ |
13,572,820 |
|
$ |
200,991 |
|
$ |
28,572 |
|
$ |
75,546 |
|
$ |
13,932,372 |
|
See footnotes (a) and (b) under Table 4.4
External rating information of the AFS portfolio was as follows (the carrying values of AFS investments are at fair values; in thousands):
Table 4.4: External Rating of the Available-for-Sale Portfolio
|
|
|
December 31, 2016 |
|
December 31, 2015 |
| ||||||||||||||
|
|
|
AA-rated (b) |
|
Unrated |
|
Total |
|
AA-rated (b) |
|
Unrated |
|
Total |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Available-for-sale securities |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Mortgage-backed securities |
|
$ |
656,094 |
|
$ |
— |
|
$ |
656,094 |
|
$ |
957,256 |
|
$ |
— |
|
$ |
957,256 |
|
|
Other - Grantor trust (c) |
|
— |
|
41,718 |
|
41,718 |
|
— |
|
32,873 |
|
32,873 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Total Available-for-sale securities |
|
$ |
656,094 |
|
$ |
41,718 |
|
$ |
697,812 |
|
$ |
957,256 |
|
$ |
32,873 |
|
$ |
990,129 |
|
Footnotes to Table 4.3 and Table 4.4
(a) Certain PLMBS and housing finance bonds have been assigned AAA, based on the ratings by S&P and Moody’s.
(b) We have assigned GSE-issued MBS a rating of AA+ based on the credit rating assigned to long-term senior debt issued by Fannie Mae, Freddie Mac and U.S. Agency. The debt ratings are based on S&P’s rating of AA+ for the GSE Senior long-term debt and AA+ for the debt issued by the U.S. government; Moody’s debt rating is Aaa for the GSE Senior long-term debt and the U.S. government.
(c) Highly liquid equity and bond mutual funds, carried at net asset values (NAVs) as fair values. We added $8.1 million in additional cash financing to the trust in 2016.
External credit rating information has been provided in Table 4.3 and Table 4.4 as the information is used as another data point to supplement our credit quality indicators, and they serve as a useful indicator when analyzing the degree of credit risk to which we are exposed. Significant changes in credit ratings classifications of our investment securities portfolio could indicate increased credit risk for us that could be accompanied by a reduction in the fair values of our investment securities portfolio.
Fair Value Levels of Investment Securities, and Unrecognized and Unrealized Holding Losses
To compute fair values at December 31, 2016 and December 31, 2015, four vendor prices were received for substantially all of our MBS holdings, and substantially all of those prices fell within specified thresholds. The relative proximity of the prices received from the four vendors supported our conclusion that the final computed prices were reasonable estimates of fair values. GSE securities priced under such a valuation technique using the market approach are typically classified within Level 2 of the valuation hierarchy.
For a comparison of carrying values and fair values of investment securities, see financial statements, Note 7. Held-to-Maturity Securities and Note 6. Available-for-Sale Securities. For more information about the corroboration and other analytical procedures performed, see Note 17. Fair Values of Financial Instruments.
Weighted average rates — Mortgage-backed securities (HTM and AFS)
The following table summarizes weighted average rates and amortized cost 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 4.5: Mortgage-Backed Securities Weighted Average Rates by Contractual Maturities
|
|
|
December 31, 2016 |
|
December 31, 2015 |
| ||||||
|
|
|
Amortized |
|
Weighted |
|
Amortized |
|
Weighted |
| ||
|
|
|
Cost |
|
Average Rate |
|
Cost |
|
Average Rate |
| ||
|
Mortgage-backed securities |
|
|
|
|
|
|
|
|
| ||
|
Due in one year or less |
|
$ |
101,348 |
|
3.32 |
% |
$ |
79,921 |
|
1.60 |
% |
|
Due after one year through five years |
|
4,725,921 |
|
2.52 |
|
3,305,668 |
|
2.47 |
| ||
|
Due after five years through ten years |
|
6,602,905 |
|
1.69 |
|
5,307,509 |
|
1.92 |
| ||
|
Due after ten years |
|
4,211,581 |
|
2.07 |
|
5,398,560 |
|
1.79 |
| ||
|
|
|
|
|
|
|
|
|
|
| ||
|
Total mortgage-backed securities |
|
$ |
15,641,755 |
|
2.05 |
% |
$ |
14,091,658 |
|
2.00 |
% |
OTTI — Base Case and Adverse Case Scenario
We evaluated our PLMBS under a base case (or best estimate) scenario by performing a cash flow analysis for each security 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.
Cash flow analysis in the twelve months ended December 31, 2016 identified de minimis deterioration in the performance parameters of de minimis numbers of previously impaired private-label MBS. Credit OTTI charged to earnings were de minimis.
The results of the adverse case scenario are presented next to expected outcome for the credit impaired securities (the base case) at the OTTI measurement dates reported below (dollars in thousands):
Table 4.6: Base and Adverse Case Stress Scenarios (a)
|
|
|
|
|
As of December 31, 2016 |
| ||||||||||||||
|
|
|
|
|
Actual Results - Base Case Scenario |
|
Adverse Case Scenario |
| ||||||||||||
|
|
|
|
|
|
|
|
|
OTTI Related to |
|
|
|
|
|
OTTI Related to |
| ||||
|
|
|
|
|
# of Securities |
|
UPB |
|
Credit Loss |
|
# of Securities |
|
UPB |
|
Credit Loss |
| ||||
|
RMBS |
|
Prime |
|
8 |
|
$ |
13,715 |
|
$ |
— |
|
8 |
|
$ |
13,715 |
|
$ |
(31 |
) |
|
RMBS |
|
Alt-A |
|
5 |
|
3,463 |
|
— |
|
5 |
|
3,463 |
|
(3 |
) | ||||
|
HEL |
|
Subprime |
|
30 |
|
214,319 |
|
— |
|
30 |
|
214,319 |
|
(109 |
) | ||||
|
Manufactured Housing Loans |
|
Subprime |
|
2 |
|
61,301 |
|
— |
|
2 |
|
61,301 |
|
— |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Total Securities |
|
|
|
45 |
|
$ |
292,798 |
|
$ |
— |
|
45 |
|
$ |
292,798 |
|
$ |
(143 |
) |
|
|
|
|
|
As of December 31, 2015 |
| ||||||||||||||
|
|
|
|
|
Actual Results - Base Case Scenario |
|
Adverse Case Scenario |
| ||||||||||||
|
|
|
|
|
|
|
|
|
OTTI Related to |
|
|
|
|
|
OTTI Related to |
| ||||
|
|
|
|
|
# of Securities |
|
UPB |
|
Credit Loss |
|
# of Securities |
|
UPB |
|
Credit Loss |
| ||||
|
RMBS |
|
Prime |
|
8 |
|
$ |
20,974 |
|
$ |
(116 |
) |
8 |
|
$ |
20,974 |
|
$ |
(172 |
) |
|
RMBS |
|
Alt-A |
|
5 |
|
4,460 |
|
— |
|
5 |
|
4,460 |
|
(17 |
) | ||||
|
HEL |
|
Subprime |
|
30 |
|
249,495 |
|
— |
|
30 |
|
249,495 |
|
(3,326 |
) | ||||
|
Manufactured Housing Loans |
|
Subprime |
|
2 |
|
76,202 |
|
— |
|
2 |
|
76,202 |
|
— |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Total Securities |
|
|
|
45 |
|
$ |
351,131 |
|
$ |
(116 |
) |
45 |
|
$ |
351,131 |
|
$ |
(3,515 |
) |
(a) Generally, the Adverse Case is computed by stressing Credit Default Rate and Loss Severity. Information presented is as of the period end dates.
FHLBank OTTI Governance Committee Common Platform — Consistent with the guidelines provided by the OTTI Committee, the FHLBNY has contracted with the FHLBanks of San Francisco and Chicago to perform cash flow analysis for about 50% of our non-Agency PLMBS portfolio that were possible to be cash flow tested within the Common platform. The results were reviewed and found reasonable by the FHLBNY.
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 4.7: Non-Agency Private Label Mortgage- and Asset-Backed Securities
|
|
|
December 31, 2016 |
|
December 31, 2015 |
| ||||||||||||||
|
Private-label MBS |
|
Fixed Rate |
|
Variable |
|
Total |
|
Fixed Rate |
|
Variable |
|
Total |
| ||||||
|
RMBS |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Prime |
|
$ |
12,336 |
|
$ |
1,379 |
|
$ |
13,715 |
|
$ |
19,187 |
|
$ |
1,787 |
|
$ |
20,974 |
|
|
Alt-A |
|
2,278 |
|
1,185 |
|
3,463 |
|
3,017 |
|
1,443 |
|
4,460 |
| ||||||
|
Total RMBS |
|
14,614 |
|
2,564 |
|
17,178 |
|
22,204 |
|
3,230 |
|
25,434 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Home Equity Loans |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Subprime |
|
180,938 |
|
33,381 |
|
214,319 |
|
210,282 |
|
39,213 |
|
249,495 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Manufactured Housing Loans |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Subprime |
|
61,301 |
|
— |
|
61,301 |
|
76,202 |
|
— |
|
76,202 |
| ||||||
|
Total UPB of private-label MBS (b) |
|
$ |
256,853 |
|
$ |
35,945 |
|
$ |
292,798 |
|
$ |
308,688 |
|
$ |
42,443 |
|
$ |
351,131 |
|
(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 outstanding unpaid principal balances. No acquisitions of PLMBS have been made since 2006.
The following table presents additional information of the fair values and gross unrealized losses of PLMBS by year of securitization and external rating (dollars in thousands):
Table 4.8: PLMBS by Year of Securitization and External Rating
|
|
|
December 31, 2016 |
|
|
|
|
|
|
| |||||||||||||||||||
|
|
|
Unpaid Principal Balance |
|
|
|
|
|
|
| |||||||||||||||||||
|
Private-label MBS |
|
Ratings |
|
Triple-A |
|
Double-A |
|
Single-A |
|
Triple-B |
|
Below |
|
Amortized |
|
Gross |
|
Fair Value |
| |||||||||
|
RMBS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
|
Prime |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
|
2006 |
|
$ |
5,764 |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
5,764 |
|
$ |
4,921 |
|
$ |
(383 |
) |
$ |
4,614 |
|
|
2005 |
|
3,867 |
|
— |
|
— |
|
— |
|
— |
|
3,867 |
|
3,387 |
|
(1 |
) |
3,861 |
| |||||||||
|
2004 and earlier |
|
4,084 |
|
— |
|
917 |
|
904 |
|
2,263 |
|
— |
|
4,073 |
|
(63 |
) |
4,023 |
| |||||||||
|
Total RMBS Prime |
|
13,715 |
|
— |
|
917 |
|
904 |
|
2,263 |
|
9,631 |
|
12,381 |
|
(447 |
) |
12,498 |
| |||||||||
|
Alt-A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
|
2004 and earlier |
|
3,463 |
|
1,185 |
|
— |
|
473 |
|
873 |
|
932 |
|
3,463 |
|
(62 |
) |
3,432 |
| |||||||||
|
Total RMBS |
|
17,178 |
|
1,185 |
|
917 |
|
1,377 |
|
3,136 |
|
10,563 |
|
15,844 |
|
(509 |
) |
15,930 |
| |||||||||
|
HEL Subprime |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
|
2004 and earlier |
|
214,319 |
|
— |
|
5,206 |
|
77,915 |
|
29,140 |
|
102,058 |
|
186,476 |
|
(1,923 |
) |
209,139 |
| |||||||||
|
Manufactured Housing Loans Subprime |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
|
2004 and earlier |
|
61,301 |
|
— |
|
— |
|
61,301 |
|
— |
|
— |
|
61,293 |
|
— |
|
63,551 |
| |||||||||
|
Total PLMBS |
|
$ |
292,798 |
|
$ |
1,185 |
|
$ |
6,123 |
|
$ |
140,593 |
|
$ |
32,276 |
|
$ |
112,621 |
|
$ |
263,613 |
|
$ |
(2,432 |
) |
$ |
288,620 |
|
|
|
|
December 31, 2015 |
|
|
|
|
|
|
| |||||||||||||||||||
|
|
|
Unpaid Principal Balance |
|
|
|
|
|
|
| |||||||||||||||||||
|
Private-label MBS |
|
Ratings |
|
Triple-A |
|
Double-A |
|
Single-A |
|
Triple-B |
|
Below |
|
Amortized |
|
Gross |
|
Fair Value |
| |||||||||
|
RMBS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
|
Prime |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
|
2006 |
|
$ |
7,390 |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
7,390 |
|
$ |
6,526 |
|
$ |
(228 |
) |
$ |
6,365 |
|
|
2005 |
|
6,254 |
|
— |
|
— |
|
— |
|
— |
|
6,254 |
|
5,735 |
|
— |
|
6,267 |
| |||||||||
|
2004 and earlier |
|
7,330 |
|
— |
|
3,839 |
|
1,704 |
|
— |
|
1,787 |
|
7,296 |
|
(93 |
) |
7,256 |
| |||||||||
|
Total RMBS Prime |
|
20,974 |
|
— |
|
3,839 |
|
1,704 |
|
— |
|
15,431 |
|
19,557 |
|
(321 |
) |
19,888 |
| |||||||||
|
Alt-A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
|
2004 and earlier |
|
4,460 |
|
1,443 |
|
— |
|
911 |
|
961 |
|
1,145 |
|
4,460 |
|
(77 |
) |
4,421 |
| |||||||||
|
Total RMBS |
|
25,434 |
|
1,443 |
|
3,839 |
|
2,615 |
|
961 |
|
16,576 |
|
24,017 |
|
(398 |
) |
24,309 |
| |||||||||
|
HEL Subprime |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
|
2004 and earlier |
|
249,495 |
|
— |
|
4,244 |
|
93,605 |
|
35,541 |
|
116,105 |
|
218,769 |
|
(2,651 |
) |
243,746 |
| |||||||||
|
Manufactured Housing Loans Subprime |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
|
2004 and earlier |
|
76,202 |
|
— |
|
— |
|
76,202 |
|
— |
|
— |
|
76,193 |
|
— |
|
78,272 |
| |||||||||
|
Total PLMBS |
|
$ |
351,131 |
|
$ |
1,443 |
|
$ |
8,083 |
|
$ |
172,422 |
|
$ |
36,502 |
|
$ |
132,681 |
|
$ |
318,979 |
|
$ |
(3,049 |
) |
$ |
346,327 |
|
Short-term investments
We typically maintain substantial investments in high quality short- and intermediate-term financial instruments such as secured overnight transactions collateralized by securities, and unsecured overnight and term federal funds sold to highly-rated financial institutions who also satisfy other credit quality factors. These investments provide the liquidity necessary to meet members’ credit needs. Short-term investments also provide a flexible means of implementing the asset/liability management decisions to adjust liquidity. In December 2016, a trading portfolio was established, with the objective of expanding our choice of investing for liquidity.
Monitoring — We actively monitor our credit exposures and the credit quality of our counterparties, including an assessment of each counterparty’s financial performance, capital adequacy, and sovereign support as well as related market signals, and actively limit or suspend existing exposures, as appropriate. In addition, we are required to manage our unsecured portfolio subject to regulatory limits, prescribed by the Finance Agency, our regulator. The Finance Agency regulations include limits on the amount of unsecured credit that may be extended to a counterparty or a group of affiliated counterparties, based upon a percentage of eligible regulatory capital and the counterparty’s overall credit rating. Under these regulations, the level of eligible regulatory capital is determined as the lesser of our regulatory capital or the eligible amount of regulatory capital of the counterparty determined in accordance with Finance Agency regulations.
The Finance Agency regulations also permit us to extend additional unsecured credit, which could be comprised of overnight extensions and sales of federal funds subject to continuing contract. Our total unsecured overnight exposure to a single counterparty may not exceed twice the regulatory limit for term exposures. We are prohibited by Finance Agency regulation from investing in financial instruments issued by non-U.S. entities other than those issued by U.S. branches and agency offices of foreign commercial banks. We did not own any financial instruments issued by foreign sovereign governments, including those countries that are members of the European Union in any periods in this report.
Securities purchased under agreement to resell — As part of our banking activities with counterparties, we have entered into secured financing transactions that mature overnight, and can be extended only at our discretion. These transactions involve the lending of cash against securities, which are accepted as collateral. The balance outstanding under such agreements was $7.2 billion at December 31, 2016 and $4.0 billion at December 31, 2015. For more information, see financial statements, Note 4. Federal Funds Sold, Interest-bearing Deposits, and Securities Purchased under Agreement to Resell.
Federal funds sold — Federal funds sold was $6.7 billion at December 31, 2016 and $7.2 billion at December 31, 2015, representing unsecured lending to major banks and financial institutions. The amount of unsecured credit risk that may be extended to individual counterparties is commensurate with the counterparty’s credit quality as assessed by our management, and the assessment would include reviews of credit ratings of counterparty’s debt securities or deposits as reported by NRSROs. Overnight and short-term federal funds allow us to warehouse funds and provide balance sheet liquidity to meet unexpected member borrowing demands.
The table below presents federal funds sold, the counterparty credit ratings, and the domicile of the counterparty or the domicile of the counterparty’s parent for U.S. branches and agency offices of foreign commercial banks in the U.S. (dollars in thousands):
Table 4.9: Federal Funds Sold by Domicile of the Counterparty
|
|
|
December 31, 2016 |
|
December 31, 2015 |
|
Year ended December 31, 2016 |
|
Year ended December 31, 2015 |
| ||||||||||||
|
Foreign |
|
S&P |
|
Moody’s |
|
S&P |
|
Moody’s |
|
Daily Average |
|
Balance at |
|
Daily Average |
|
Balance at |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Australia |
|
AA- |
|
AA2 |
|
AA- |
|
AA2 |
|
$ |
1,969,533 |
|
$ |
1,600,000 |
|
$ |
1,015,575 |
|
$ |
1,000,000 |
|
|
Canada |
|
A to AA- |
|
AA3 to AA1 |
|
A to AA- |
|
AA3 to AA1 |
|
2,322,290 |
|
1,200,000 |
|
3,309,540 |
|
1,753,000 |
| ||||
|
Finland |
|
AA- |
|
AA3 |
|
AA- |
|
AA3 |
|
1,496,781 |
|
1,600,000 |
|
1,441,280 |
|
1,418,000 |
| ||||
|
France |
|
A |
|
A1 |
|
— |
|
— |
|
22,131 |
|
— |
|
— |
|
— |
| ||||
|
Netherlands |
|
A+ |
|
AA2 |
|
A+ |
|
AA2 |
|
754,639 |
|
907,000 |
|
687,501 |
|
773,000 |
| ||||
|
Norway |
|
A+ |
|
AA2 |
|
A+ |
|
AA3 |
|
831,216 |
|
825,000 |
|
965,288 |
|
400,000 |
| ||||
|
Sweden |
|
A+ to AA- |
|
AA3 to AA2 |
|
A+ to AA- |
|
AA3 to AA2 |
|
3,113,112 |
|
400,000 |
|
1,850,685 |
|
— |
| ||||
|
Switzerland |
|
A |
|
A1 |
|
A |
|
A1 |
|
5,874 |
|
— |
|
2,833 |
|
— |
| ||||
|
UK |
|
A- |
|
A1 |
|
A- |
|
A2 |
|
565,096 |
|
— |
|
335,890 |
|
— |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Subtotal |
|
|
|
|
|
|
|
|
|
11,080,672 |
|
6,532,000 |
|
9,608,592 |
|
5,344,000 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
USA |
|
A- to AA- |
|
BAA1 to AA2 |
|
A- to AA- |
|
BAA1 to AA2 |
|
477,415 |
|
151,000 |
|
830,304 |
|
1,901,000 |
| ||||
|
Total |
|
|
|
|
|
|
|
|
|
$ |
11,558,087 |
|
$ |
6,683,000 |
|
$ |
10,438,896 |
|
$ |
7,245,000 |
|
Table 4.10: Federal Funds Sold Quarterly Balances
The following table summarizes average balances and outstanding balances of Federal funds sold in each of the quarters in 2016 and 2015 (in millions):
|
|
|
Federal Funds Sold |
| ||||||||||||||||||||||
|
|
|
First Quarter |
|
Second Quarter |
|
Third Quarter |
|
Fourth Quarter |
| ||||||||||||||||
|
Year |
|
Daily |
|
Balance |
|
Daily |
|
Balance |
|
Daily |
|
Balance |
|
Daily |
|
Balance |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
2016 |
|
$ |
11,518 |
|
$ |
6,916 |
|
$ |
11,598 |
|
$ |
8,984 |
|
$ |
11,283 |
|
$ |
10,219 |
|
$ |
11,833 |
|
$ |
6,683 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
2015 |
|
$ |
11,034 |
|
$ |
7,697 |
|
$ |
9,254 |
|
$ |
7,609 |
|
$ |
11,161 |
|
$ |
4,814 |
|
$ |
10,307 |
|
$ |
7,245 |
|
The following table summarizes par value, amortized cost and the carrying value (fair value) of the trading portfolio (in thousands):
Table 4.11: Trading Securities
|
|
|
Trading Securities |
| |
|
|
|
December 31, 2016 |
| |
|
Par value |
|
$ |
130,930 |
|
|
Amortized cost |
|
$ |
131,009 |
|
|
Carrying/Fair value |
|
$ |
131,151 |
|
The Finance Agency prohibits speculative investments but allows permitted securities to be deemed held for liquidity if invested in a trading portfolio. We may dispose such investments if liquidity needs are met and market conditions deem the sale as advantageous. For more information about fair values of securities in the trading portfolio, see Note 5. Trading Securities in the Notes to the Financial Statements.
Table 4.12: Cash Balances at the Federal Reserve Bank of New York (“FRBNY”)
In addition, we maintained liquidity at the FRBNY. The following table summarizes average balances and outstanding balances at FRBNY in each of the quarters in 2016 and 2015 (in millions):
|
|
|
Cash Balances with Federal Reserve Bank |
| ||||||||||||||||||||||
|
|
|
First Quarter |
|
Second Quarter |
|
Third Quarter |
|
Fourth Quarter |
| ||||||||||||||||
|
Year |
|
Daily |
|
Balance |
|
Daily |
|
Balance |
|
Daily |
|
Balance |
|
Daily |
|
Balance |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
2016 (a) |
|
$ |
70 |
|
$ |
61 |
|
$ |
56 |
|
$ |
177 |
|
$ |
63 |
|
$ |
62 |
|
$ |
65 |
|
$ |
61 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
2015 (a) |
|
$ |
262 |
|
$ |
202 |
|
$ |
62 |
|
$ |
60 |
|
$ |
160 |
|
$ |
769 |
|
$ |
72 |
|
$ |
227 |
|
(a) Lower amounts of cash balances were maintained by the FRBNY at December 31, 2016, compared to balances at December 31, 2015, and were determined based on projected estimated member liquidity requirements, and the availability of alternative overnight investment opportunities in 2016.
Interest earning cash deposits (pledged collateral) with derivative counterparties — At December 31, 2016 and December 31, 2015, we had deposited $256.0 million and $370.5 million in interest-earning cash as pledged collateral or as margins to derivative counterparties. All cash posted as pledged collateral to derivative counterparties is reported as a deduction to Derivative liabilities in the Statements of Condition. Cash posted in excess of required collateral is reported as a component of Derivative assets. Typically, cash posted as collateral or as margin earns interest at the overnight federal funds rate.
We execute derivatives with major financial institutions. We enter into bilateral collateral netting agreements for derivatives that have not yet been approved for clearing by the Commodity Futures Trading Commission (“CFTC”). Such derivatives are also referred to as uncleared derivatives. For derivative contracts that are mandated for clearing under the Dodd-Frank Act, we have obtained legal netting analyses that provide support for the right of offset of posted margins as a netting adjustment to the fair value exposures of the associated derivatives. When our derivatives are in a liability position, counterparties are in a fair value gain position and counterparties are exposed to the non-performance risk of the FHLBNY. For cleared and uncleared derivatives, we are required to post cash collateral or margin to mitigate the counterparties’ credit exposure under agreed upon procedures. For uncleared derivatives, bilateral collateral agreements include certain thresholds and pledge requirements under ISDA agreements that are generally triggered if exposures exceed the agreed-upon thresholds. For cleared derivatives executed in compliance with CFTC rules, margins are posted daily to cover the exposure presented by our open positions. Certain triggering events such as a default by the FHLBNY could result in additional margins to be posted by the FHLBNY to our derivative clearing agents. For more information, see Credit Risk Due to Non-performance by Counterparties in financial statements, Note 16. Derivatives and Hedging Activities. Also see Tables 8.1 and 8.4 and accompanying discussions in this MD&A.
Mortgage Loans Held-for-Portfolio
Mortgage loans are carried in the Statements of Condition at amortized cost, less allowance for credit losses. The outstanding unpaid principal balance was $2.7 billion at December 31, 2016, an increase of $222.7 million (net of acquisitions and paydowns) from the balance at December 31, 2015. Mortgage loans were investments in Mortgage Partnership Finance loans (“MPF” or “MPF Program”). We provide this product to members as another alternative for them to sell their mortgage production. Loan origination by members and acceptable pricing are key factors that drive growth. MPF loans are fixed rate mortgage loans secured by one-to-four family residential properties with maturities ranging from five to 30 years.
Mortgage Partnership Finance Program
We invest in mortgage loans through the MPF Program, which is a secondary mortgage market structure under which eligible mortgage loans are purchased or funded from or through members who are Participating Financial Institutions (“PFI”). We may also acquire MPF loans through participations with other FHLBanks, although our current acquisition strategy is to limit acquisitions through our PFIs. MPF loans are conforming conventional and Government i.e., insured or guaranteed by the Federal Housing Administration (“FHA”), the Department of Veterans Affairs (“VA”) or the Rural Housing Service of the Department of Agriculture (“RHS”), fixed rate mortgage loans secured by one-to-four family residential properties with maturities ranging from five to 30 years or participations in such mortgage loans. The FHLBank of Chicago (“MPF Provider”) developed the MPF Program in order to help fulfill the housing mission and to provide an additional source of liquidity to FHLBank members that choose to sell mortgage loans into the secondary market rather than holding them in their own portfolios. Finance Agency regulations define the acquisition of Acquired Member Assets (“AMA”) as a core mission activity of the FHLBanks. In order for MPF loans to meet the AMA requirements, the purchase and funding are structured so that the credit risk associated with MPF loans is shared with PFIs.
MPF Loan Types — There are five MPF loan products under the MPF program that we participate in: Original MPF, MPF 100, MPF 125, MPF 125 Plus, and MPF Government. While still held in our mortgage portfolio, we currently do not offer the MPF 100 or MPF 125 Plus loan products. Original MPF, MPF 125, MPF 125 Plus, and MPF Government are “closed loan” products in which we purchase loans acquired or closed by the PFI.
The following table summarizes MPF loan by product types (par value, in thousands):
Table 5.1: MPF by Product Types
|
|
|
December 31, 2016 |
|
December 31, 2015 |
| ||
|
|
|
|
|
|
| ||
|
Original MPF (a) |
|
$ |
473,415 |
|
$ |
463,106 |
|
|
MPF 100 (b) |
|
2,120 |
|
4,062 |
| ||
|
MPF 125 (c) |
|
1,891,353 |
|
1,670,053 |
| ||
|
MPF 125 Plus (d) |
|
107,459 |
|
140,993 |
| ||
|
Other (e) |
|
226,560 |
|
199,975 |
| ||
|
Total par MPF loans |
|
$ |
2,700,907 |
|
$ |
2,478,189 |
|
(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.
(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 (if the pool should 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 (“SMI”) policy 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.
(e) Other includes FHA and VA insured loans.
Mortgage loans — Conventional and Insured Loans
The following table classifies mortgage loans between conventional loans and loans insured by FHA/VA (in thousands):
Table 5.2: MPF by Conventional and Insured Loans
|
|
|
December 31, 2016 |
|
December 31, 2015 |
| ||
|
|
|
|
|
|
| ||
|
Federal Housing Administration and Veteran Administration insured loans |
|
$ |
226,504 |
|
$ |
199,915 |
|
|
Conventional loans |
|
2,474,347 |
|
2,278,214 |
| ||
|
Others |
|
56 |
|
60 |
| ||
|
|
|
|
|
|
| ||
|
Total par MPF loans |
|
$ |
2,700,907 |
|
$ |
2,478,189 |
|
Mortgage Loans — Loss sharing and the credit enhancement waterfall
In the credit enhancement waterfall, we are responsible for the first loss layer. The second loss layer is the amount of credit obligation that the PFI has taken on that will equate the loan to a double-A rating. We assume all residual risk. Also, see financial statements, Note 9. Mortgage Loans Held-for-Portfolio.
First loss layer — The amount of the first layer or the First Loss Account (“FLA”) serves as an information or memorandum account, and as an indicator of the amount of losses that the FHLBNY is responsible for in the first layer. The table below provides changes in the FLA for the periods in this report. Losses that exceed the liquidation value of the real property, and the value of any primary mortgage insurance (“PMI”) for loans with a loan-to-value ratio greater than 80% at origination, will be absorbed by the FHLBNY up to the FLA for each Master Commitment. For the Original MPF, MPF 100, MPF 125 and MPF 125 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 5.3: Roll-Forward First Loss Account (in thousands)
|
|
|
Years ended December 31, |
| |||||||
|
|
|
2016 |
|
2015 |
|
2014 |
| |||
|
|
|
|
|
|
|
|
| |||
|
Beginning balance |
|
$ |
27,107 |
|
$ |
22,116 |
|
$ |
19,716 |
|
|
|
|
|
|
|
|
|
| |||
|
Additions |
|
4,540 |
|
5,582 |
|
2,962 |
| |||
|
Resets(a) |
|
(373 |
) |
(90 |
) |
— |
| |||
|
Charge-offs |
|
(341 |
) |
(501 |
) |
(562 |
) | |||
|
Ending balance |
|
$ |
30,933 |
|
$ |
27,107 |
|
$ |
22,116 |
|
(a) For the Original MPF, MPF 100, MPF 125 and MPF 125 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.
Second loss layer — The PFI is required to cover the next layer of losses up to an agreed-upon credit enhancement obligation amount, which may consist of a direct liability of the PFI to pay credit losses up to a specified amount, or through a contractual obligation of a PFI to provide supplemental mortgage insurance, or a combination of both.
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 to the PFI, and for other MPF products, the credit enhancement fee is accrued and paid monthly after being deferred for 12 months. CE Fees are paid on a pool level, and if the pool runs down, the amount of future CE fees would shrink in line.
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 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.
PMI is required for loans with a loan-to-value ratio greater than 80% at origination. In addition, for MPF 125 Plus products, Supplemental Mortgage Insurance (“SMI”) may be required from the PFI. Typically, the FHLBNY will pay the PFI a higher credit enhancement fee in return for the PFI taking on the additional obligation.
Table 5.4: Second Losses and SMI Coverage (in thousands)
|
|
|
December 31, 2016 |
|
December 31, 2015 |
| ||
|
|
|
|
|
|
| ||
|
Second Loss Position (a) |
|
$ |
139,610 |
|
$ |
116,405 |
|
|
SMI Coverage - NY share only (b) |
|
$ |
13,134 |
|
$ |
17,593 |
|
|
SMI Coverage - portfolio (b) |
|
$ |
13,420 |
|
$ |
17,958 |
|
(a) Increase due to increase in overall outstanding of MPF.
(b) SMI coverage has declined since no new master commitments have been added under the MPF 125 Plus Program, which requires a SMI coverage. Additionally, certain existing SMI policies were cancelled.
Loan and PFI Concentration — Loan concentration was in New York State, which is to be expected since the largest PFIs are located in New York. The tables below summarize MPF loan and PFI concentration:
Table 5.5: Concentration of MPF Loans
|
|
|
December 31, 2016 |
|
December 31, 2015 |
| ||||
|
|
|
Number of |
|
Amounts |
|
Number of |
|
Amounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
New York State |
|
69.4 |
% |
59.1 |
% |
70.8 |
% |
60.5 |
% |
Table 5.6: Top Five Participating Financial Institutions — Concentration (par value, dollars in thousands)
|
|
|
December 31, 2016 |
| |||
|
|
|
Mortgage |
|
Percent of Total |
| |
|
|
|
Loans |
|
Mortgage Loans |
| |
|
|
|
|
|
|
| |
|
Astoria Bank |
|
$ |
281,672 |
|
10.43 |
% |
|
New York Community Bank |
|
239,096 |
|
8.85 |
| |
|
Investors Bank |
|
179,358 |
|
6.64 |
| |
|
Teachers Federal Credit Union |
|
158,809 |
|
5.88 |
| |
|
Bethpage Federal Credit Union |
|
138,059 |
|
5.11 |
| |
|
All Others |
|
1,703,857 |
|
63.09 |
| |
|
|
|
|
|
|
| |
|
Total |
|
$ |
2,700,851 |
|
100.00 |
% |
|
|
|
December 31, 2015 |
| |||
|
|
|
Mortgage |
|
Percent of Total |
| |
|
|
|
Loans |
|
Mortgage Loans |
| |
|
|
|
|
|
|
| |
|
Astoria Bank |
|
$ |
306,650 |
|
12.37 |
% |
|
Investors Bank |
|
188,201 |
|
7.60 |
| |
|
Manufacturers and Traders Trust Company |
|
141,334 |
|
5.70 |
| |
|
Elmira Savings Bank |
|
133,353 |
|
5.38 |
| |
|
First Choice Bank |
|
130,953 |
|
5.29 |
| |
|
All Others |
|
1,577,638 |
|
63.66 |
| |
|
|
|
|
|
|
| |
|
Total |
|
$ |
2,478,129 |
|
100.00 |
% |
Accrued interest receivable
Other assets
Accrued interest receivable was $163.4 million at December 31, 2016 and $145.9 million at December 31, 2015, and represented interest receivable primarily from advances and investments. Changes in balances would represent the timing of coupons receivable from advances and investments at the balance sheet dates.
Other assets, including prepayments and miscellaneous receivables, were $7.2 million and $8.1 million at December 31, 2016 and December 31, 2015.
Debt Financing Activity and Consolidated Obligations
Our primary source of funds continues to be the issuance of consolidated obligation bonds and discount notes.
Consolidated obligation bonds — The carrying value of consolidated obligation bonds (“CO bonds or “Consolidated obligation bonds”) outstanding at December 31, 2016 was $84.8 billion (par, $84.3 billion), compared to $67.7 billion (par, $67.2 billion) at December 31, 2015. On average, CO bonds funded 57.0% of earning assets in the twelve months ended December 31, 2016 and 2015.
A significant percentage of CO bonds was designated under a fair value accounting hedge. Also, certain CO bonds were hedged by interest rate swaps in economic hedges. Additionally, certain CO bonds were elected under the FVO. Carrying values of CO bonds included valuation basis adjustments on bonds hedged under AC 315 and CO bonds elected under the FVO. For more information about valuation basis adjustments, see Table 6.1.
Consolidated obligation discount notes — The carrying value of consolidated obligation discount notes outstanding was $49.4 billion at December 31, 2016 and $46.8 billion at December 31, 2015. On average, discount notes funded 36.2% of earning assets in the twelve months ended December 31, 2016, compared to 35.9% in the same period in the prior year. No discount notes had been hedged under a fair value accounting hedge at December 31, 2016 and December 31, 2015, although from time to time we have designated the instruments in economic hedges during the periods in this report. Certain discount notes were hedged under a cash flow accounting hedge, and are discussed in financial statements, Note 16. Derivatives and Hedging Activities. Certain discount notes were elected under the FVO. Carrying values included valuation basis adjustments on discount notes elected under the FVO. For more information about valuation basis adjustments, see Table 6.7 Discount Notes Outstanding. 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 Nationally Recognized Rating Organizations, which is presented in Table 6.11.
The issuance and servicing of consolidated obligation debt is 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. 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.
Joint and Several Liability
Although we are primarily liable for our portion of consolidated obligations (i.e. those issued on our behalf), we are also jointly and severally liable with the other FHLBanks for the payment of principal and interest on the consolidated obligations of all the FHLBanks. For more information, see financial statements, Note 18. Commitments and Contingencies.
Consolidated obligation bonds
The following table summarizes types of bonds issued and outstanding (dollars in thousands):
Table 6.1: Consolidated Obligation Bonds by Type
|
|
|
December 31, 2016 |
|
December 31, 2015 |
| ||||||
|
|
|
Amount |
|
Percentage |
|
Amount |
|
Percentage |
| ||
|
|
|
|
|
|
|
|
|
|
| ||
|
Fixed-rate, non-callable |
|
$ |
32,878,545 |
|
38.99 |
% |
$ |
45,808,600 |
|
68.15 |
% |
|
Fixed-rate, callable |
|
1,255,000 |
|
1.49 |
|
3,698,000 |
|
5.50 |
| ||
|
Step Up, callable |
|
160,000 |
|
0.19 |
|
525,000 |
|
0.78 |
| ||
|
Single-index floating rate |
|
50,034,000 |
|
59.33 |
|
17,185,000 |
|
25.57 |
| ||
|
|
|
|
|
|
|
|
|
|
| ||
|
Total par value |
|
84,327,545 |
|
100.00 |
% |
67,216,600 |
|
100.00 |
% | ||
|
|
|
|
|
|
|
|
|
|
| ||
|
Bond premiums |
|
52,336 |
|
|
|
42,169 |
|
|
| ||
|
Bond discounts |
|
(28,527 |
) |
|
|
(33,001 |
) |
|
| ||
|
Hedge valuation basis adjustments (a) |
|
290,016 |
|
|
|
346,423 |
|
|
| ||
|
Hedge basis adjustments on terminated hedges (b) |
|
140,331 |
|
|
|
145,512 |
|
|
| ||
|
FVO (c) - valuation adjustments and accrued interest |
|
2,963 |
|
|
|
(1,751 |
) |
|
| ||
|
|
|
|
|
|
|
|
|
|
| ||
|
Total Consolidated obligation-bonds |
|
$ |
84,784,664 |
|
|
|
$ |
67,715,952 |
|
|
|
Fair value basis and valuation adjustments — Key determinants are factors such as volume, the forward swap curve, the volatility of the swap rates, the remaining duration to maturity, and for bonds elected under the FVO, the changes in the spread between the swap rate and the consolidated obligation debt yields, and changes in interest payable, which is a component of the entire fair value of FVO bonds.
(a) Hedge valuation basis — The reported carrying values of hedged consolidated bonds are adjusted for changes to their fair values (fair value basis adjustments or fair value) that are attributable to the risk being hedged, which is LIBOR for the FHLBNY, and is the discounting basis for computing changes in fair values basis for hedged debt.
At December 31, 2016, the application of the accounting methodology resulted in the recognition of $290.0 million in hedge valuation basis losses, compared to losses of $346.4 million at December 31, 2015. Hedged bonds are fixed-rate liabilities, and certain CO bonds were long-term bonds issued at high coupons in prior years. The remaining durations of the long-term bonds were significantly shorter at the balance sheet dates, and the market yields for the shorter remaining period to maturity were lower than the contractual yields, resulting in valuation losses. Generally, hedge valuation basis are unrealized and will reverse to zero if held to their maturity or their call dates. Valuation basis were not significant, relative to their par values, because the terms to maturity of the hedged bonds were on average short- and medium-term.
Valuation losses have decreased at December 31, 2016, in line with the steepening of the forward LIBOR/swap curve at December 31, 2016; the swap curve is the discounting basis of bonds hedged under ASC 815, and a higher discounting curve when applied to a liability results in a lower valuation loss. Also, see Table 6.2 Bonds Hedged under Qualifying Fair Value Hedges.
(b) Valuation basis of terminated hedges — Represents unamortized cumulative valuation basis of certain CO bonds that were no longer in fair value hedge relationships. The net unrealized cumulative losses at the hedge termination dates for such bonds are no longer adjusted for changes in the benchmark rate. Instead, the valuation basis are amortized on a level yield method, and the net amortization is recorded as a reduction of Interest expense. Unamortized basis adjustments on terminated hedges were losses of $140.3 million and $145.5 million at December 31, 2016 and December 31, 2015. If the CO bonds are held to maturity, the basis losses will be amortized to zero.
(c) FVO valuation adjustments — Valuation basis adjustments are recorded to recognize changes in the entire fair values of CO bonds elected under the FVO, including accrued interest payable. Valuation adjustments and interest accrued payable together reported a net increase in liability of $3.0 million at December 31, 2016, compared to a net reduction in liability of $1.8 million at December 31, 2015. The fair value component of the valuation basis was a net basis gain of $0.1 million at December 31, 2016 and $10.3 million at December 31, 2015, and the remaining amounts were accrued interest payable.
The discounting basis for computing the change in fair value basis of bonds elected under the FVO is the observable (FHLBank) CO bond yield curve. All FVO bonds are short- and medium-term, and fluctuations in their valuations, excluding interest payable, were not significant as the bonds re-price relatively frequently to market indices, remaining near to par, although there could be inter-period volatility over their life cycle. FVO bonds outstanding at the balance sheets dates reported fair value gains in line with the rising market observable CO curve at the two balance sheet dates relative to the contractual coupons of the CO bonds. When the market observed CO rate (the cost of funds pricing curve for the FHLBNY) rises, fair values of existing CO bonds will report unrealized gains.
Par amounts of bonds elected under the FVO were $2.0 billion at December 31, 2016, compared to $13.3 billion at December 31, 2015. We have elected the FVO on an instrument-by-instrument basis. For bonds elected under the FVO, it was not necessary to estimate changes attributable to instrument-specific credit risk, as we consider the credit worthiness of the FHLBanks to be secure and credit related adjustments unnecessary. More information about debt elected under the FVO is provided in financial statements, Note 17. Fair Values of Financial Instruments (See Fair Value Option Disclosures).
Hedge volume — Tables 6.2 — 6.4 provide information with respect to par amounts of bonds based on accounting designation: (1) under hedge qualifying rules, (2) under the FVO, and (3) as an economic hedge (in thousands):
Table 6.2: Bonds Hedged under Qualifying Fair Value Hedges
Qualifying hedges — Generally, fixed-rate (bullet and callable) medium and long-term consolidated obligation bonds are hedged in a Fair value hedge that would qualify under ASC 815.
|
|
|
Consolidated Obligation Bonds |
| ||||
|
Par Amount |
|
December 31, 2016 |
|
December 31, 2015 |
| ||
|
Qualifying Hedges |
|
|
|
|
| ||
|
Fixed-rate bullet bonds |
|
$ |
21,696,855 |
|
$ |
23,259,610 |
|
|
Fixed-rate callable bonds |
|
400,000 |
|
2,380,000 |
| ||
|
|
|
$ |
22,096,855 |
|
$ |
25,639,610 |
|
Table 6.3: Bonds Elected under the Fair Value Option (FVO)
CO bonds elected under the FVO — If at inception of a hedge we do not believe that a hedge would be highly effective in offsetting fair value changes between the derivative and the debt (hedged item), we may designate the debt under the FVO if operationally practical. We would record fair value changes of the FVO debt through earnings, and to the extent the debt is economically hedged, record changes of the fair values of the interest rate swap through earnings. The recorded balance sheet value of debt under the FVO would include the fair value basis adjustments, so that the debt’s balance sheet carrying values would be its full fair value.
|
|
|
Consolidated Obligation Bonds |
| ||||
|
Par Amount |
|
December 31, 2016 |
|
December 31, 2015 |
| ||
|
Bonds designated under FVO |
|
$ |
2,049,550 |
|
$ |
13,322,660 |
|
CO bonds elected under the FVO were generally economically hedged by interest rate swaps. Election of short-term bonds under the FVO has largely been in parallel with the election of advances under the FVO as a natural fair value offset. We elected to account for the bonds under the FVO when we were generally unable to assert with confidence that the short- and intermediate-term bonds, or callable bonds, with short lock-out periods to the exercise of call options, would remain effective hedges as required under hedge accounting rules. We opted instead to elect to hedge such FVO bonds on an economic basis with an interest rate swap. Table 6.4 below provides more information. Also, see financial statements, Fair Value Option disclosures in Note 17. Fair Values of Financial Instruments.
Table 6.4: Economically Hedged Bonds
(Excludes consolidated obligation bonds elected under the FVO and hedged economically)
Economically hedged bonds — We also issue variable rate debt with coupons that are not indexed to the 3-month LIBOR, our preferred funding base. To mitigate the economic risk of a change in the basis between the 1-month LIBOR and the 3-month LIBOR, we have executed basis rate swaps that have synthetically created 3-month LIBOR debt. The operational cost of electing the FVO or designating the instruments in a fair value hedge outweighed the accounting benefits of offsetting fair value gains and losses. We opted instead to designate the basis swap as a standalone derivative, and recorded changes in their fair values through earnings. The carrying value of the debt would not include fair value basis since the debt is recorded at amortized cost.
|
|
|
Consolidated Obligation Bonds |
| ||||
|
Par Amount |
|
December 31, 2016 |
|
December 31, 2015 |
| ||
|
Bonds designated as economically hedged |
|
|
|
|
| ||
|
Floating-rate bonds (a) |
|
$ |
10,225,000 |
|
$ |
3,735,000 |
|
|
Fixed-rate bonds (b) |
|
— |
|
45,000 |
| ||
|
|
|
$ |
10,225,000 |
|
$ |
3,780,000 |
|
(a) Floating-rate debt — Floating-rate bonds were indexed to 1-month LIBOR and swapped in economic hedges to 3-month LIBOR with the execution of basis swaps. Issuances of floating-rate bonds increased partly due to favorable pricing of the 1-month LIBOR indexed bonds, and partly due to increase in the funding needs for variable debt.
(b) Fixed-rate debt — Represent bonds that were previously hedged and that have fallen out of effectiveness.
Consolidated obligation bonds — maturity or next call date (a)
Callable bonds contain an exercise date or a series of exercise dates that may result in a shorter redemption period. The following table summarizes consolidated bonds outstanding by years to maturity or next call date (dollars in thousands):
Table 6.5: Consolidated Obligation Bonds — Maturity or Next Call Date
|
|
|
December 31, 2016 |
|
December 31, 2015 |
| ||||||
|
|
|
Amount |
|
Percentage |
|
Amount |
|
Percentage |
| ||
|
Year of maturity or next call date |
|
|
|
|
|
|
|
|
| ||
|
Due or callable in one year or less |
|
$ |
56,586,690 |
|
67.10 |
% |
$ |
40,573,630 |
|
60.36 |
% |
|
Due or callable after one year through two years |
|
19,523,965 |
|
23.16 |
|
17,785,465 |
|
26.46 |
| ||
|
Due or callable after two years through three years |
|
3,206,095 |
|
3.80 |
|
3,123,285 |
|
4.65 |
| ||
|
Due or callable after three years through four years |
|
1,035,175 |
|
1.23 |
|
1,278,750 |
|
1.90 |
| ||
|
Due or callable after four years through five years |
|
845,320 |
|
1.00 |
|
925,050 |
|
1.38 |
| ||
|
Thereafter |
|
3,130,300 |
|
3.71 |
|
3,530,420 |
|
5.25 |
| ||
|
|
|
|
|
|
|
|
|
|
| ||
|
Total par value |
|
84,327,545 |
|
100.00 |
% |
67,216,600 |
|
100.00 |
% | ||
|
|
|
|
|
|
|
|
|
|
| ||
|
Bond premiums |
|
52,336 |
|
|
|
42,169 |
|
|
| ||
|
Bond discounts |
|
(28,527 |
) |
|
|
(33,001 |
) |
|
| ||
|
Hedge valuation basis adjustments |
|
290,016 |
|
|
|
346,423 |
|
|
| ||
|
Hedge basis adjustments on terminated hedges |
|
140,331 |
|
|
|
145,512 |
|
|
| ||
|
FVO - valuation adjustments and accrued interest |
|
2,963 |
|
|
|
(1,751 |
) |
|
| ||
|
Total bonds |
|
$ |
84,784,664 |
|
|
|
$ |
67,715,952 |
|
|
|
(a) Contrasting consolidated obligation bonds by contractual maturity dates (see financial statements, Note 11. Consolidated Obligations — Redemption Terms of Consolidated Obligation bonds) with potential call dates (as reported in table above) illustrates the impact of hedging on the effective duration of the bond. With a callable bond, we have purchased the option to terminate debt at agreed upon dates from investors. 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 (par amounts, in thousands):
Table 6.6: Outstanding Callable Bonds
|
|
|
December 31, 2016 |
|
December 31, 2015 |
| ||
|
Callable |
|
$ |
1,415,000 |
|
$ |
4,223,000 |
|
|
Non-Callable |
|
$ |
82,912,545 |
|
$ |
62,993,600 |
|
Discount Notes
The following table summarizes discount notes issued and outstanding (dollars in thousands):
Table 6.7: Discount Notes Outstanding
|
|
|
December 31, 2016 |
|
December 31, 2015 |
| ||
|
|
|
|
|
|
| ||
|
Par value |
|
$ |
49,392,445 |
|
$ |
46,875,847 |
|
|
Amortized cost |
|
$ |
49,334,380 |
|
$ |
46,837,709 |
|
|
FVO (a) - valuation adjustments and remaining accretion |
|
23,514 |
|
12,159 |
| ||
|
Total discount notes |
|
$ |
49,357,894 |
|
$ |
46,849,868 |
|
|
|
|
|
|
|
| ||
|
Weighted average interest rate |
|
0.48 |
% |
0.26 |
% | ||
(a) Valuation basis adjustments, including unaccreted discounts, that were recorded to recognize changes in the entire fair values of CO discount notes elected under the FV, were net liabilities of $23.5 million at December 31, 2016 and $12.2 million at December 31, 2015. Unrealized fair values net losses of $0.4 million at December 31, 2016 and $4.0 million at December 31, 2015. The discounting basis for computing changes in fair values of discount notes elected under the FVO is the observable FHLBank discount note 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, and the growth or decline in volume. If held to maturity, unaccreted discounts will be fully accreted to par, and unrealized fair value gains and losses will sum to zero over the term to maturity.
The following table summarizes discount notes under the FVO (in thousands):
Table 6.8: Discount Notes under the Fair Value Option (FVO)
|
|
|
Consolidated Obligation Discount Notes |
| ||||
|
Par Amount |
|
December 31, 2016 |
|
December 31, 2015 |
| ||
|
Discount notes designated under FVO (a) |
|
$ |
12,204,898 |
|
$ |
12,459,708 |
|
(a) We elected the FVO for the discount notes to partly offset the volatility of floating-rate advances elected under the FVO. For discount notes elected under the FVO, it was not necessary to estimate changes attributable to instrument-specific credit risk, as we consider the credit worthiness of the FHLBanks to be secured and credit related adjustments unnecessary.
The following table summarizes Cash flow hedges of discount notes (in thousands):
Table 6.9: Cash Flow Hedges of Discount Notes
|
|
|
Consolidated Obligation Discount Notes |
| ||||
|
Principal Amount |
|
December 31, 2016 |
|
December 31, 2015 |
| ||
|
Discount notes hedged under qualifying hedge (a) |
|
$ |
1,839,000 |
|
$ |
1,589,000 |
|
(a) Par amounts represent discounts notes issued in cash flow “rollover” hedge strategies that hedged the variability of 91-day discount notes issued in sequence typically for periods up to 15 years. In this strategy, the discount note expense, which resets every 91 days, is synthetically changed to fixed cash flows over the hedge periods, thereby achieving hedge objectives. For more information, see financial statements, Cash Flow Hedges in Note 16. Derivatives and Hedging Activities.
The following table summarizes economic hedges of discount notes (in thousands):
Table 6.10: Economically Hedged Discount Notes
|
|
|
Consolidated Obligation Discount Notes |
| ||||
|
Par Amount |
|
December 31, 2016 |
|
December 31, 2015 |
| ||
|
Discount notes designated as economically hedged (a) |
|
$ |
994,000 |
|
$ |
— |
|
(a) Economically hedged discount notes— We issue fixed rate debt to mitigate the economic risk of fixed-rate expenses on such debt.
Table 6.11 below presents FHLBank’s long-term credit rating, short-term credit rating and outlook at February 28, 2017.
Table 6.11: FHLBNY Ratings
|
|
|
|
|
S&P |
|
|
|
Moody’s |
| ||||
|
|
|
|
|
Long-Term/ Short-Term |
|
|
|
Long-Term/ Short-Term |
| ||||
|
Year |
|
|
|
Rating |
|
Outlook |
|
|
|
Rating |
|
Outlook |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016 |
|
August 3, 2016 |
|
AA+/A-1+ |
|
Stable/Affirmed |
|
November 11, 2016 |
|
Aaa/P-1 |
|
Stable/Affirmed |
|
|
|
|
|
|
|
|
|
|
May 6, 2016 |
|
Aaa/P-1 |
|
Stable/Affirmed |
|
|
|
|
|
|
|
|
|
|
April 20, 2016 |
|
Aaa/P-1 |
|
Stable/Affirmed |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015 |
|
June 25, 2015 |
|
AA+/A-1+ |
|
Stable/Affirmed |
|
December 22, 2015 |
|
Aaa/P-1 |
|
Stable/Affirmed |
|
|
|
|
|
|
|
|
|
|
June 24, 2015 |
|
Aaa/P-1 |
|
Stable/Affirmed |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014 |
|
August 19, 2014 |
|
AA+/A-1+ |
|
Stable/Affirmed |
|
December 22, 2014 |
|
Aaa/P-1 |
|
Stable/Affirmed |
|
|
|
|
|
|
|
|
|
|
July 2, 2014 |
|
Aaa/P-1 |
|
Stable/Affirmed |
|
Accrued interest payable
Other liabilities
Accrued interest payable — Amounts outstanding were $130.2 million at December 31, 2016 and $108.6 million at December 31, 2015. Accrued interest payable was comprised primarily of interest due and unpaid on consolidated obligation bonds, which are generally payable on a semi-annual basis. Fluctuations in unpaid interest balances on bonds are due to the timing of semi-annual coupon accruals and payments at the balance sheet dates.
Other liabilities — Amounts outstanding were $167.2 million at December 31, 2016 and $151.4 million at December 31, 2015. Other liabilities comprised of unfunded pension liabilities, pass-through reserves held on behalf of members at the FRBNY, commitments and miscellaneous payables.
The following table summarizes the components of Stockholders’ capital (in thousands):
Table 7.1: Stockholders’ Capital
|
|
|
December 31, 2016 |
|
December 31, 2015 |
| ||
|
Capital Stock (a) |
|
$ |
6,307,766 |
|
$ |
5,585,030 |
|
|
Unrestricted retained earnings (b) |
|
1,028,674 |
|
967,078 |
| ||
|
Restricted retained earnings (c) |
|
383,291 |
|
303,061 |
| ||
|
Accumulated Other Comprehensive Loss |
|
(95,650 |
) |
(135,687 |
) | ||
|
Total Capital |
|
$ |
7,624,081 |
|
$ |
6,719,482 |
|
(a) Stockholders’ Capital — Capital stock increased in line with the increase in advances borrowed. When an advance matures or is prepaid, the excess capital stock is re-purchased by the FHLBNY. When an advance is borrowed or a member joins the FHLBNY’s membership, the member is required to purchase capital stock.
(b) Unrestricted retained earnings — Net Income for the twelve months ended December 31, 2016 was $401.2 million; $80.2 million was set aside towards Restricted retained earnings. From the remaining amount, we paid $259.3 million to members as dividends in the twelve months ended December 31, 2016. As a result, Unrestricted retained earnings increased by $61.6 million to $1.0 billion at December 31, 2016.
(c) Restricted retained earnings — Restricted retained earning balance at December 31, 2016 has grown to $383.3 million from the third quarter of 2011 when the FHLBanks, including the FHLBNY agreed to set up a restricted retained earnings account. The FHLBNY will allocate at least 20% of its net income to the FHLBNY’s Restricted retained earnings account until the balance of the account equals at least 1% of FHLBNY’s average balance of outstanding Consolidated Obligations for the previous quarter.
The following table summarizes the components of AOCI (in thousands):
Table 7.2: Accumulated Other Comprehensive Income (Loss) (“AOCI”)
|
|
|
December 31, 2016 |
|
December 31, 2015 |
| ||
|
|
|
|
|
|
| ||
|
Accumulated other comprehensive loss |
|
|
|
|
| ||
|
Non-credit portion of OTTI on held-to-maturity securities, net of accretion (a) |
|
$ |
(30,234 |
) |
$ |
(36,813 |
) |
|
Net unrealized gains on available-for-sale securities (b) |
|
4,224 |
|
9,283 |
| ||
|
Net unrealized losses on hedging activities (c) |
|
(47,018 |
) |
(91,037 |
) | ||
|
Employee supplemental retirement plans (d) |
|
(22,622 |
) |
(17,120 |
) | ||
|
Total Accumulated other comprehensive loss |
|
$ |
(95,650 |
) |
$ |
(135,687 |
) |
(a) OTTI — Non-credit OTTI losses recorded in AOCI declined at December 31, 2016, primarily due to accretion recorded as a reduction in AOCI and a corresponding increase in the balance sheet carrying values of the OTTI securities.
(b) Fair values of available-for-sale securities — Balances represent net unrealized fair value gains of MBS securities and the grantor trust fund classified as available-for-sale. The valuation of MBS in the AFS portfolio were substantially in unrealized gain positions at December 31, 2016 and December 31, 2015.
(c) Cash flow hedge valuation losses — Cumulative losses from the two cash flow hedging strategies were $47.0 million at December 31, 2016 and $91.0 million at December 31, 2015. Financial statements, Note 16. Derivatives and Hedging Activities, includes a rollforward analysis, which provides more information with respect to changes in AOCI.
(d) Employee supplemental plans — Balances represent actuarially determined supplemental pension and postretirement health benefit liabilities that were not recognized through earnings. Amounts are amortized as an expense through Compensation and benefits over an actuarially determined period.
Dividends — By Finance Agency regulation, dividends may be paid out of current earnings or if certain conditions are met, may be paid out of previously retained earnings. We may be restricted from paying dividends if we do not comply with any of the Finance Agency’s minimum capital requirements or if payment would cause us to fail to meet any of the minimum capital requirements, including our Retained earnings target as established by the Board of Directors of the FHLBNY. In addition, we may not pay dividends if any principal or interest due on any consolidated obligations has not been paid in full, or if we fail to satisfy certain liquidity requirements under applicable Finance Agency regulations. None of these restrictions applied for any period presented.
The following table summarizes dividends paid and payout ratios:
Table 7.3: Dividends Paid and Payout Ratios
|
|
|
Twelve months ended |
| ||||
|
|
|
December 31, 2016 |
|
December 31, 2015 |
| ||
|
Cash dividends paid per share |
|
$ |
4.73 |
|
$ |
4.22 |
|
|
Dividends paid (a) (c) |
|
$ |
259,326 |
|
$ |
227,443 |
|
|
Pay-out ratio (b) |
|
64.65 |
% |
54.83 |
% | ||
(a) In thousands.
(b) Dividend paid during the period divided by net income for the period.
(c) Does not include dividend paid to non-member; for accounting purposes, such dividends are recorded as interest expense.
Derivative Instruments and Hedging Activities
Interest rate swaps, swaptions, cap and floor agreements (collectively, derivatives) enable us to manage our exposure to changes in interest rates by adjusting the effective maturity, repricing frequency, or option characteristics of financial instruments. To a limited extent, we also use interest rate swaps to hedge changes in interest rates prior to debt issuance and essentially lock in funding costs. Finance Agency regulations prohibit the speculative use of derivatives. For additional information about the methodologies adopted for the fair value measurement of derivatives, see financial statements, Note 17. Fair Values of Financial Instruments.
The following tables summarize the principal derivatives hedging strategies outstanding as of December 31, 2016 and December 31, 2015:
Table 8.1: Derivative Hedging Strategies — Advances
|
Derivatives/Terms |
|
Hedging Strategy |
|
Accounting Designation |
|
December 31, 2016 |
|
December 31, 2015 |
| ||
|
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 |
|
Economic Hedge of Fair Value Risk |
|
$ |
77 |
|
$ |
3 |
|
|
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 |
|
Economic Hedge of Fair Value Risk |
|
$ |
14 |
|
$ |
— |
|
|
Pay fixed, receive adjustable interest rate swap |
|
To convert fixed rate advance (with embedded caps) to a LIBOR adjustable rate |
|
Fair Value Hedge |
|
$ |
180 |
|
$ |
180 |
|
|
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 |
|
$ |
5 |
|
$ |
— |
|
|
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 |
|
$ |
2,498 |
|
$ |
3,584 |
|
|
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 |
|
$ |
1,088 |
|
$ |
1,574 |
|
|
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 |
|
$ |
37,466 |
|
$ |
38,097 |
|
|
Purchased interest rate options |
|
To offset interest rate options in variable rate advance |
|
Economic Hedge of Fair Value Risk |
|
$ |
6 |
|
$ |
6 |
|
|
Pay fixed, receive floating interest rate swap non-cancellable |
|
Fixed rate non-putable advance converted to a LIBOR floating rate; matched to non-putable advance accounted for under fair value option |
|
Fair Value Option |
|
$ |
430 |
|
$ |
3,758 |
|
Table 8.2: Derivative Hedging Strategies — Consolidated Obligation Liabilities
|
Derivatives/Terms |
|
Hedging Strategy |
|
Accounting Designation |
|
December 31, 2016 |
|
December 31, 2015 |
| ||
|
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 |
|
Economic Hedge of Fair Value Risk |
|
$ |
— |
|
$ |
15 |
|
|
Receive fixed, pay floating interest rate swap non-cancellable |
|
To convert fixed rate consolidated obligation bond debt to a LIBOR floating rate non-callable |
|
Economic Hedge of Fair Value Risk |
|
$ |
— |
|
$ |
15 |
|
|
Receive fixed, pay floating interest rate swap no longer cancellable |
|
To convert fixed rate consolidated obligation bond debt to a LIBOR floating rate no-longer callable |
|
Economic Hedge of Fair Value Risk |
|
$ |
— |
|
$ |
15 |
|
|
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 |
|
$ |
400 |
|
$ |
2,380 |
|
|
Receive fixed, pay floating interest rate swap no longer cancellable |
|
To convert fixed rate consolidated obligation bond debt to a LIBOR floating rate no-longer callable |
|
Fair Value Hedge |
|
$ |
120 |
|
$ |
160 |
|
|
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 |
|
$ |
21,577 |
|
$ |
23,100 |
|
|
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 |
|
$ |
994 |
|
$ |
— |
|
|
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 bond debt. |
|
Cash flow hedge |
|
$ |
95 |
|
$ |
35 |
|
|
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 |
|
$ |
1,839 |
|
$ |
1,589 |
|
|
Basis swap |
|
To convert 1M LIBOR index to 3M LIBOR to reduce interest rate sensitivity and repricing gaps |
|
Economic Hedge of Cash Flows |
|
$ |
10,225 |
|
$ |
3,735 |
|
|
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 |
|
$ |
30 |
|
$ |
718 |
|
|
Receive fixed, pay floating interest rate swap no longer cancelable |
|
Fixed rate callable bond converted to a LIBOR floating rate; matched to bond no-longer callable accounted for under fair value option. |
|
Fair Value Option |
|
$ |
— |
|
$ |
1,150 |
|
|
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 |
|
$ |
2,020 |
|
$ |
11,455 |
|
|
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 |
|
$ |
12,205 |
|
$ |
12,460 |
|
Table 8.3: Derivative Hedging Strategies — Economic hedges of Trading Securities
|
Derivatives/Terms |
|
Hedging Strategy |
|
Accounting Designation |
|
December 31, 2016 |
|
|
| |
|
Pay fixed, receive OIS index interest rate swaps |
|
To convert fixed rate on fixed rate trading securities to the OIS index |
|
Economic Hedge |
|
$ |
131 |
|
|
|
Table 8.4: Derivative Hedging Strategies — Balance Sheet and Intermediation
|
Derivatives/Terms |
|
Hedging Strategy |
|
Accounting Designation |
|
December 31, 2016 |
|
December 31, 2015 |
| ||
|
Purchased interest rate cap |
|
Economic hedge on the Balance Sheet |
|
Economic Hedge |
|
$ |
2,692 |
|
$ |
2,692 |
|
|
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 |
|
$ |
258 |
|
$ |
62 |
|
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 table also provides a reconciliation of fair value basis gains and (losses) of derivatives to the Statements of Condition (in thousands):
Table 8.5: Derivatives Financial Instruments by Product
|
|
|
December 31, 2016 |
|
December 31, 2015 |
| ||||||||
|
|
|
|
|
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 |
|
$ |
41,236,991 |
|
$ |
(3,676 |
) |
$ |
43,435,436 |
|
$ |
(341,254 |
) |
|
Consolidated obligation fair value hedges |
|
22,096,855 |
|
293,821 |
|
25,639,610 |
|
349,649 |
| ||||
|
Cash Flow-anticipated transactions |
|
1,934,000 |
|
(47,533 |
) |
1,624,000 |
|
(85,243 |
) | ||||
|
Derivatives not designated as hedging instruments (b) |
|
|
|
|
|
|
|
|
| ||||
|
Advances hedges |
|
97,445 |
|
(372 |
) |
8,575 |
|
28 |
| ||||
|
Trading securities |
|
130,930 |
|
41 |
|
— |
|
— |
| ||||
|
Consolidated obligation hedges |
|
11,219,000 |
|
(573 |
) |
3,780,000 |
|
(1,749 |
) | ||||
|
Mortgage delivery commitments |
|
28,447 |
|
(40 |
) |
14,806 |
|
3 |
| ||||
|
Balance sheet |
|
2,692,000 |
|
5,200 |
|
2,692,000 |
|
4,920 |
| ||||
|
Intermediary positions hedges |
|
258,000 |
|
319 |
|
62,000 |
|
61 |
| ||||
|
Derivatives matching Advances designated under FVO (c) |
|
|
|
|
|
|
|
|
| ||||
|
Interest rate swaps-advances |
|
430,000 |
|
62 |
|
3,758,000 |
|
1,886 |
| ||||
|
Derivatives matching COs designated under FVO (c) |
|
|
|
|
|
|
|
|
| ||||
|
Interest rate swaps-consolidated obligation bonds |
|
2,049,550 |
|
(1,490 |
) |
13,322,660 |
|
(8,770 |
) | ||||
|
Interest rate swaps-consolidated obligation discount notes |
|
12,204,897 |
|
(3,528 |
) |
12,459,709 |
|
(4,409 |
) | ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Total notional and fair value |
|
$ |
94,378,115 |
|
$ |
242,231 |
|
$ |
106,796,796 |
|
$ |
(84,878 |
) |
|
|
|
|
|
|
|
|
|
|
| ||||
|
Total derivatives, excluding accrued interest |
|
|
|
$ |
242,231 |
|
|
|
$ |
(84,878 |
) | ||
|
Cash collateral pledged to counterparties (d) |
|
|
|
255,967 |
|
|
|
370,529 |
| ||||
|
Cash collateral received from counterparties |
|
|
|
(354,658 |
) |
|
|
(329,895 |
) | ||||
|
Accrued interest |
|
|
|
40,350 |
|
|
|
15,807 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Derivative balance net of cash collateral |
|
|
|
$ |
183,890 |
|
|
|
$ |
(28,437 |
) | ||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Net derivative asset balance (d), (e) |
|
|
|
$ |
328,875 |
|
|
|
$ |
181,676 |
| ||
|
Net derivative liability balance (e) |
|
|
|
(144,985 |
) |
|
|
(210,113 |
) | ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Derivative balance net of cash collateral |
|
|
|
$ |
183,890 |
|
|
|
$ |
(28,437 |
) | ||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Non-cash collateral |
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Security collateral received from counterparty (f) |
|
|
|
(104,470 |
) |
|
|
— |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Net exposure from (to) counterparties |
|
|
|
$ |
79,420 |
|
|
|
$ |
(28,437 |
) | ||
(a) Derivatives that qualified as a fair value or cash flow hedge under hedge accounting rules.
(b) Derivatives that did not qualify under hedge accounting rules, but were utilized as an economic hedge (“standalone”).
(c) Derivatives that were utilized as economic hedges of financial instruments elected under the FVO.
(d) Net derivative asset balance included $218.9 million and $173.7 million of excess cash collateral/margins posted by the FHLBNY to derivative counterparties at December 31, 2016 and December 31, 2015. Excess margins were largely the initial margins posted to Derivative Clearing Organizations in compliance with rules for cleared swaps.
(e) Statements of condition
(f) Counterparty has pledged U.S. treasury security as collateral
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.
Derivative Credit Risk Exposure and Concentration
In addition to market risk, we are subject to credit risk in derivative transactions because of the potential for non-performance by the counterparties, which could result in the FHLBNY having to acquire a replacement derivative from a different counterparty at a cost that may exceed its recorded fair values. We are also subject to operational risks in the execution and servicing of derivative transactions. The degree of counterparty credit risk may depend on, among other factors, the extent to which netting procedures and/or the provision of collateral are used to mitigate the risk. Summarized below are our risk measurement and mitigation processes:
Risk measurement — We estimate exposure to credit loss on derivative instruments by calculating the replacement cost, on a present value basis, to settle at current market prices all outstanding derivative contracts in a gain position, net of collateral pledged by the counterparty. All derivative contracts with non-members are also subject to master netting agreements or other right of offset arrangements.
Exposure — In determining credit risk, we consider accrued interest receivable and payable, and the legal right to offset assets and liabilities by counterparty. We attempt to mitigate exposure by requiring derivative counterparties to pledge cash collateral if the amount of exposure is above the collateral threshold agreements.
Our credit exposures (derivatives in a net gain position) were to highly-rated counterparties and a Derivative Clearing Organization (“DCO”) that met our credit quality standards. Our exposures also included open derivative contracts executed on behalf of member institutions, and the exposures were collateralized under standard advance collateral agreements with our members. For such transactions, acting as an intermediary, we offset the transaction
by purchasing equivalent notional amounts of derivatives from unrelated derivative counterparties. For more information, see financial statements, Credit Risk due to non-performance by counterparties, in Note 16. Derivatives and Hedging Activities.
Risk mitigation — We attempt to mitigate derivative counterparty credit risk by contracting only with experienced counterparties with investment-quality credit ratings that meet our credit quality standards. Annually, our management and Board of Directors review and approve all non-member derivative counterparties. We monitor counterparties on an ongoing basis for significant business events, including ratings actions taken by Nationally Recognized Statistical Rating Organizations (“NRSRO”). All approved derivatives counterparties must enter into a master ISDA agreement with our bank before we execute a trade through that counterparty. In addition, for all bilateral OTC derivatives, we have executed the Credit Support Annex to the ISDA agreement that provides for collateral support at predetermined thresholds. For Cleared-OTC derivatives, margin requirements are mandated under the Dodd-Frank Act. We believe that such arrangements - margin requirements, the selection of experienced, highly-rated counterparties and ongoing monitoring -have sufficiently mitigated our exposures, and we do not anticipate any credit losses on derivative contracts.
Derivatives Counterparty Credit Ratings
The following table summarizes notional amounts and fair values for the FHLBNY’s derivative exposures as represented by derivatives in fair value gain positions. With certain counterparties, specifically the derivative central clearing organizations, we post initial margin in addition to collateral (variation margin). Together, it typically results in excess cash collateral posted by the FHLBNY. We consider the excess collateral as our derivative exposure. In such instances, the “Net Derivatives Fair Values before Collateral” may be negative (DCOs are exposed). However, after including excess cash margins, the FHLBNY is exposed.
For derivatives where the counterparties were in gain positions, the fair values and notional amounts are grouped together (in thousands):
Table 8.6: Derivatives Counterparty Credit Ratings
|
|
|
December 31, 2016 |
| ||||||||||||||||
|
Credit Rating |
|
Notional Amount |
|
Net Derivatives Fair |
|
Cash Collateral |
|
Balance Sheet |
|
Non-cash Collateral |
|
Net Credit |
| ||||||
|
Non-member counterparties |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Asset positions with credit exposure |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Bilateral derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Single-A (c) |
|
$ |
2,659,543 |
|
$ |
142,230 |
|
$ |
(29,450 |
) |
$ |
112,780 |
|
$ |
(104,470 |
) |
$ |
8,310 |
|
|
Cleared derivatives (d) |
|
81,202,783 |
|
305,243 |
|
(89,148 |
) |
216,095 |
|
— |
|
216,095 |
| ||||||
|
Total derivative positions with non-member counterparties to which the Bank had credit exposure |
|
83,862,326 |
|
447,473 |
|
(118,598 |
) |
328,875 |
|
(104,470 |
) |
224,405 |
| ||||||
|
Member institutions |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Derivative positions with member counterparties to which the Bank had credit exposure |
|
129,000 |
|
— |
|
— |
|
— |
|
— |
|
— |
| ||||||
|
Delivery Commitments |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Derivative position with delivery commitments |
|
28,447 |
|
— |
|
— |
|
— |
|
— |
|
— |
| ||||||
|
Total derivative position with members |
|
157,447 |
|
— |
|
— |
|
— |
|
— |
|
— |
| ||||||
|
Derivative positions with credit exposure |
|
84,019,773 |
|
$ |
447,473 |
|
$ |
(118,598 |
) |
$ |
328,875 |
|
$ |
(104,470 |
) |
$ |
224,405 |
| |
|
Derivative positions without fair value credit exposure |
|
10,358,342 |
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Total notional |
|
$ |
94,378,115 |
|
|
|
|
|
|
|
|
|
|
| |||||
|
|
|
December 31, 2015 |
| ||||||||||||||||
|
Credit Rating |
|
Notional Amount |
|
Net Derivatives Fair |
|
Cash Collateral |
|
Balance Sheet |
|
Non-cash Collateral |
|
Net Credit |
| ||||||
|
Non-member counterparties |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Asset positions with credit exposure |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Bilateral derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Double-A (C) |
|
$ |
15,000 |
|
$ |
108 |
|
$ |
— |
|
$ |
108 |
|
$ |
— |
|
$ |
108 |
|
|
Single-A (C) |
|
2,664,093 |
|
116,535 |
|
(106,000 |
) |
10,535 |
|
— |
|
10,535 |
| ||||||
|
Cleared derivatives (d) |
|
83,933,206 |
|
220,005 |
|
(49,320 |
) |
170,685 |
|
— |
|
170,685 |
| ||||||
|
Total derivative positions with non-member counterparties to which the Bank had credit exposure |
|
86,612,299 |
|
336,648 |
|
(155,320 |
) |
181,328 |
|
— |
|
181,328 |
| ||||||
|
Member institutions |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Derivative positions with member counterparties to which the Bank had credit exposure |
|
31,000 |
|
345 |
|
— |
|
345 |
|
(345 |
) |
— |
| ||||||
|
Delivery Commitments |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Derivative position with delivery commitments |
|
14,806 |
|
3 |
|
— |
|
3 |
|
(3 |
) |
— |
| ||||||
|
Total derivative position with members |
|
45,806 |
|
348 |
|
— |
|
348 |
|
(348 |
) |
— |
| ||||||
|
Derivative positions with credit exposure |
|
86,658,105 |
|
$ |
336,996 |
|
$ |
(155,320 |
) |
$ |
181,676 |
|
$ |
(348 |
) |
$ |
181,328 |
| |
|
Derivative positions without fair value credit exposure |
|
20,138,691 |
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Total notional |
|
$ |
106,796,796 |
|
|
|
|
|
|
|
|
|
|
| |||||
(a) Includes excess margins posted to counterparties and to a Derivative Clearing Organization on derivatives that were classified as derivative assets, as they represent an exposure for the FHLBNY.
(b) Members pledge non-cash collateral to fully collateralize their exposures. Non-cash collateral is not deducted from net derivative assets on the balance sheet.
(c) NRSRO Ratings.
(d) Net exposure includes excess cash margins posted to derivative clearing organizations (DCOs) on cleared derivatives, primarily in the form of “Initial Margins”.
Uncleared derivatives — Notional amounts of uncleared (bilaterally executed) derivatives were $13.2 billion at December 31, 2016 and $22.9 billion at December 31, 2015. For bilaterally executed OTC derivatives (uncleared derivatives), 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 with derivative counterparties would require us to post additional collateral based solely on an adverse change in our credit rating by S&P and Moody’s. In the event of a split rating, the lower rating will apply. We do not expect to post additional collateral. The FHLBNY is rated AA+/stable by S&P’s and Aaa/stable by Moody’s.
Cleared derivatives — Notional amounts of cleared derivatives were $81.2 billion at December 31, 2016 and $83.9 billion at December 31, 2015. For cleared OTC derivatives, margin requirements are determined by the DCO based on the volatility of the exposure, and generally credit ratings are not factored into the margin amounts. Clearing agents may require additional margin amounts to be posted based on credit considerations. We were not subject to additional margin calls by our clearing agents at any periods in this report.
Collateral and margin posted — Cash collateral of $256.0 million and $370.5 million were posted to swap counterparties (including DCOs) at December 31, 2016 and December 31, 2015. Cash collateral included variation margins posted to clearing agents on behalf of DCOs on cleared derivatives. Variation margins are settled daily and represent the fair values of cleared derivatives.
After posting cash collateral, the fair values of our derivative instruments in net liability positions were approximately $145.0 million and $210.1 million, at December 31, 2016 and December 31, 2015. Amounts represented the exposures facing the swap counterparties in the event of non-performance by the FHLBNY to the swap contracts.
On the assumption that 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 $20.3 million at December 31, 2016 and $27.3 million at December 31, 2015. Additional collateral postings upon an assumed downgrade were estimated based on the individual collateral posting provisions of the CSA of the counterparty and the actual bilateral exposure of the counterparty and the FHLBNY at those dates.
Derivative Counterparty Country Concentration Risk
The following tables summarize derivative notional amounts and fair values by country of incorporation (dollars in thousands):
Table 8.7: FHLBNY Exposure Concentration (a)
|
|
|
|
|
December 31, 2016 |
| ||||||||
|
|
|
Ultimate Country |
|
Notional |
|
Percentage |
|
Fair Value |
|
Percentage |
| ||
|
Counterparties (Asset position) |
|
of Incorporation (b) |
|
Amount |
|
of Total |
|
Exposure |
|
of Total |
| ||
|
Counterparty (ies) |
|
U.S.A. (c) |
|
$ |
83,303,216 |
|
88.26 |
% |
$ |
328,810 |
|
99.98 |
% |
|
Counterparty (ies) |
|
Switzerland |
|
559,110 |
|
0.59 |
|
65 |
|
0.02 |
| ||
|
Total Credit Exposure (Fair values, net) - Balance sheet assets |
|
|
|
83,862,326 |
|
88.85 |
|
$ |
328,875 |
|
100.00 |
% | |
|
Security collateral received from counterparty |
|
U.S.A. |
|
|
|
|
|
(104,470 |
) |
|
| ||
|
|
|
|
|
|
|
|
|
$ |
224,405 |
|
|
| |
|
Counterparties (Liability position) |
|
|
|
|
|
|
|
Fair Value |
|
|
| ||
|
Counterparty (ies) |
|
U.S.A. |
|
8,023,974 |
|
8.50 |
|
$ |
(113,609 |
) |
|
| |
|
Counterparty (ies) |
|
United Kingdom |
|
1,224,368 |
|
1.30 |
|
(5,783 |
) |
|
| ||
|
Counterparty (ies) |
|
Germany |
|
789,000 |
|
0.84 |
|
(19,967 |
) |
|
| ||
|
Counterparty (ies) |
|
France |
|
315,000 |
|
0.33 |
|
(1,784 |
) |
|
| ||
|
Member and Delivery Commitments |
|
U.S.A. |
|
157,447 |
|
0.17 |
|
(3,694 |
) |
|
| ||
|
Counterparty (ies) |
|
Canada |
|
6,000 |
|
0.01 |
|
(148 |
) |
|
| ||
|
|
|
|
|
10,515,789 |
|
11.15 |
|
$ |
(144,985 |
) |
|
| |
|
Total notional |
|
|
|
$ |
94,378,115 |
|
100.00 |
% |
|
|
|
| |
|
|
|
|
|
December 31, 2015 |
| ||||||||
|
|
|
Ultimate Country |
|
Notional |
|
Percentage |
|
Fair Value |
|
Percentage |
| ||
|
Counterparties (Asset position) |
|
of Incorporation (b) |
|
Amount |
|
of Total |
|
Exposure |
|
of Total |
| ||
|
Counterparty (ies) |
|
U.S.A. (c) |
|
$ |
86,612,299 |
|
81.10 |
% |
$ |
181,328 |
|
99.81 |
% |
|
Member and Delivery Commitments |
|
U.S.A. |
|
39,806 |
|
0.03 |
|
348 |
|
0.19 |
| ||
|
Total Credit Exposure (Fair values, net) - Balance sheet assets |
|
|
|
86,652,105 |
|
81.13 |
|
$ |
181,676 |
|
100.00 |
% | |
|
Counterparties (Liability position) |
|
|
|
|
|
|
|
Fair Value |
|
|
| ||
|
Counterparty (ies) |
|
U.S.A. |
|
12,367,425 |
|
11.58 |
|
$ |
(171,271 |
) |
|
| |
|
Counterparty (ies) |
|
United Kingdom |
|
4,442,500 |
|
4.16 |
|
(26,958 |
) |
|
| ||
|
Counterparty (ies) |
|
Germany |
|
1,504,998 |
|
1.41 |
|
(5,355 |
) |
|
| ||
|
Counterparty (ies) |
|
Switzerland |
|
1,152,768 |
|
1.08 |
|
(438 |
) |
|
| ||
|
Counterparty (ies) |
|
France |
|
545,000 |
|
0.51 |
|
(3,086 |
) |
|
| ||
|
Counterparty (ies) |
|
Canada |
|
126,000 |
|
0.12 |
|
(2,996 |
) |
|
| ||
|
Member |
|
U.S.A. |
|
6,000 |
|
0.01 |
|
(9 |
) |
|
| ||
|
|
|
|
|
20,144,691 |
|
18.87 |
|
$ |
(210,113 |
) |
|
| |
|
Total notional |
|
|
|
$ |
106,796,796 |
|
100.00 |
% |
|
|
|
| |
(a) Notional concentration — Concentration is measured by fair value exposure and not by notional amounts. Fair values for derivative contracts in a gain position represent the credit exposure we face due to potential non-performance of the derivative counterparty. For such transactions, the FHLBNY’s potential exposure would be the FHLBNY’s inability to replace the contracts at a value that would be equal to or greater than the cash posted to the defaulting counterparty. For derivative contracts that were in a liability position, the swap counterparties were exposed to a default or non-performance by the FHLBNY.
(b) Country of incorporation is based on domicile of the ultimate parent company.
(c) Includes cleared swaps at Derivative clearing organizations — notional amounts were $81.2 billion December 31, 2016 and $83.9 billion at December 31, 2015.
The following table summarizes derivative notional and fair values (a) by contractual maturities (in thousands):
Table 8.8: Notional and Fair Value by Contractual Maturity
|
|
|
December 31, 2016 |
|
December 31, 2015 |
| ||||||||
|
|
|
Notional |
|
Fair Value (a) |
|
Notional |
|
Fair Value (a) |
| ||||
|
Maturity less than one year |
|
$ |
43,199,884 |
|
$ |
(29,164 |
) |
$ |
50,928,278 |
|
$ |
(72,650 |
) |
|
Maturity from one year to less than three years |
|
36,135,883 |
|
(28,896 |
) |
37,695,659 |
|
(117,344 |
) | ||||
|
Maturity from three years to less than five years |
|
9,259,611 |
|
(67,329 |
) |
11,947,492 |
|
(109,666 |
) | ||||
|
Maturity from five years or greater |
|
5,754,290 |
|
367,660 |
|
6,210,561 |
|
214,779 |
| ||||
|
Delivery Commitments |
|
28,447 |
|
(40 |
) |
14,806 |
|
3 |
| ||||
|
|
|
$ |
94,378,115 |
|
$ |
242,231 |
|
$ |
106,796,796 |
|
$ |
(84,878 |
) |
(a) Derivative fair values were in a net asset position at December 31, 2016 and a net liability position at December 31, 2015.
Liquidity, Cash Flows, Short-Term Borrowings and Short-Term Debt
Our primary source of liquidity is the issuance of consolidated obligation bonds and discount notes. To refinance maturing consolidated obligations, we rely on the willingness of our investors to purchase new issuances. We have access to the discount note market, and the efficiency of issuing discount notes is an important source of liquidity, since discount notes can be issued any time and in a variety of amounts and maturities. Member deposits and capital stock purchased by members are 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 932, 1239 and 1270 of the 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 remaining maturity not to exceed five years that are made to members in conformity with part 1266.
In addition, each FHLBank shall provide for contingency liquidity, which is defined as the sources of cash a FHLBank may use to meet its operational requirements when its access to the capital markets is impeded. We met our contingency liquidity requirements during all periods in this report. Liquidity in excess of requirements is summarized in the table titled Contingency Liquidity. 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 United States; (2) Deposits in banks or trust companies; or (3) Advances with a remaining maturity not to exceed five years that are made to members in conformity with part 1266. In addition to accepting deposits from our members, we may accept deposits from other FHLBanks or from any other governmental instrumentality. We met these requirements at all times. Quarterly average reserves and actual reserves are summarized below (in millions):
Table 9.1: Deposit Liquidity
|
|
|
Average Deposit |
|
Average Actual |
|
|
| |||
|
For the Quarters Ended |
|
Reserve Required |
|
Deposit Liquidity |
|
Excess |
| |||
|
December 31, 2016 |
|
$ |
1,509 |
|
$ |
100,524 |
|
$ |
99,015 |
|
|
September 30, 2016 |
|
1,517 |
|
90,562 |
|
89,045 |
| |||
|
June 30, 2016 |
|
1,475 |
|
86,688 |
|
85,213 |
| |||
|
March 31, 2016 |
|
1,318 |
|
87,098 |
|
85,780 |
| |||
|
December 31, 2015 |
|
1,246 |
|
81,228 |
|
79,982 |
| |||
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 9.2: Operational Liquidity
|
|
|
Average Balance Sheet |
|
Average Actual |
|
|
| |||
|
For the Quarters Ended |
|
Liquidity Requirement |
|
Operational Liquidity |
|
Excess |
| |||
|
December 31, 2016 |
|
$ |
4,785 |
|
$ |
28,090 |
|
$ |
23,305 |
|
|
September 30, 2016 |
|
5,704 |
|
26,892 |
|
21,188 |
| |||
|
June 30, 2016 |
|
6,958 |
|
27,132 |
|
20,174 |
| |||
|
March 31, 2016 |
|
6,375 |
|
28,902 |
|
22,527 |
| |||
|
December 31, 2015 |
|
7,255 |
|
27,722 |
|
20,467 |
| |||
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 measured daily. We met these requirements at all times.
The following table summarizes excess contingency liquidity (in millions):
Table 9.3: Contingency Liquidity
|
|
|
Average Five Day |
|
Average Actual |
|
|
| |||
|
For the Quarters Ended |
|
Requirement |
|
Contingency Liquidity |
|
Excess |
| |||
|
December 31, 2016 |
|
$ |
2,431 |
|
$ |
26,291 |
|
$ |
23,860 |
|
|
September 30, 2016 |
|
2,391 |
|
25,598 |
|
23,207 |
| |||
|
June 30, 2016 |
|
2,234 |
|
26,511 |
|
24,277 |
| |||
|
March 31, 2016 |
|
2,574 |
|
28,515 |
|
25,941 |
| |||
|
December 31, 2015 |
|
2,204 |
|
27,521 |
|
25,317 |
| |||
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 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 5 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 15 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 5 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; and investments described in section 16(a) of the FHLBank Act, including securities that a fiduciary or trust fund may purchase under the laws of the state in which the FHLBank is located.
Cash flows
Cash and due from banks was $151.8 million at December 31, 2016 and $327.5 million at December 31, 2015. The following discussion highlights the major activities and transactions that affected our cash flows.
Cash flows from operating activities — Operating assets and liabilities support our lending activities to members, and can vary significantly in the normal course of business due to the amount and timing of cash flows, which are affected by member-driven borrowing, our investment strategies, and market conditions. Management believes cash flows from operations, available cash balances and our ability to generate cash through the issuance of consolidated obligation bonds and discount notes are sufficient to fund our operating liquidity needs.
Net cash provided by operating activities in the twelve months ended December 31, 2016 was $450.0 million and $682.0 million in the same period in the prior year. By way of comparison, Net income was $401.2 million in the twelve months ended December 31, 2016 and $414.8 million in the same period in the prior year.
Net cash flows provided by operating activities were higher than Net income in the twelve months ended December 31, 2016 primarily due to non-cash adjustments of depreciation and amortization of $39.2 million and $49.4 million in net interest settlements on derivative with financing elements. In 2015, net cash provided by operating activities were higher, driven primarily by $221.2 million in net interest settlements on derivatives with financing elements. For cash flow reporting, cash outflows (expenses) associated with swaps with off-market terms are considered to be principal repayments of certain off-market swap transactions, although they are reported as an expense to Net income in the Statements of Income. Certain interest rate swaps at inception of the contracts included off-market terms, and required up-front cash exchanges, and were largely outstanding in the periods in this report. We view these swaps to contain “financing elements”, as defined under hedge accounting rules. The amounts, which represented interest payments to swap counterparties for the off-market swaps, were classified as Financing activities rather than Operating activities.
Cash flows used in investing activities — Investing activities consumed $20.6 billion in net cash outflows in the twelve months ended December 31, 2016. Overnight investments, held-to-maturity securities and advances were the primary users of cash. In the same period in the prior year, investing activities resulted in net cash inflows of $3.1 billion of funds provided primarily by maturing advances that exceeded new advances.
Cash flows from financing activities — Our primary source of funding is the issuance of consolidated obligation debt. Issuance of capital stock is another source. Net cash inflows from our funding sources were $20.0 billion in 2016, compared to net outflows of $9.9 billion in 2015.
For more information, see Statements of Cash Flows in the financial statements.
Short-term Borrowings and Short-term Debt
Our primary source of funds is the issuance of FHLBank debt. Consolidated obligation discount notes are issued with maturities up to one year and provide us with short-term funds. Discount notes are principally used in funding short-term advances, some long-term advances, as well as money market instruments. We also issue short-term consolidated obligation bonds as part of our asset-liability management strategy. We may also borrow from another FHLBank, generally for a period of one day. Such borrowings have been insignificant historically.
The following table summarizes short-term debt and their key characteristics (dollars in thousands):
Table 9.4: Short-term Debt
|
|
|
Consolidated Obligations-Discount Notes |
|
Consolidated Obligations-Bonds With |
| ||||||||
|
|
|
December 31, 2016 |
|
December 31, 2015 |
|
December 31, 2016 |
|
December 31, 2015 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Outstanding at end of the period (a) |
|
$ |
49,357,894 |
|
$ |
46,849,868 |
|
$ |
20,589,540 |
|
$ |
18,800,030 |
|
|
Weighted-average rate at end of the period |
|
0.48 |
% |
0.26 |
% |
0.63 |
% |
0.28 |
% | ||||
|
Average outstanding for the period (a) |
|
$ |
46,508,363 |
|
$ |
43,627,528 |
|
$ |
15,519,889 |
|
$ |
15,708,964 |
|
|
Weighted-average rate for the period |
|
0.37 |
% |
0.13 |
% |
0.50 |
% |
0.18 |
% | ||||
|
Highest outstanding at any month-end (a) |
|
$ |
54,630,600 |
|
$ |
50,143,718 |
|
$ |
20,589,540 |
|
$ |
19,680,030 |
|
(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.
Off-Balance Sheet Arrangements, Guarantees, and Other Commitments — In accordance with regulations governing the operations of the FHLBanks, each FHLBank, including the FHLBNY, is jointly and severally liable for the FHLBank System’s consolidated obligations issued under sections 11(a) and 11(c) of the FHLBank Act. The joint and several liability regulation authorizes the Finance Agency to require any FHLBank to repay all or a portion of the principal or interest on consolidated obligations for which another FHLBank is the primary obligor.
In addition, in the ordinary course of business, the FHLBNY engages in financial transactions that, in accordance with U.S. GAAP, are not recorded on the FHLBNY’s balance sheet or may be recorded on the FHLBNY’s balance sheet in amounts that are different from the full contract or notional amount of the transactions. For example, the Bank routinely enters into commitments to purchase MPF loans from PFIs, and issues standby letters of credit. These commitments may represent future cash requirements of the Bank, although the standby letters of credit usually expire without being drawn upon. For more information about contractual obligations and commitments, see financial statements, Note 18. Commitments and Contingencies.
Leverage Limits, Unpledged Asset Requirements, and MBS Limits
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; 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 9.5: Unpledged Assets
|
|
|
December 31, 2016 |
|
December 31, 2015 |
| ||
|
Consolidated Obligations: |
|
|
|
|
| ||
|
Bonds |
|
$ |
84,784,664 |
|
$ |
67,715,952 |
|
|
Discount Notes |
|
49,357,894 |
|
46,849,868 |
| ||
|
|
|
|
|
|
| ||
|
Total consolidated obligations |
|
134,142,558 |
|
114,565,820 |
| ||
|
|
|
|
|
|
| ||
|
Unpledged assets |
|
|
|
|
| ||
|
Cash |
|
151,769 |
|
327,482 |
| ||
|
Less: Member pass-through reserves at the FRB |
|
(67,670 |
) |
(47,528 |
) | ||
|
Secured Advances |
|
109,256,625 |
|
93,874,211 |
| ||
|
Investments (a) |
|
30,684,836 |
|
26,167,911 |
| ||
|
Mortgage loans held-for-portfolio, net of allowance for credit losses |
|
2,746,559 |
|
2,524,285 |
| ||
|
Other loans |
|
255,000 |
|
— |
| ||
|
Accrued interest receivable on advances and investments |
|
163,379 |
|
145,913 |
| ||
|
Less: Pledged Assets |
|
(7,036 |
) |
(8,715 |
) | ||
|
|
|
|
|
|
| ||
|
Total unpledged assets |
|
143,183,462 |
|
122,983,559 |
| ||
|
Excess unpledged assets |
|
$ |
9,040,904 |
|
$ |
8,417,739 |
|
(a) The Bank pledged to the FDIC $7.0 million at December 31, 2016 and $8.7 million at December 31, 2015. See financial statements Note 7. 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 9.6: FHFA MBS Limits
|
|
|
December 31, 2016 |
|
December 31, 2015 |
| ||||
|
|
|
Actual |
|
Limits |
|
Actual |
|
Limits |
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage securities investment authority |
|
202 |
% |
300 |
% |
205 |
% |
300 |
% |
Table 9.7: Core Mission Achievement
On July 14, 2015, the Finance Agency issued an advisory bulletin establishing a ratio by which the Finance Agency will assess each FHLBank’s core mission achievement. Core mission achievement is determined using a ratio of primary mission assets, which include advances and acquired member assets (mortgage loans acquired from members), to consolidated obligations. The ratio will be determined at each year-end and will be calculated using annual average par values.
|
|
|
December 31, 2016 |
|
December 31, 2015 |
| ||
|
Par Values (dollars in thousands) |
|
Annual Average |
|
Annual Average |
| ||
|
Advances |
|
$ |
95,603,043 |
|
$ |
89,938,671 |
|
|
Mortgage Loans |
|
2,584,573 |
|
2,318,304 |
| ||
|
Total Primary Mission Assets |
|
$ |
98,187,616 |
|
$ |
92,256,975 |
|
|
Total Consolidated Obligations |
|
$ |
119,095,434 |
|
$ |
112,225,657 |
|
|
|
|
|
|
|
| ||
|
Core Mission Achievement Ratio |
|
82 |
% |
82 |
% | ||
|
|
|
|
|
|
| ||
|
Target Ratio |
|
70 |
% |
70 |
% | ||
Operational Risk Management
Operational risk is the risk of loss resulting from inadequate or failed internal processes, systems or human factors, or from external events. Operational risk is inherent in our business activities and, as with other risk types, is managed through an overall framework designed to balance strong management oversight with well-defined independent risk management. This framework includes: policies and procedures for managing operational risks; recognized ownership of the risk by the business; a compliance group that evaluates compliance with board and regulatory policies, including the evaluation and reporting of operational risk incidents, and an internal audit function, which regularly reports directly to the Audit Committee of the Bank’s Board of Directors regarding compliance with policies and procedures, including those related to managing operational risks.
Information Security and Business Continuity. The Bank has an Information Security Department that is responsible for the policy, procedures, reviews, education and management of the information security program. The Bank also has a Records and Continuity Department that is responsible for the overall Business Continuity Program which includes training, testing, coordination and continual updates. Information security and the protection of confidential customer data, and business continuity are priorities for the FHLBNY, and we have implemented processes that will help secure confidential data and continuity of operations. The information security program is reviewed and enhanced periodically to address emerging threats to data integrity and cyber attacks. The business continuity program includes annual testing of our capabilities. Results of business continuity testing and information security are routinely presented to senior management of the FHLBNY and its Board of Directors.
The FHLBNY’s Information Technology group maintains and regularly reviews controls to ensure that technology assets are well managed and secure from unauthorized access and in accordance with approved policies and procedures.
The following section provides a comparative discussion of the FHLBNY’s results of operations for the three years ended December 31, 2016, 2015 and 2014. For a discussion of the significant accounting estimates used by the FHLBNY that affect the results of operations, see financial statements, Note 1. Significant Accounting Policies and Estimates.
Interest income from advances is the principal source of revenue. Other sources of revenue are interest income from investment securities, mortgage loans in the MPF portfolio, and overnight investments. The primary expense is interest paid on consolidated obligation debt. Other expenses are Compensation and benefits, Operating expenses, 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 due to debt repurchased, gains and losses from derivatives and hedging activities, and earnings from investing our shareholders’ capital.
Summarized below are the principal components of Net income (in thousands):
Table 10.1: Principal Components of Net Income
|
|
|
Years ended December 31, |
| |||||||
|
|
|
2016 |
|
2015 |
|
2014 |
| |||
|
|
|
|
|
|
|
|
| |||
|
Total interest income |
|
$ |
1,360,847 |
|
$ |
997,672 |
|
$ |
836,154 |
|
|
Total interest expense |
|
804,437 |
|
443,515 |
|
391,690 |
| |||
|
Net interest income before provision for credit losses |
|
556,410 |
|
554,157 |
|
444,464 |
| |||
|
Provision/(Reversal) for credit losses on mortgage loans |
|
1,966 |
|
518 |
|
(620 |
) | |||
|
Net interest income after provision for credit losses |
|
554,444 |
|
553,639 |
|
445,084 |
| |||
|
Total other income (loss) |
|
6,853 |
|
24,525 |
|
5,479 |
| |||
|
Total other expenses |
|
115,393 |
|
117,171 |
|
100,546 |
| |||
|
Income before assessments |
|
445,904 |
|
460,993 |
|
350,017 |
| |||
|
Affordable Housing Program Assessments |
|
44,752 |
|
46,182 |
|
35,094 |
| |||
|
Net income |
|
$ |
401,152 |
|
$ |
414,811 |
|
$ |
314,923 |
|
2016 Net income compared to 2015
Net Income — For the FHLBNY, Net income is Net interest income, minus Provisions for credit losses, Other income/(loss), Other Expenses, and Assessments for the FHLBNY’s Affordable Housing Program.
Net income for the twelve months ended December 31, 2016 was $401.2 million, and decreased by $13.7 million, or 3.3%, compared to the year-to-date period in the prior year. Summarized below are the primary components of our Net income:
Net interest income — Net interest income was $556.4 million in the current year, an increase of $2.3 million, or 0.4%, from the prior year. Prepayment fees received on advances terminated by members were a significant element of Net interest income in the prior year, totaling $117.5 million. In 2016, recorded prepayment fees were $18.0 million. Absent the impact of prepayment fees, Net interest income in 2016 was $538.4 million, compared to $436.7 million in 2015, a year-over-year increase of 23.3 %.
Net interest spread, which is the yield from earning assets minus interest paid to fund earning assets, was 40 basis points in 2016, a slight decrease from 43 basis points in 2015. Absent the impact of prepayment fees, Net interest spread was 39 basis points in 2016 compared to 33 basis points in 2015.
Net interest income (“NII”) is typically driven by the volume of earning assets, as measured by average balances of earning assets, and the net interest spread earned in the period, and as discussed above prepayment fees earned when advances are early terminated by our member/borrowers could also be a significant factor.
In 2016, our LIBOR-indexed assets, primarily ARC advances and floating-rate investments in mortgage-backed securities, benefited from the rising LIBOR. Our overnight investments in the federal funds and the overnight repurchase agreements benefited from rising yields in the overnight markets. While our funding costs were also higher in line with the rising rate environment, however, on a relative basis our cost of funding in 2016 benefited from favorable investor demand for Consolidated obligation discount notes and floating-rate bonds. Money market reforms require money funds to hold additional amounts of short-term investments. Strong money market fund investor demand enabled us to issue discount notes and shorter-term floating-rate bonds at favorable sub-LIBOR spreads or at relatively lower yields than would be possible otherwise. Net interest income in 2016 also benefited from higher average earning assets, which was $128.5 billion in 2016, up from $121.6 billion in 2015; higher earnings from advances was the primary driver.
Other Income (Loss) — Other Income/(loss) reported a gain of $6.9 million in the current year, compared to a gain of $24.5 million in the prior year. Other Income/(Loss) were primarily Service fees, net gains and losses from Derivatives and hedging activities, net fair value gains and losses recorded on instruments elected under the Fair Value Option, and charges from early extinguishment of the FHLBank debt.
Service fees and other are primarily correspondent banking fees and fee revenues from financial letters of credit. Such revenues were $13.8 million in the current year, compared to $12.1 million in the prior year.
Financial instruments carried at fair values reported a net valuation loss of $1.9 million in the current year, compared to a net gain of $9.9 million in the prior year. We have elected to account for certain consolidated obligation debt and advances under the Fair Value Option (“FVO”), and for these instruments, changes in the entire fair values of the instruments are recorded through earnings. The debt instruments elected under the FVO were medium- and short-term in duration. Advances elected under the FVO were primarily variable rate, medium- and short-term instruments. Inter-period fluctuations of both instruments were caused largely by gains
and losses in one period followed by reversals as the instruments approached maturity. For more information, see financial statements, Fair Value Option disclosures in Note 17. Fair Values of Financial Instruments. Also see, Table 10.11 Other Income (Loss) and discussions, in this MD&A.
Derivative and hedging activities reported a net loss of $1.7 million in the current year, compared to a net gain of $12.6 million in the prior year, as summarized below:
Hedges that qualified for hedge accounting under ASC 815 reported valuation gains of $2.3 million in the current year, compared to valuation gains of $2.6 million in the prior year.
Derivatives (fair value changes of interest rate swaps, interest rate caps and floors, and net interest accruals) that did not qualify for hedge accounting reported a net loss of $4.0 million in the current year, compared to a net gain of $9.9 million in the prior year. Primary components are summarized below.
Fair value changes, excluding accruals, on standalone swaps reported a net gain of $7.6 million in the current year, compared to a net loss of $11.2 million in the prior year.
Net interest settlements (accruals) on standalone swaps were a net expense of $11.9 million in the current year, compared to a net income of $23.8 million in the prior year. Income and expenses accrued on swap coupons on standalone derivatives are reported as derivative gains and losses.
Fair value changes on interest rate caps in economic hedges of certain floating-rate investments reported a net gain of $0.3 million in the current year, compared to a net loss of $2.6 million in the prior year.
Debt repurchases and transfers in the current year reported a $3.6 million charge to earnings, compared to a $9.8 million charge in the prior year.
Other Expenses were $115.4 million in 2016, compared to $117.2 million in the prior year. Other Expenses are Operating expenses, Compensation and benefits, and our share of operating expenses of the Office of Finance and the Federal Housing Finance Agency.
· Operating expenses were $33.4 million in the current year, up from $29.8 million in the prior year.
· Compensation and benefits expenses were $69.1 million in the current year, down from $73.6 million in the prior year.
· The expenses allocated for our share of the costs to operate the Office of Finance and the Federal Housing Finance Agency were $12.9 million in the current year, compared to $13.7 million in the prior year.
AHP assessments allocated from net income were $44.8 million in the current year, compared to $46.2 million in the prior year. Assessments are calculated as a percentage of Net income, and changes in allocations were in parallel with changes in Net income.
2015 Net Income compared to 2014
Net income in 2015 was $414.8 million, and increased by $99.9 million, or 31.7%, compared to 2014. The primary driver was the significant growth in Net interest income, which grew 24.7% to $554.2 million in 2015.
Net interest income, the principal source of Net Income in 2015 was $554.2 million, an increase of $109.7 million, or 24.7%, from 2014. In 2015, a key driver was prepayment fee, which was a record $117.5 million ($7.4 million in 2014). Net interest spread was 43 basis points in 2015, ten basis points higher compared to 2014. Earning assets yielded 82 basis points in 2015, compared to 67 basis points in 2014; yield on cost of funding was 39 basis points in 2015, compared to 34 basis points in 2014.
Excluding the impact of prepayment fees from both years, Net Interest income was $436.7 million and Net income spread was 33 basis points in 2015 almost unchanged from 2014.
Other Income (Loss) — Other Income/(loss) reported a gain of $24.5 million in 2015, compared to a gain of $5.5 million in 2014.
· Service fees and other. Revenues were $12.1 million in 2015, compared to $9.5 million in 2014. Book of business of financial letters of credit has increased and the associated fee income increased $1.0 million.
· Financial instruments carried at fair values reported a net valuation gain of $9.9 million in 2015, compared to a net gain of $2.6 million in 2014. Debt instruments elected under the FVO were medium- and short-term in duration. Advances elected under the FVO were primarily variable rate, medium- and short-term instruments. Inter-period fluctuations of both instruments were caused largely by gains and losses in one period followed by reversals as the instruments approached maturity.
· Cash flow evaluation of expected credit OTTI identified one previously OTTI private-label mortgage backed security to be re-impaired and an additional OTTI loss of $206 thousand was recorded in 2015.
· Derivative and hedging activities contributed a net gain of $12.6 million in 2015, compared to a net gain of $0.1 million in 2014.
· Debt repurchases and transfers in 2015 resulted in a $9.8 million charge to earnings, compared to $7.0 million in 2014.
Other Expenses reported $117.2 million in 2015 compared to $100.5 million in 2014.
· Operating expenses were $29.8 million in 2015, up from $27.1 million in 2014 primarily due to increase in legal expenses and contractual service expenses.
· Compensation and benefits expenses were $73.6 million in 2015, up from $59.4 million in 2014 primarily due to higher contributions to the defined benefit pension plan, increases in compensation expenses due to higher headcount, and increases in incentive compensation plan expenses.
· Expenses allocated for our share of the costs to operate the Office of Finance and the Federal Housing Finance Agency were $13.7 million in 2015, compared to $14.1 million in 2014.
AHP assessments allocated from net income were $46.2 million in 2015, compared to $35.1 million in 2014. Assessments are calculated as a percentage of Net income, and changes in allocations were in parallel with changes in Net income.
Net Interest Income, Margin and Interest Rate Spreads
Net interest income is our principal source of Net income. It represents the difference between income on interest-earning assets and expense on interest-bearing liabilities.
Net Interest Income — 2016, 2015 and 2014
The following table summarizes Net interest income (dollars in thousands):
Table 10.2: Net Interest Income
|
|
|
|
|
Percentage |
|
Percentage |
| |||||||
|
|
|
Years ended December 31, |
|
Change |
|
Change |
| |||||||
|
|
|
2016 |
|
2015 |
|
2014 |
|
2016 |
|
2015 |
| |||
|
Total interest income (a) |
|
$ |
1,360,847 |
|
$ |
997,672 |
|
$ |
836,154 |
|
36.40 |
% |
19.32 |
% |
|
Total interest expense (a) |
|
804,437 |
|
443,515 |
|
391,690 |
|
(81.38 |
) |
(13.23 |
) | |||
|
Net interest income before provision for credit losses |
|
$ |
556,410 |
|
$ |
554,157 |
|
$ |
444,464 |
|
0.41 |
% |
24.68 |
% |
(a) Total Interest Income and Total Interest Expense — See Table 10.7 and 10.9 together with accompany discussions.
Net interest income for 2016 was $556.4 million, compared to $554.2 million in 2015 and $444.5 million in 2014.
Period-over-period changes in Net interest income are typically driven by changes in the volume of earning assets, as measured by average balances of earning assets, the impact of market interest rates on earnings assets and funding costs, net of the impact of the interest income and expense accruals on interest rate derivatives that qualified under hedge accounting rules. Shareholders’ capital stock and retained earnings are also factors that impact net interest income as they provide interest free capital. In the three year period, changes were also affected by significant prepayment fees of $117.5 million in 2015.
Setting aside the impact of prepayment fees, Net interest income was $538.4 million in 2016, compared to $436.7 million in 2015 and $437.1 million in 2014. Net interest spread, which is the yield from earning assets minus interest paid to fund earning assets, was 40 basis points in 2016, 3 basis points lower than 2015 and 7 basis points higher than 2014. Net interest margin, a measure of margin efficiency is measured as Net interest income divided by average earning assets, was 43 basis points in 2016, compared to 46 basis points in 2015 and 36 basis points in 2014.
Absent the impact of prepayment fees, Net interest spread was 39 basis points in 2016 compared to 33 basis points in 2015 and 32 basis points in 2014. Net interest margin was 42 basis points in 2016, up from 36 basis points in 2015 and 35 basis points in 2014. Absent the impact of prepayment fees, the significant increase in Net interest income and net spread and margin in 2016 was driven by two primary factors. First, by the impact of higher market interest rates on interest yielding assets, specifically overnight investments (maintained for liquidity) and LIBOR indexed advances. And, second, by the favorable funding environment for Consolidated obligation discount notes and short-term floating-rate notes. Changes in business volume were not a significant factor. Earning assets averaged $128.5 billion in 2016, compared to $121.6 billion in 2015 and $125.0 billion in 2014.
Asset Yields
Interest income in 2016 grew to $1.4 billion, yielding 106 basis points, compared to $997.7 million at a yield of 82 basis points in 2015 and $836.2 million at yield of 67 basis points in 2014. Recorded interest income and yields were net of the impact of interest rate swaps that “synthetically” converted certain fixed-rate advances to LIBOR-indexed variable-rate advances. Setting aside the impact of prepayment fees, earning assets yielded 105 basis points in 2016, up from 72 basis points in 2015 and 66 basis points in 2014. The primary factors driving changes in 2016 are summarized below:
Interest income from advances, which is the principal source of our revenues, was $919.9 million, and yielded 96 basis points in 2016, compared to $627.9 million in 2015, at a yield of 69 basis points and $478.7 million at a yield of 51 basis points in 2014. Absent the impact of prepayment fees, interest income from advances was $902.0 million in 2016, up from $510.4 in 2015, an increase of $391.6 million, or 76.7%.
The significant growth in interest income was largely yield related, driven by the rising rate environment. Variable-rate advances (ARCs), which are indexed to LIBOR re-price at short intervals, benefited from the rising LIBOR in the current year periods. Short-term advances, which are fixed-rate and mature within short intervals, re-priced (when rolled over) to higher coupons at frequent intervals along an upward sloping yield curve. Longer-term fixed-rate advances that were swapped to the 3-month LIBOR benefited from a rising LIBOR that generated higher net cash flows on the swaps. The fixed-rate coupons on swapped fixed-rate advances are synthetically converted by the execution of interest rate swaps to LIBOR indexed variable-rate yields. When the 3-month LIBOR rises, interest rate swaps hedging advances generate improved cash in-flows. The 3-month LIBOR averaged 74 basis points in 2016 versus 32 basis points in 2015 and 23 basis points in 2014. See Table 10.8: Impact of Interest Rate Swaps on Interest Income Earned from Advances, and accompanying discussions.
Interest income from federal funds and repurchase agreements in 2016 grew to $53.3 million, yielding 39 basis points, benefiting from higher overnight rates for interbank lending. The comparable interest income in 2015 was $14.7 million at a yield of 12 basis points and $9.8 million at 7 basis points in 2014.
Interest income from investment securities, fixed- and floating-rate securities, was $299.1 million at a blended yield of 193 basis points in 2016, compared to $272.7 million at a yield of 186 basis points in 2015 and $275.1 million at a yield of 196 basis points in 2014. Interest income and yields grew due to higher invested balances in the floating-rate portfolio of mortgage-backed securities. At the same time, yields and revenues increased as the portfolio re-priced with the rising LIBOR, which is the primary index on the floating-rate securities.
Consolidated Obligation debt funding costs:
In 2016, Consolidated obligation debt coupons and costing yields have increased with the rising market interest rates. Yet, investor demand for Consolidated obligation discount notes in 2016 was strong, and has tended to keep yields at favorable sub-LIBOR levels. Floating-rate bonds have also been in demand by investors in 2016. That too has driven down the relative cost of funding. Sub-LIBOR spreads have widened and we have shifted funding mix to greater utilization of floating-rate bonds to fund our variable-rate assets.
Consolidated obligation bonds (“CO bonds” or “bonds”) — Interest expense on CO bonds, fixed- and floating-rate, was $581.9 million at a blended funding cost of 80 basis points in 2016, compared to $338.9 million at a funding cost of 49 basis points in 2015 and $318.7 million at a funding cost of 42 basis points in 2014. Reported funding costs were net of the fair value hedge impact of interest rate swaps that “synthetically” converted a significant percentage of fixed-rate bonds to sub-LIBOR yields. Floating-rate CO bonds issued and outstanding grew to $50.0 billion at December 31, 2016, up from $17.2 billion at December 31, 2015 and $7.9 billion at December 31, 2014. Variable-rate balance sheet assets have increased, driving up the need for variable rate funding. Investor demand for floating-rate CO bonds has made it attractive for us to fund our balance sheet assets with floaters, allowing us to diversify as a funding alternative to the issuance of discount notes.
Favorable changes in the cost of funding were partially offset by the impact of the rising 3-month LIBOR on swapped debt. Higher LIBOR has tended to increase interest payments on swaps hedging fixed-rate debt. Yields on swapped Consolidated bonds are synthetically converted (by the execution of interest rate swaps) to LIBOR indexed funding cost. In 2016, the 3-month LIBOR was significantly higher, on average about 74 basis points, compared to 32 basis points in 2015 and 23 basis points in 2014. See Table 10.10 - Impact of Interest Rate Swaps on Consolidated Obligations Interest Expense, and accompanying discussions.
Consolidated obligation discount notes (“CO discount notes” or discount notes) — Interest expense on discount notes was $216.5 million at a funding cost of 47 basis points in 2016, compared to $102.9 million at a cost of 24 basis points in 2015 and $71.4 million at a cost of 18 basis points.
In 2016, money market funds increased their investments in consolidated obligations as a result of money market reforms. While interest expense on discount notes has increased in a rising rate environment in the current year, investor demand has favorably impacted yields and pricing of CO discount notes. Sub-LIBOR spreads have widened and funding costs have been lower than otherwise achievable.
Reported yields on discount note funding discussed above are weighted average cost after factoring the impact of cash flow hedges. The “after swap” cost is higher than the actual yields on the notes. Cash flow hedging programs have “synthetically” converted the 90-day variability of cash flows on $1.8 billion of discount note yields to long-term fixed swap rates. The cash flow hedging assures us of long-term funding at a predictable rate.
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 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. Retained earnings balance is another component of deployed capital. Average capital was $7.0 billion in 2016 compared to $6.4 billion in 2015 and $6.6 billion in 2014. In the past several years, opportunities for investing in short-term assets that met our risk/reward preferences had been limited, with a tradeoff between maintaining liquidity at the Federal Reserve Bank of New York or investing at the low prevailing overnight rates at financial institutions. In the current year periods, market yields for overnight investments have improved. For more information about factors that impact Interest income and Interest expense, see Table 10.3 and discussions thereto. Also, see Table 10.5 Spread and Yield Analysis, and Table 10.6 Rate and Volume Analysis.
Impact of qualifying hedges on Net Interest income — 2016, 2015 and 2014
The following table summarizes the impact of net interest adjustments from hedge qualifying interest-rate swaps (in thousands):
Table 10.3: Net Interest Adjustments from Hedge Qualifying Interest-Rate Swaps
|
|
|
Years ended December 31, |
| |||||||
|
|
|
2016 |
|
2015 |
|
2014 |
| |||
|
|
|
|
|
|
|
|
| |||
|
Interest Income |
|
$ |
1,753,320 |
|
$ |
1,886,472 |
|
$ |
1,837,480 |
|
|
Net interest adjustment from interest rate swaps |
|
(392,473 |
) |
(888,800 |
) |
(1,001,326 |
) | |||
|
Reported interest income |
|
1,360,847 |
|
997,672 |
|
836,154 |
| |||
|
|
|
|
|
|
|
|
| |||
|
Interest Expense |
|
860,772 |
|
625,652 |
|
607,752 |
| |||
|
Net interest adjustment from interest rate swaps and basis amortization |
|
(56,335 |
) |
(182,137 |
) |
(216,062 |
) | |||
|
Reported interest expense |
|
804,437 |
|
443,515 |
|
391,690 |
| |||
|
|
|
|
|
|
|
|
| |||
|
Net interest income |
|
$ |
556,410 |
|
$ |
554,157 |
|
$ |
444,464 |
|
|
|
|
|
|
|
|
|
| |||
|
Net interest adjustment - interest rate swaps |
|
$ |
(336,138 |
) |
$ |
(706,663 |
) |
$ |
(785,264 |
) |
GAAP compared to Economic — 2016, 2015 and 2014
Although we believe these non-GAAP financial measures used by management may enhance investor and members’ understanding of our business and performance, these non-GAAP financial measures should not be considered an alternative to GAAP.
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 10.4: GAAP Versus Economic Basis — Contrasting Net Interest Income, Net Income Spread and Return on Earning Assets
|
|
|
Years ended December 31, |
| |||||||||||||||||||
|
|
|
2016 |
|
2015 |
|
2014 |
| |||||||||||||||
|
|
|
Amount |
|
ROA |
|
Net Spread |
|
Amount |
|
ROA |
|
Net Spread |
|
Amount |
|
ROA |
|
Net Spread |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
|
GAAP net interest income |
|
$ |
556,410 |
|
0.43 |
% |
0.40 |
% |
$ |
554,157 |
|
0.46 |
% |
0.43 |
% |
$ |
444,464 |
|
0.36 |
% |
0.33 |
% |
|
Interest (expense) income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
|
Swaps not designated in a hedging relationship |
|
(11,900 |
) |
(0.01 |
) |
(0.01 |
) |
23,724 |
|
0.02 |
|
0.02 |
|
14,748 |
|
0.01 |
|
0.01 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
|
Economic net interest income |
|
$ |
544,510 |
|
0.42 |
% |
0.39 |
% |
$ |
577,881 |
|
0.48 |
% |
0.45 |
% |
$ |
459,212 |
|
0.37 |
% |
0.34 |
% |
(a) Viewed on an economic basis, interest income or expense generated on standalone interest rate swaps would be considered as a measure of net interest income. However, under GAAP, such interest income or expense is a measure of derivative and hedging gains and losses. Standalone interest rate swaps in economic hedges were associated with — (1) Basis swaps that hedged floating-rate consolidated obligation debt indexed to the 1-month LIBOR in a strategy that converted the debt to the 3-month LIBOR cash flows (in a pay 3-month LIBOR, receive 1-month LIBOR interest rate exchange swap transaction), and (2) Swaps that hedged instruments elected under the FVO.
If viewed on an economic basis, interest accruals on such interest rate swaps would have reduced net interest income by $11.9 million in 2016, and would have increased net interest income by $23.7 million in 2015 and $14.7 million in 2014. From an economic perspective, interest payments and receipts are an integral part of the FHLBNY’s business model that executes interest rate swap hedges, converting fixed-rate exposures to LIBOR exposures, or creating fixed-rate cash flows; the execution of the business model and the strategy should be considered as a relevant measure of our interest margin performance, rather than as a derivative and hedging gain or loss.
Spread and Yield Analysis — 2016, 2015 and 2014
Table 10.5: Spread and Yield Analysis
|
|
|
Years ended December 31, |
| ||||||||||||||||||||||
|
|
|
2016 |
|
2015 |
|
2014 |
| ||||||||||||||||||
|
|
|
|
|
Interest |
|
|
|
|
|
Interest |
|
|
|
|
|
Interest |
|
|
| ||||||
|
|
|
Average |
|
Income/ |
|
|
|
Average |
|
Income/ |
|
|
|
Average |
|
Income/ |
|
|
| ||||||
|
(Dollars in thousands) |
|
Balance |
|
Expense |
|
Rate (a) |
|
Balance |
|
Expense |
|
Rate (a) |
|
Balance |
|
Expense |
|
Rate (a) |
| ||||||
|
Earning Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Advances |
|
$ |
96,200,603 |
|
$ |
919,890 |
|
0.96 |
% |
$ |
91,401,149 |
|
$ |
627,866 |
|
0.69 |
% |
$ |
93,549,502 |
|
$ |
478,672 |
|
0.51 |
% |
|
Interest bearing deposits and others |
|
456,464 |
|
1,655 |
|
0.36 |
|
967,228 |
|
1,343 |
|
0.14 |
|
1,291,158 |
|
1,019 |
|
0.08 |
| ||||||
|
Federal funds sold and other overnight funds |
|
13,702,951 |
|
53,323 |
|
0.39 |
|
12,207,096 |
|
14,650 |
|
0.12 |
|
14,146,288 |
|
9,807 |
|
0.07 |
| ||||||
|
Investments |
|
15,464,516 |
|
299,146 |
|
1.93 |
|
14,634,519 |
|
272,697 |
|
1.86 |
|
14,011,706 |
|
275,135 |
|
1.96 |
| ||||||
|
Mortgage loans held-for-portfolio |
|
2,631,349 |
|
86,800 |
|
3.30 |
|
2,361,642 |
|
81,103 |
|
3.43 |
|
1,988,527 |
|
71,514 |
|
3.60 |
| ||||||
|
Loans to other FHLBanks |
|
8,005 |
|
33 |
|
0.41 |
|
9,685 |
|
13 |
|
0.13 |
|
10,713 |
|
7 |
|
0.06 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Total interest-earning assets |
|
$ |
128,463,888 |
|
$ |
1,360,847 |
|
1.06 |
% |
$ |
121,581,319 |
|
$ |
997,672 |
|
0.82 |
% |
$ |
124,997,894 |
|
$ |
836,154 |
|
0.67 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Funded By: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Consolidated obligation bonds |
|
$ |
73,173,932 |
|
$ |
581,900 |
|
0.80 |
% |
$ |
69,167,574 |
(b) |
$ |
338,916 |
|
0.49 |
|
$ |
76,569,560 |
(b) |
$ |
318,743 |
|
0.42 |
% |
|
Consolidated obligation discount notes |
|
46,508,363 |
|
216,545 |
|
0.47 |
|
43,627,528 |
|
102,913 |
|
0.24 |
|
38,712,726 |
|
71,388 |
|
0.18 |
| ||||||
|
Interest-bearing deposits and other borrowings |
|
1,428,394 |
|
4,375 |
|
0.31 |
|
1,204,833 |
|
866 |
|
0.07 |
|
1,698,735 |
|
634 |
|
0.04 |
| ||||||
|
Mandatorily redeemable capital stock |
|
24,370 |
|
1,617 |
|
6.64 |
|
19,255 |
|
820 |
|
4.26 |
|
21,922 |
|
925 |
|
4.22 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Total interest-bearing liabilities |
|
121,135,059 |
|
804,437 |
|
0.66 |
% |
114,019,190 |
|
443,515 |
|
0.39 |
% |
117,002,943 |
|
391,690 |
|
0.34 |
% | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Other non-interest-bearing funds |
|
302,431 |
|
|
|
|
|
1,136,104 |
|
|
|
|
|
1,438,469 |
|
|
|
|
| ||||||
|
Capital |
|
7,026,398 |
|
— |
|
|
|
6,426,025 |
|
— |
|
|
|
6,556,482 |
|
— |
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Total Funding |
|
$ |
128,463,888 |
|
$ |
804,437 |
|
|
|
$ |
121,581,319 |
|
$ |
443,515 |
|
|
|
$ |
124,997,894 |
|
$ |
391,690 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Net Interest Income/Spread |
|
|
|
$ |
556,410 |
|
0.40 |
% |
|
|
$ |
554,157 |
|
0.43 |
% |
|
|
$ |
444,464 |
|
0.33 |
% | |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Net Interest Margin (Net interest income/Earning Assets) |
|
|
|
|
|
0.43 |
% |
|
|
|
|
0.46 |
% |
|
|
|
|
0.36 |
% | ||||||
(a) Reported yields with respect to advances and consolidated obligations may not necessarily equal the coupons on the instruments as derivatives are extensively used to change the yield and optionality characteristics of the underlying hedged items. When we issue fixed-rate debt that is hedged with an interest rate swap, the hedge effectively converts the debt into a simple floating-rate bond. Similarly, we make fixed-rate advances to members and hedge the advances with a pay-fixed and receive-variable interest rate swap that effectively converts the fixed-rate asset to one that floats with 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.
(b) Previously reported comparative balances have been reclassified to conform to the retrospective adoption of ASU 2015-03 Interest-imputation of interest (Subtopic 835-30) Simplifying the presentation of Debt Issuance Costs.
Rate and Volume Analysis — 2016, 2015 and 2014
The Rate and Volume Analysis presents changes in interest income, interest expense and net interest income that are due to changes in both interest rates and the volume of interest-earning assets and interest-bearing liabilities, and their impact on interest income and interest expense (in thousands):
Table 10.6: Rate and Volume Analysis
|
|
|
For the years ended |
| |||||||
|
|
|
December 31, 2016 vs. December 31, 2015 |
| |||||||
|
|
|
Increase (Decrease) |
| |||||||
|
|
|
Volume |
|
Rate |
|
Total |
| |||
|
Interest Income |
|
|
|
|
|
|
| |||
|
Advances |
|
$ |
34,496 |
|
$ |
257,528 |
|
$ |
292,024 |
|
|
Interest bearing deposits and others |
|
(992 |
) |
1,304 |
|
312 |
| |||
|
Federal funds sold and other overnight funds |
|
2,003 |
|
36,670 |
|
38,673 |
| |||
|
Investments |
|
15,819 |
|
10,630 |
|
26,449 |
| |||
|
Mortgage loans held-for-portfolio |
|
8,991 |
|
(3,294 |
) |
5,697 |
| |||
|
Loans to other FHLBanks |
|
(3 |
) |
23 |
|
20 |
| |||
|
|
|
|
|
|
|
|
| |||
|
Total interest income |
|
60,314 |
|
302,861 |
|
363,175 |
| |||
|
|
|
|
|
|
|
|
| |||
|
Interest Expense |
|
|
|
|
|
|
| |||
|
Consolidated obligation bonds |
|
20,672 |
|
222,312 |
|
242,984 |
| |||
|
Consolidated obligation discount notes |
|
7,216 |
|
106,416 |
|
113,632 |
| |||
|
Deposits and borrowings |
|
189 |
|
3,320 |
|
3,509 |
| |||
|
Mandatorily redeemable capital stock |
|
256 |
|
541 |
|
797 |
| |||
|
|
|
|
|
|
|
|
| |||
|
Total interest expense |
|
28,333 |
|
332,589 |
|
360,922 |
| |||
|
|
|
|
|
|
|
|
| |||
|
Changes in Net Interest Income |
|
$ |
31,981 |
|
$ |
(29,728 |
) |
$ |
2,253 |
|
|
|
|
For the years ended |
| |||||||
|
|
|
December 31, 2015 vs. December 31, 2014 |
| |||||||
|
|
|
Increase (Decrease) |
| |||||||
|
|
|
Volume |
|
Rate |
|
Total |
| |||
|
Interest Income |
|
|
|
|
|
|
| |||
|
Advances |
|
$ |
(11,230 |
) |
$ |
160,424 |
|
$ |
149,194 |
|
|
Interest bearing deposits and others |
|
(304 |
) |
628 |
|
324 |
| |||
|
Federal funds sold and other overnight funds |
|
(1,499 |
) |
6,342 |
|
4,843 |
| |||
|
Investments |
|
11,939 |
|
(14,377 |
) |
(2,438 |
) | |||
|
Mortgage loans held-for-portfolio |
|
12,931 |
|
(3,342 |
) |
9,589 |
| |||
|
Loans to other FHLBanks |
|
(1 |
) |
7 |
|
6 |
| |||
|
|
|
|
|
|
|
|
| |||
|
Total interest income |
|
11,836 |
|
149,682 |
|
161,518 |
| |||
|
|
|
|
|
|
|
|
| |||
|
Interest Expense |
|
|
|
|
|
|
| |||
|
Consolidated obligations-bonds |
|
(32,739 |
) |
52,912 |
|
20,173 |
| |||
|
Consolidated obligations-discount notes |
|
9,854 |
|
21,671 |
|
31,525 |
| |||
|
Deposits and borrowings |
|
(225 |
) |
457 |
|
232 |
| |||
|
Mandatorily redeemable capital stock |
|
(114 |
) |
9 |
|
(105 |
) | |||
|
|
|
|
|
|
|
|
| |||
|
Total interest expense |
|
(23,224 |
) |
75,049 |
|
51,825 |
| |||
|
|
|
|
|
|
|
|
| |||
|
Changes in Net Interest Income |
|
$ |
35,060 |
|
$ |
74,633 |
|
$ |
109,693 |
|
Interest Income — 2016, 2015 and 2014
Interest income from advances, investments in mortgage-backed securities and MPF loans 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. Reported interest income is net of the impact of cash flows associated with interest rate swaps hedging fixed rate advances that were converted to floating rate generally indexed to short-term LIBOR.
The principal categories of Interest Income are summarized below (dollars in thousands):
Table 10.7: Interest Income — Principal Sources
|
|
|
|
|
|
|
|
|
Percentage |
|
Percentage |
| |||
|
|
|
Years ended December 31, |
|
Change |
|
Change |
| |||||||
|
|
|
2016 |
|
2015 |
|
2014 |
|
2016 |
|
2015 |
| |||
|
Interest Income |
|
|
|
|
|
|
|
|
|
|
| |||
|
Advances (a) |
|
$ |
919,890 |
|
$ |
627,866 |
|
$ |
478,672 |
|
46.51 |
% |
31.17 |
% |
|
Interest-bearing deposits (b) |
|
1,655 |
|
1,343 |
|
1,019 |
|
23.23 |
|
31.80 |
| |||
|
Securities purchased under agreements to resell (c) |
|
6,940 |
|
1,615 |
|
481 |
|
NM |
|
NM |
| |||
|
Federal funds sold (c) |
|
46,383 |
|
13,035 |
|
9,326 |
|
NM |
|
39.77 |
| |||
|
Trading securities |
|
56 |
|
— |
|
— |
|
NM |
|
NM |
| |||
|
Available-for-sale securities (d) |
|
8,662 |
|
8,411 |
|
10,733 |
|
2.98 |
|
(21.63 |
) | |||
|
Held-to-maturity securities (d) |
|
290,428 |
|
264,286 |
|
264,402 |
|
9.89 |
|
(0.04 |
) | |||
|
Mortgage loans held-for-portfolio (e) |
|
86,800 |
|
81,103 |
|
71,514 |
|
7.02 |
|
13.41 |
| |||
|
Loans to other FHLBanks |
|
33 |
|
13 |
|
7 |
|
NM |
|
85.71 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
| |||
|
Total interest income |
|
$ |
1,360,847 |
|
$ |
997,672 |
|
$ |
836,154 |
|
36.40 |
% |
19.32 |
% |
(a) Interest income from Advances — Interest income from advances in qualifying hedging relationships is recorded net of interest accruals on the interest rate swaps hedging the advances. As a result, reported interest income would not necessarily be the same for advances if not in a qualifying hedge. Table 10.8 summarizes the impact of interest rate swaps on advance interest income. For hedged fixed-rate advances, interest income is synthetically converted to a LIBOR indexed yield. Interest income from advances also includes net prepayment fees when members prepay advances ahead of their contractual maturities.
2016 compared to 2015— Reported Interest income from advances (including Prepayment Fees) increased in 2016 by $292.0 million, or 46.5%. The increase has largely been driven by the rising interest rate environment in 2016. Average balances increased by $4.8 billion in 2016, contributing $34.5 million in volume related incremental interest income. The higher interest rate environment contributed $257.5 million in rate-related incremental interest income in 2016. Weighted average yield on the advance portfolio, net of the impact of interest rate swap, was 96 basis points in 2016, compared to 69 basis points in 2015. In a rising rate environment, when maturing short-term fixed-rate advances were replaced, the replacement advances were higher yielding. The rising LIBOR also benefited advance yields in two primary ways. Fixed-rate advances that were swapped to the 3-month LIBOR and synthetically converted to a variable-rate LIBOR indexed coupon (we receive LIBOR-indexed cash flows) benefited from a rising LIBOR. Variable-rate advances (ARCs) indexed to LIBOR also yielded higher interest income in a rising LIBOR environment.
2015 compared to 2014 — Interest income from advances increased by $149.2 million, or 31.2% in 2015, primarily driven by $117.5 million in Prepayment fees, and also by the higher interest rate environment in 2015. Average advance balances decreased by $2.1 billion in 2015, causing a decline of $11.2 million in interest income. Weighted average yield on a swapped basis was 69 basis points in 2015, compared to 51 basis points in 2014, prepayment fees contributed largely to the favorable impact.
Key changes in 2016 from 2015 and in 2015 from 2014 are discussed below:
Longer term fixed-rate advances remained a significant component of the advance portfolio. It averaged $45.4 billion in outstanding balances in 2016, yielding 180 basis points on an un-swapped basis, compared to a yield of 244 basis points on an average balance of $46.5 billion in 2015. Typically, the longer-term fixed-rate advances are swapped to variable-rate indexed to the 3-month LIBOR. On a swapped basis, the long-term fixed-rate portfolio yielded about 101 basis points in 2016, compared to about 57 basis points in 2015. Yield decline year-over-year in 2016 on an un-swapped basis was primarily due to significant amounts of long-term advances that had been modified or prepaid and replaced by lower yielding advances in the fourth quarter of 2015.
2015 compared to 2014 — For the longer term fixed-rate advances, average balances remained almost unchanged. On an un-swapped basis, yield was 244 basis points in 2015, compared to 266 basis points in 2014. On a swapped basis, the long-term fixed-rate portfolio yield increased in 2015 to 57 basis points from 52 basis points in 2014.
Adjustable Rate Credit advances or ARC advances represented 39.1% of our advance portfolio at December 31, 2016 (par amount outstanding was $42.7 billion at December 31, 2016, up from $26.5 billion at December 31, 2015 and $32.0 billion at December 31, 2014). ARCs yielded 94 basis points in 2016, up from 51 basis points in 2015 and 45 basis points in 2014. ARCs, which are indexed to LIBOR, benefited from the higher LIBOR in the current year. The average 3-month LIBOR was 74 basis points in 2016, up from 32 basis points in 2015 and 23 basis points in 2014.
Short-term fixed-rate Advances, which can have maturities from 2 days up to one year, represented 9.9% (par, $10.8 billion) of the advance portfolio at December 31 2016, compared to 12.4% (par, $11.6 billion) at December 31, 2015 and 10.3% (par, $10.0 billion) at December 31, 2014; short-term fixed-rate advances also benefited from the rising overnight and short-term interest rates in 2016, as maturing advances were replaced by higher yielding advances. This category yielded 73 basis points in 2016, compared to 47 basis points in 2015 and 41 basis points in 2014.
(b) Interest bearing deposits — Represents interest income earned on cash posted as collateral and margins to derivative counterparties. Yields on such deposits are based on the overnight federal funds effective rates, which is the earning index for cash collateral and margins. Average yield was 36 basis points in 2016, compared to 14 basis points in 2015 and 8 basis points in 2014. Average cash balances were lower in 2016 as we continue to execute derivatives as “clearable trades” through central clearing, enabling us to net positive and negative derivative contracts through a Derivative Clearing Organization and post lower cash balances.
(c) Interest income from investments in federal funds and other overnight funds — Interest income from investments in federal funds sold and overnight investments was $53.3 million in 2016, compared to $14.7 million in 2015 and $9.8 million in 2014. The significant increase in 2016 was driven by the higher level of federal funds effective rates in 2016. Weighted average yield from overnight investments was 39 basis points in 2016, up from 12 basis points in 2015 and 7 basis points in 2014.
Average invested balance was $13.7 billion in 2016, $12.2 billion in 2015, and $14.1 billion in 2014.
(d) Interest income from investment securities — Available-for-sale and Held-to-maturity securities — Long-term investments were primarily GSE- issued mortgage-backed securities (“MBS”), a small portfolio of private label MBS, a portfolio of housing finance agency bonds, and bond and equity funds in a Grantor trust owned by the FHLBNY.
Pricing and yields of GSE —issued MBS have improved somewhat in the current year periods after a sustained period in prior years during which MBS yields were low and spreads to LIBOR narrow. Market conditions limited acquisitions of MBS to only when pricing and yields met our risk/return criteria. Although we are encouraged by the widening of spread, specifically for floating rate GSE-issued CMBS, pricing remains at a premium and spread compression remains a challenge. A tight supply of securities has been the primary cause.
Long-term investment securities were designated as available-for-sale (“AFS”) or held-to-maturity (“HTM”).
AFS portfolio — Mortgage-backed securities
The AFS portfolio of mortgage-backed securities were floating-rate GSE issued securities. Interest income was $8.7 million in 2016, compared to $8.4 million in 2015 and $10.7 million in 2014. Floating-rate MBS are indexed typically to the 1-month LIBOR, which had been at record lows in the prior years. The 1-month LIBOR averaged 50 basis points in 2016. In contrast, the average 1-month LIBOR was 20 basis points in 2015 and 16 basis points in 2014. The all-in-yield (LIBOR plus the margin) earned from floating-rate MBS was 109 basis points in 2016, compared to 86 basis points in both 2015 and 2014. The favorable impact of the higher LIBOR levels in 2016 was offset by the continued decline of the portfolio. Average principal balance was $795.9 million in 2016, compared to $1.1 billion in 2015 and $1.4 billion in 2014.
Vintage higher margin floating-rate MBS continue to be paid down, adversely impacting yields and interest income in 2016.
HTM portfolio - Mortgage-backed securities (fixed and floating-rate securities), and Housing finance agency bonds
Fixed-rate MBS in the HTM portfolio earned $212.3 million in 2016, compared to $217.7 million in 2015 and $223.3 million in 2014. Yields have been declining as vintage higher coupon fixed-rate MBS have paid down. Market pricing for new issuances of highly-rated GSE securities generally remains unfavorable and yields low. When new securities were acquired to replace paydowns, tight pricing adversely impacted yields and revenues. Yields discussed do not include the impact of credit and non-credit OTTI and accretable yield under GAAP, as we believe a discussion of economic yields may enhance readers’ understanding of market conditions.
The yield on fixed-rate MBS was 299 basis points in 2016, compared to 329 basis points in 2015 and 335 basis points in 2014. Volume, as measured by average outstanding principal balance was $7.1 billion in 2016, compared to $7.2 billion in 2015 and 2014, with acquisitions just keeping pace with paydowns. The impact of a substantially unchanged volume of investment securities and a declining portfolio of high-yielding vintage securities explain the gradual decline in interest income.
Floating-rate MBS in the HTM portfolio earned $65.8 million in 2016, compared to $37.0 million in 2015 and $33.0 million in 2014. Floating-rate MBS are indexed typically to the 1-month LIBOR. Growth in revenue was driven by the increase in the portfolio, and by the higher LIBOR levels as the portfolio re-priced to higher yields. Average principal balance was $6.8 billion, yielding 99 basis points in 2016, compared to average principal balance of $5.6 billion that yielded 73 basis points in 2015 and $4.6 billion that yielded 78 basis points in 2014. Market yields for newly issued floating-rate commercial mortgage-backed securities (“CMBS”) have improved in the 2016 periods, and acquisitions were made when the yields justified our risk-reward targets.
Housing finance agency bonds
Interest income from housing finance agency bonds (“HFA bonds”) was $9.3 million in 2016, compared to $6.3 million in 2015 and $6.5 million in 2014. HFA bonds are primarily floating-rate securities indexed to LIBOR, and yields benefited from the higher LIBOR as the bonds re-priced to higher yields. Invested balance was $1.1 billion at December 31, 2016, compared to $825.1 million at December 31, 2015 and $813.1 million at December 31, 2014.
(e) Interest income from mortgage loans — Interest income from MPF loans was $86.8 million in 2016, up a little from $81.1 million in 2015 and $71.5 million in 2014. Average outstanding balances grew to $2.6 billion in 2016, up a little from $2.4 billion in 2015 and $2.0 billion in 2014. Yield on the portfolio continuously declined in 2016, primarily due to competitive pricing that drove down coupons. Yield was 330 basis points in 2016, compared to 343 basis points in 2015 and 360 basis points in 2014.
NM — Not meaningful.
Impact of hedging on Interest income from advances — 2016, 2015 and 2014
We have executed interest rate swaps to modify the effective interest rate terms of many of our fixed-rate advance products and typically all of our putable advances, effectively converting a fixed-rate stream of cash flows from fixed-rate advances to a floating-rate stream of cash flows, typically indexed to LIBOR. The cash flow patterns achieved our interest rate risk management practices of synthetically converting much of our fixed-rate interest exposures to a LIBOR exposure.
The table below summarizes interest income earned from advances and the impact of interest rate derivatives (in thousands):
Table 10.8: Impact of Interest Rate Swaps on Interest Income Earned from Advances
|
|
|
Years ended December 31, |
| |||||||
|
|
|
2016 |
|
2015 |
|
2014 |
| |||
|
Advance Interest Income |
|
|
|
|
|
|
| |||
|
Advance interest income before adjustment for interest rate swaps |
|
$ |
1,312,363 |
|
$ |
1,516,666 |
|
$ |
1,479,998 |
|
|
Net interest adjustment from interest rate swaps (a) |
|
(392,473 |
) |
(888,800 |
) |
(1,001,326 |
) | |||
|
Total Advance interest income reported |
|
$ |
919,890 |
|
$ |
627,866 |
|
$ |
478,672 |
|
(a) Certain fixed-rate advances are hedged by the execution of interest rate swaps that created synthetic floaters (Fair value hedge). The cash flows exchanged resulted in net interest expense charged to advance income of $392.5 million, $888.8 million and $1.0 billion in 2016, 2015 and 2014. A fair value hedge of an advance is accomplished by the execution of an interest rate swap in which we pay fixed-rate cash flows and receive LIBOR-indexed variable rate cash flows. The difference between the two cash exchanges determines the net interest adjustments, which declines as it did (favorably) in the current year period, when the pay and receive cash flows converge.
The higher LIBOR level that we received in the current year period was one factor that narrowed the unfavorable expense adjustment in 2016 compared to prior years. Additionally, in the prior year, certain long-term high fixed coupon swaps had been modified to lower fixed-rate coupons and re-hedged in the second half of 2015 in parallel with advance modifications or had been prepaid and replaced by advances with lower fixed-rate coupons and re-hedged. The spread narrowed between the fixed-rate coupon payments and the 3-month LIBOR received on the modified swaps or the swaps executed to hedge replacement advances.
Interest Expense — 2016, 2015 and 2014
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 generally issued to fund Advances and investments with shorter interest rate reset characteristics.
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. Reported Interest expense is net of the impact of hedge strategies. The primary strategy is the Fair value hedge that creates LIBOR-indexed funding. We also use the Cash Flow hedge strategy that creates long-term fixed-rate funding to lock in future net interest margin. In a Fair value hedge strategy of a bond or discount note, we generally pay variable-rate LIBOR-indexed cash flows to swap counterparties. In exchange, we receive fixed-rate cash flows, which typically mirror the fixed-rate coupon payments to investors holding the FHLBank debt. This exchange effectively converts fixed coupons to floating rate coupons indexed to the 3-month LIBOR. The primary cash flow hedge strategy is designed to eliminate the variability of cash flows attributable to changes in the benchmark interest rate (3-month LIBOR), hedging long-term issuances of consolidated obligation discount notes and create long term fixed-rate funding.
The principal categories of Interest expense are summarized below (dollars in thousands):
Table 10.9: Interest Expenses — Principal Categories
|
|
|
|
|
|
|
|
|
Percentage |
|
Percentage |
| |||
|
|
|
Years ended December 31, |
|
Change |
|
Change |
| |||||||
|
|
|
2016 |
|
2015 |
|
2014 |
|
2016 |
|
2015 |
| |||
|
Interest Expense |
|
|
|
|
|
|
|
|
|
|
| |||
|
Consolidated obligations bonds (a) |
|
$ |
581,900 |
|
$ |
338,916 |
|
$ |
318,743 |
|
(71.69 |
)% |
(6.33 |
)% |
|
Consolidated obligations discount notes (a) |
|
216,545 |
|
102,913 |
|
71,388 |
|
NM |
|
(44.16 |
) | |||
|
Deposits (b) |
|
3,091 |
|
455 |
|
579 |
|
NM |
|
21.42 |
| |||
|
Mandatorily redeemable capital stock (c) |
|
1,617 |
|
820 |
|
925 |
|
(97.20 |
) |
11.35 |
| |||
|
Cash collateral held and other borrowings (d) |
|
1,284 |
|
411 |
|
55 |
|
NM |
|
NM |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
| |||
|
Total interest expense |
|
$ |
804,437 |
|
$ |
443,515 |
|
$ |
391,690 |
|
(81.38 |
)% |
(13.23 |
)% |
(a) Interest expense on consolidated obligation bonds and discount notes
The mix between the use of discount notes and the use of consolidated fixed-rate bonds to fund assets is an asset/liability management consideration that will impact period-over-period changes in recorded interest expense. Discount note yields are lower relative to bonds, as discount notes are short-term funding instruments; other factors considered would include the prevailing funding environment, the liquidity needs of members, and the maturity and duration profiles of earning assets.
Consolidated bonds funded 57.0% of average earning assets in 2016, compared to 56.9% in 2015 and 61.3% in 2014. Consolidated discount notes funded 36.2% of average earning assets in 2016, compared to 35.9% in 2015 and 31.0% in 2014. The mix between the use of consolidated obligation fixed-rate bonds and floating-rate bonds is another asset/liability consideration that will impact the period-over-period changes in recorded interest expense. The level of pricing of consolidated obligation debt will determine changes in funding costs and interest expense. For swapped debt, period-over-period changes in LIBOR and changes in the spread between debt yields and prevailing LIBOR will also have an impact on funding costs.
While the cost of funding in 2016 was higher in line with the rising market interest rates, strong investor demand for discount notes and shorter-term floating-rate bonds had a favorable impact on our funding costs. As discussed below, we made a shift in our liability mix, increasing the utilization of floating-rate notes to fund our growing volume of floating-rate assets. Utilization of discount notes was on average held to prior year levels; however, the weighted average yield paid in 2016 was more favorable from a sub-LIBOR perspective. These factors have tended to partially counterbalance the impact on cost of funds of a rising interest rate environment.
Consolidated obligation bonds (“CO bonds” or “bonds”) — Aggregate interest expense on fixed- and floating-rate CO bonds in 2016 was $581.9 million at a funding yield of 80 basis points, compared to $338.9 million in 2015 at a funding yield of 49 basis points and $318.7 million at a funding yield of 42 basis points. The reported debt expense and funding yields were net of the impact of hedging fixed-rate CO bonds that create synthetic LIBOR indexed interest expense.
Interest expense on fixed-rate bonds — Interest expense was $393.4 million at a funding yield of 96 basis points in 2016, compared to $318.7 million at a funding yield of 55 basis points in 2015 and $303.8 million at a funding yield of 47 basis points in 2014. Interest expense and funding yields were the blended cost of swapped and un-swapped fixed-rate bonds. On a swapped basis, the weighted average funding yield of swapped fixed-rate bonds was about 62 basis points in 2016, compared to 18 basis points in 2015 and 12 basis points in 2014. Higher LIBOR has tended to drive up the cost of bonds on a swapped basis as we pay LIBOR indexed cash flows, and in exchange we receive fixed-rate cash flows. On a swapped basis, the cost of funding will tend to be in line with fluctuations in the LIBOR yield curve, as the fixed-rate bonds are synthetically converted to a LIBOR indexed yield.
While short-term strong investor demand has tended to keep coupons relatively attractive on Consolidated obligation debt, market clearing yields on longer maturity bonds have remained unfavorable.
Interest expense on floating-rate bonds — Interest expense was $188.5 million in 2016, compared to $20.2 million in 2015 and $14.9 million in 2014. Increase in interest expense on floating-rate bonds was primarily driven by increased utilization of floating-rate bonds in 2016. As discussed previously, while yields paid on floating-rate bonds have increased due to the higher interest rate environment in 2016, the cost of funding on a relative basis was favorable, primarily as a result of increased investor appetite for floaters. Floating-rate bonds funded 24.7% of average earning assets in 2016, compared to 8.6% in 2015 and 9.7% in 2014. The mix between the use of fixed-rate bonds and floating-rate bonds is an asset/liability management consideration, partly determined by the interest rate profile of assets that are being funded, and partly by the pricing of variable-rate debt, relative to alternative funding vehicles, such as discount notes or callable bonds with short lock-out periods to first call. Higher LIBOR in 2016 was also a factor driving up the cost of floating-rate funding, which was indexed to LIBOR. Weighted average funding cost of floating-rate CO bonds was 59 basis points in 2016, compared to 19 basis points in 2015 and 12 basis points in 2014, the increase in line with the rising LIBOR.
Consolidated obligation discount notes — As discount notes are short term funding, one year or less. Discount notes are typically issued at a small premium over equivalent maturity U.S. Treasury bills. Discount notes do not make interest payments; instead the note is matured at a par value below the issuance price, and the difference between issuance price and par is used to “accrete” to par and to calculate the yield. Discount note yields have been favorable in 2016 with money market investor demand driving yields down. Sub-LIBOR spreads widened, potentially improving net interest margin when used as a funding instrument. These favorable factors partly offset the unfavorable impact of the general increase in rates in the current year periods.
Interest expense on discount notes was $216.5 million in 2016, compared to $102.9 million in 2015 and $71.4 million in 2014. Interest expense included the impact of interest rate swaps in a qualifying cash flow hedge program in which $1.8 billion of discount notes are hedged, synthetically converting the variability of cash flows of discount notes to fixed-rate cash flows. On such interest rate swaps, the long-term fixed-rate payments we make are significantly higher than the 3-month LIBOR that we receive. As a result, the strategy increases the overall cost of funding, but assures us of achieving a predictable long-term cost of funds, and locking in future margins. The synthetic conversion to fixed-rate cash flows resulted in interest expense of $34.9 million in 2016, decreased from $36.2 million in 2015 and $35.1 million in 2014. On a swapped basis, the weighted average cost was 47 basis points in 2016, compared to 24 basis points in 2015 and 18 basis points in 2014. On an un-swapped basis, the yield paid on consolidated obligation discount notes was 39 basis points in 2016, up from 15 basis points in 2015 and 9 basis points in 2014.
(b) Interest expense on deposits — The FHLBNY takes deposits from members as a service to its members, and such deposits are not a significant source of funds. Interest expense on deposits was $3.1 million in 2016, compared to $0.5 million in 2015 and $0.6 million in 2014. Interest expense increased in 2016, primarily due to increases in the overnight deposit rates paid to members on their deposits. Average deposit balances increased in 2016 to $1.4 billion, compared to $1.2 billion in 2015 and $1.7 billion in 2014.
(c) Mandatorily redeemable capital stock — Holders of mandatorily redeemable capital stock are paid dividends at the same rate as all member stockholders. The dividend payments are classified as interest payments to conform to accounting rules with respect to the classification of such dividends. Reported interest expense has increased in 2016 periods, in line with increases in the dividend rate paid
on capital stock held by members and non-members, and by increases in the average balances of capital stock held by non-members. For more information about non-member stock, see Note 13. Capital Stock, Mandatorily Redeemable Capital Stock and Restricted Retained Earnings in the Bank’s most recent Form 10-K filed on March 21, 2016.
(d) Cash collateral and other borrowings — Represents interest paid on cash collateral received from swap counterparties. Period-over-period increases in 2016 were due to increases in the overnight federal funds effective rates, the primary index associated with the deposit rates.
NM — Not meaningful.
Impact of Hedging on Interest Expense on Debt — 2016, 2015 and 2014
Derivative strategies are primarily used to manage the interest rate risk inherent in fixed-rate debt by converting the fixed-rate funding to floating-rate debt that is indexed to 3-month LIBOR, our preferred funding base. The strategies are designed to protect future interest margins. A substantial percentage of non-callable fixed-rate debt is swapped to plain vanilla 3-month LIBOR indexed cash flows. We also issue fixed-rate callable debt that is typically 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. The cash flow objectives are accomplished by utilizing a Fair value hedging strategy, benefiting us in two principal ways. First, the issuances of fixed-rate debt and the simultaneous execution of interest rate swaps convert the debt to an adjustable-rate instrument tied to the 3-month LIBOR. Second, fixed-rate callable bonds issued in conjunction with the execution of interest rate swaps 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. We may also issue floating rate debt indexed to other than the 3-month LIBOR (Prime, federal funds rate and 1-month LIBOR). Typically, we would then execute interest rate swaps that would convert the cash flows to the 3-month LIBOR, and designate the hedge as an economic hedge.
We have also created synthetic long-term fixed rate funding to fund long-term investments, utilizing a Cash Flow hedging strategy that converted forecasted long-term discount note variable-rate funding to fixed-rate funding by the use of long-term swaps. For such discount notes, the recorded interest expense is equivalent to long-term fixed rate coupons. Cash Flow hedging strategies are also discussed under the heading Impact of Cash flow hedging on earnings and AOCI in this MD&A.
The table below summarizes interest expense paid on consolidated obligation bonds and discount notes and the impact of interest rate swaps (in thousands):
Table 10.10: Impact of Interest Rate Swaps on Consolidated Obligations Interest Expense
|
|
|
Years ended December 31, |
| |||||||
|
|
|
2016 |
|
2015 |
|
2014 |
| |||
|
Bonds and discount notes-Interest expense |
|
|
|
|
|
|
| |||
|
Bonds-Interest expense before adjustment for swaps |
|
$ |
673,143 |
|
$ |
557,215 |
|
$ |
569,948 |
|
|
Discount notes-Interest expense before adjustment for swaps |
|
181,637 |
|
66,751 |
|
36,245 |
| |||
|
Amortization of basis adjustments |
|
(3,076 |
) |
(2,223 |
) |
(58 |
) | |||
|
Net interest adjustment for interest rate swaps (a) |
|
(53,259 |
) |
(179,914 |
) |
(216,004 |
) | |||
|
Total bonds and discount notes-Interest expense |
|
$ |
798,445 |
|
$ |
441,829 |
|
$ |
390,131 |
|
(a) Certain fixed-rate bonds are hedged by interest rate swaps that create synthetic floating-rate bonds (Fair value hedge). Future issuances of certain discount note issuances are hedged by long-term interest rate swaps that create synthetic fixed-rate future cash flows (Cash flow hedge). The cash flows exchanged resulted in net favorable interest accruals of $53.3 million, $179.9 million and $216.0 million in 2016, 2015 and 2014. A fair value hedge of consolidated obligation bonds and discount notes is accomplished by the execution of interest rate swaps in which we receive fixed-rate cash flows, and pay LIBOR-indexed variable cash flows. A cash flow hedge of discount notes is accomplished by the execution of interest rate swaps in which we pay fixed-rate cash flows, and receive LIBOR-indexed variable rate cash flows. The difference between the receive leg and pay leg of the cash exchanges determines the net interest adjustments; such adjustments decline, as it did in the current year period when the pay and receive cash flows converge. The higher LIBOR level that we have paid in the current year was a primary factor that narrowed the favorable adjustments in 2016 compared to prior years. The net cash flows for the FHLBNY have been generally favorable in the periods in this report, reducing the cost of funding to a LIBOR basis. If in future periods, LIBOR rises to levels above the fixed-rate contracts, the net cash flows (exchanged between the swap counterparty and the FHLBNY) would become unfavorable.
Allowance for Credit Losses — 2016, 2015 and 2014
· Mortgage loans held-for-portfolio — Provision for credit allowances was $2.0 million in 2016, compared to $0.5 million in 2015, and a recovery of $0.6 million in 2014. The increase in the provision in 2016 resulted from a refinement and adoption of the loan loss migration methodology in the first quarter of 2016.
We evaluate impaired conventional mortgage loans 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 calculate/measure credit losses on impaired loans. Loans are considered impaired when they are seriously delinquent (typically 90 days or more) or in bankruptcy or foreclosure, and loan loss allowances are computed at that point. For such loans, the FHLBNY believes it is probable that we will be unable to collect all contractual interest and principal in accordance with the terms of the loan agreement. We also perform a loss migration analysis to collectively measure impairment of loans that have not already been individually evaluated for impairment. FHA/VA (Insured mortgage loans) guaranteed loans are also evaluated collectively for impairment based on the credit worthiness of the PFI, and no allowance was deemed necessary.
The low amounts of provisions for credit allowances are consistent with our historical experience with foreclosures or losses. Additionally, collateral values of impaired loans have continued to remain steady and have improved in the New York and New Jersey sectors, and the low loan loss reserves were reflective of the
stability in home prices in our residential loan markets. For more information, see financial statements Note 9 Mortgage Loans Held-for-Portfolio.
· Advances — Based on the collateral held as security and prior repayment history, no allowance for losses was currently deemed necessary. Our credit risk from advances 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.
Analysis of Non-Interest Income (Loss) — 2016, 2015 and 2014
The principal components of non-interest income (loss) are summarized below (in thousands):
Table 10.11: Other Income (Loss)
|
|
|
Years ended December 31, |
| |||||||
|
|
|
2016 |
|
2015 |
|
2014 |
| |||
|
|
|
|
|
|
|
|
| |||
|
Other income (loss): |
|
|
|
|
|
|
| |||
|
Service fees and other (a) |
|
$ |
13,824 |
|
$ |
12,096 |
|
$ |
9,516 |
|
|
Instruments held at fair value - Unrealized (losses) gains (b) |
|
(1,854 |
) |
9,872 |
|
2,592 |
| |||
|
Total OTTI losses |
|
(113 |
) |
(394 |
) |
— |
| |||
|
Net amount of impairment losses reclassified (from)/to Accumulated other comprehensive loss |
|
(118 |
) |
188 |
|
— |
| |||
|
Net impairment losses recognized in earnings (c) |
|
(231 |
) |
(206 |
) |
— |
| |||
|
|
|
|
|
|
|
|
| |||
|
Net realized and unrealized (losses) gains on derivatives and hedging activities (d) |
|
(1,721 |
) |
12,557 |
|
117 |
| |||
|
Net gains on trading securities |
|
142 |
|
— |
|
— |
| |||
|
Net realized gains from sale of available-for-sale securities and redemption of held-to-maturity securities |
|
250 |
|
— |
|
300 |
| |||
|
Losses from extinguishment of debt (e) |
|
(3,557 |
) |
(9,794 |
) |
(7,046 |
) | |||
|
Total other income (loss) |
|
$ |
6,853 |
|
$ |
24,525 |
|
$ |
5,479 |
|
|
(a) |
Service fees and other — Service fees are derived primarily from providing correspondent banking services to members, and fees earned on standby financial letters of credit issued by the FHLBNY on behalf of members. Fees earned from commitments and financial letters of credit, a primary component of Service fees, were $10.4 million in 2016, up from $9.4 million and $8.5 million in 2015 and 2014. |
|
|
|
|
(b) |
Instruments held at fair value under the Fair Value Option — Changes in fair values of consolidated obligation debt (bonds and discount notes) and Advances elected under the FVO reported net fair value losses of $1.9 million in 2016, compared to net gains of $9.9 million and $2.6 million in 2015 and 2014. Fluctuations in fair values were impacted by changes in the notional amounts of debt and advances elected under the FVO, the remaining duration to maturity, and changes in the term structure of the pricing curve. For more information, see discussions below and also see financial statements, FVO disclosures in Note 17. Fair Values of Financial Instruments. |
|
|
|
|
|
FVO Advances — Changes in fair values of advances elected under the FVO reported net gains of $12.7 million in 2016, compared to net losses of $2.3 million and $0.6 million in 2015 and 2014. Advances elected under the FVO were primarily adjustable rate advances (ARC advances) indexed to LIBOR. ARC advances are valued by discounting the cash flows based on the cost of funds curve (the “Consolidated obligations curve” or the “CO curve”). At December 31, 2016, the forward LIBOR yield was steeper, relative to the forward LIBOR in the periods the advances were issued, contributing to favorable change in fair values. In the same time period, the sub-LIBOR spread between the CO pricing curve and LIBOR widened. When the sub-LIBOR spread of the CO curve to LIBOR remains unchanged in a period, fair values remain close to par as the ARC advances re-price quarterly to the then prevailing LIBOR. When that spread widens, as it did at December 31, 2016, FVO advances gain in value. |
|
|
|
|
|
Notional amounts of Advances elected under the FVO have grown to $9.9 billion at December 31, 2016, compared to $9.5 billion and $15.7 billion at December 31, 2015 and 2014. The volume of advances, as measured by notional amounts designated under the FVO, was not a significant factor in the change in fair values. |
|
|
|
|
|
FVO Bonds — Changes in fair values of bonds elected under the FVO resulted in a net loss of $10.2 million, compared to net gains of $8.5 million and $2.2 million in 2015 and 2014. Notional amounts of FVO bonds were $2.1 billion at December 31, 2016, $13.3 billion and $19.5 billion at December 31, 2015 and 2014. FVO bonds were fixed-rate with original maturities that were generally two years or less. As bonds matured in 2016, unrealized fair value losses recorded in a previous period reversed to zero. New transactions recorded as FVO appreciated in value at December 31, 2016 inversely to the rise in the market observed CO rate, the cost of funds pricing curve for FVO Consolidated obligation bonds. |
|
|
|
|
|
FVO Discount notes — Changes in fair values of discount notes elected under the FVO reported a net loss of $4.4 million in 2016, compared to net gains of $3.7 million and $0.9 million in 2015 and 2014 primarily due to the steepening of the discount note yield curve. Fair values of discount note debt report unrealized gains as the market observable rates rise. Inter-period fluctuations in fair value are very typical as discount notes mature within a year of issuance. Discount notes issued in a quarter are likely to mature in subsequent quarters, causing previously recorded unrealized gains and losses to reverse to zero. Notional amounts of discount notes elected under the FVO were $12.2 billion at December 31, 2016, compared to $12.5 billion and $7.9 billion at December 31, 2015 and 2014. |
|
|
|
|
(c) |
Net impairment losses recognized in earnings on held-to-maturity securities — Cash flow analyses in the current year period in this report identified immaterial deterioration in the performance parameters of a small number of previously impaired private-label MBS. Credit OTTI charged to earnings was $231 thousand and $206 thousand in 2016 and 2015. No credit OTTI was recorded in 2014. |
|
|
|
|
(d) |
Net realized and unrealized gains (losses) on derivatives and hedging activities — See Table 10.14 and accompanying discussions for more information. |
|
|
|
|
(e) |
Earnings Impact of Debt repurchased or transferred — Par amount of $201.0 million of CO bonds were repurchased or transferred at a loss of $3.6 million, compared to charges of $9.8 million and $7.0 million in 2015 and 2014. Debt repurchased or transferred is executed at negotiated market rates. See Table 10.12 for more information. |
The following table summarizes debt repurchase and transfer activities, and redemption of HTM security (in thousands):
Table 10.12: Debt Repurchases and Transfers, and HTM security redemption
|
|
|
Years ended December 31, |
| ||||||||||||||||
|
|
|
2016 |
|
2015 |
|
2014 |
| ||||||||||||
|
|
|
Carrying Value |
|
Gains/(Losses) |
|
Carrying Value |
|
Gains/(Losses) |
|
Carrying Value |
|
Gains/(Losses) |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Redemption of Housing Finance Agency (a) |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
15,000 |
|
$ |
300 |
|
|
Repurchases of CO Bonds |
|
$ |
200,915 |
|
$ |
(3,557 |
) |
$ |
45,614 |
|
$ |
(1,975 |
) |
$ |
56,811 |
|
$ |
(438 |
) |
|
Transfer of CO Bonds to Other FHLBanks |
|
$ |
— |
|
$ |
— |
|
$ |
79,963 |
|
$ |
(7,819 |
) |
$ |
58,968 |
|
$ |
(6,608 |
) |
(a) In 2014, the issuer of certain housing finance agency bonds, which were classified as HTM, redeemed bonds at cash prices in excess of book values and gains were recorded.
The following table summarizes unrealized gains in the trading portfolio at December 31, 2016 (in thousands):
Table 10.13: Net Gains (Losses) on Trading Securities
|
(In thousands) |
|
December 31, 2016 |
| |
|
Net unrealized gains (losses) on trading securities held at period-end |
|
$ |
142 |
|
|
Net unrealized gains (losses) on trading securities |
|
$ |
142 |
|
Securities classified as trading are held for liquidity purposes and carried at fair value. We record changes in the fair value of these investments through other income as net unrealized (losses) gains on trading securities. FHFA regulations prohibit trading in or the speculative use of these instruments and limit the credit risks we have from these instruments.
Earnings Impact of Derivatives and Hedging Activities — 2016, 2015 and 2014
We may designate a derivative as either a hedge of (1) the fair value changes of a recognized fixed-rate asset (Advance) or liability (Consolidated obligation debt), or an unrecognized firm commitment; (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.
Derivative fair values are driven largely by the rise and fall of the forward swap curve, which determines forward cash flows, and by changes in the OIS curve, which is the discounting basis. Hedged advances and debt fair values are also driven largely by the rise and fall of the LIBOR curve, which is the discounting basis of hedged advances and bonds in a fair value hedge. Other market factors include interest rate spreads and interest rate volatility. The volume of derivatives and their duration to maturity are factors that are also key drivers of changes in fair values.
For derivatives that are not designated in a hedging relationship (i.e. in an economic hedge), the derivatives are considered as a “standalone” instrument and fair value changes are recorded as net unrealized gains or losses, without the offset of a hedged item. Net interest accruals on such “standalone” derivative instruments in economic hedges may also have a significant impact on reported derivatives gains and losses.
Generally for the FHLBNY, derivative and hedging gains and losses are primarily from two sources. Hedge ineffectiveness from hedges that qualify under hedge accounting rules (fair value effects of derivatives, net of the fair value effects of hedged items), and fair value changes of standalone derivatives in an economic hedge (fair value changes of derivatives without the offsetting fair value changes of the hedged items). Typically, the largest source of gains or losses from derivative and hedging activities arise from derivatives designated as standalone derivatives. For the FHLBNY, standalone derivatives have typically comprised of swaps in economic hedges of debt elected under the FVO, interest rate caps in economic hedges of capped floating-rate MBS, and basis swaps hedging floating-rate debt indexed to other than the 3-month LIBOR. For both categories, derivatives that are standalone, and derivatives and hedged items that qualify under hedge accounting rules, fair value gains and losses are unrealized and sum to zero if held to maturity. Interest accruals on standalone derivatives are considered as hedging gains or losses on standalone hedges, and realized at the periodic accrual settlement dates. For more information about qualifying Fair Value and Cash Flow hedges of advances and debt, see Derivative Hedging Strategies in Tables 8.1 — 8.4.
The impact of hedging activities on earnings, including the “geography” of the primary components of expenses and income as reported in the Statements of income are summarized below (in thousands):
Table 10.14: Earnings Impact of Derivatives and Hedging Activities — By Financial Instrument Type
|
|
|
December 31, 2016 |
| ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
Consolidated |
|
Consolidated |
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
MPF |
|
Obligation |
|
Obligation |
|
Balance |
|
Intermediary |
|
|
| ||||||||
|
Earnings Impact |
|
Advances |
|
Investments |
|
Loans |
|
Bonds |
|
Discount Notes |
|
Sheet |
|
Positions |
|
Total |
| ||||||||
|
Amortization/accretion/interest accruals of hedging activities reported in net interest income (a) |
|
$ |
(392,473 |
) |
$ |
— |
|
$ |
(273 |
) |
$ |
91,243 |
|
$ |
(34,908 |
) |
$ |
— |
|
$ |
— |
|
$ |
(336,411 |
) |
|
Net realized and unrealized gains (losses) on derivatives and hedging activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Gains on fair value hedges |
|
1,360 |
|
— |
|
— |
|
882 |
|
— |
|
— |
|
— |
|
2,242 |
| ||||||||
|
Gains on cash flow hedges |
|
— |
|
— |
|
— |
|
58 |
|
|
|
— |
|
— |
|
58 |
| ||||||||
|
Net fair value (losses) gains and interest income on swaps in economic hedges of FVO instruments |
|
(3,039 |
) |
— |
|
— |
|
2,252 |
|
345 |
|
— |
|
— |
|
(442 |
) | ||||||||
|
Net gains (losses) on swaps and caps in other economic hedges |
|
261 |
|
34 |
|
(530 |
) |
(3,428 |
) |
(492 |
) |
281 |
|
295 |
|
(3,579 |
) | ||||||||
|
Net realized and unrealized (losses) gains on derivatives and hedging activities (b) |
|
(1,418 |
) |
34 |
|
(530 |
) |
(236 |
) |
(147 |
) |
281 |
|
295 |
|
(1,721 |
) | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Total earnings impact |
|
$ |
(393,891 |
) |
$ |
34 |
|
$ |
(803 |
) |
$ |
91,007 |
|
$ |
(35,055 |
) |
$ |
281 |
|
$ |
295 |
|
$ |
(338,132 |
) |
|
|
|
December 31, 2015 |
| ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
Consolidated |
|
Consolidated |
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
MPF |
|
Obligation |
|
Obligation |
|
Balance |
|
Intermediary |
|
|
| ||||||||
|
Earnings Impact |
|
Advances |
|
Investments |
|
Loans |
|
Bonds |
|
Discount Notes |
|
Sheet |
|
Positions |
|
Total |
| ||||||||
|
Amortization/accretion/interest accruals of hedging activities reported in net interest income (a) |
|
$ |
(888,800 |
) |
$ |
— |
|
$ |
(427 |
) |
$ |
218,299 |
|
$ |
(36,162 |
) |
$ |
— |
|
$ |
— |
|
$ |
(707,090 |
) |
|
Net realized and unrealized gains (losses) on derivatives and hedging activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
(Losses) gains on fair value hedges |
|
(5,939 |
) |
— |
|
— |
|
8,868 |
|
— |
|
— |
|
— |
|
2,929 |
| ||||||||
|
(Losses) on cash flow hedges |
|
— |
|
— |
|
— |
|
(284 |
) |
— |
|
— |
|
— |
|
(284 |
) | ||||||||
|
Net fair value gains and interest income on swaps in economic hedges of FVO instruments |
|
58 |
|
— |
|
— |
|
7,645 |
|
5,768 |
|
— |
|
— |
|
13,471 |
| ||||||||
|
Net (losses) gains on swaps and caps in other economic hedges |
|
(79 |
) |
— |
|
(137 |
) |
(764 |
) |
— |
|
(2,619 |
) |
40 |
|
(3,559 |
) | ||||||||
|
Net realized and unrealized (losses) gains on derivatives and hedging activities (b) |
|
(5,960 |
) |
— |
|
(137 |
) |
15,465 |
|
5,768 |
|
(2,619 |
) |
40 |
|
12,557 |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
Total earnings impact |
|
$ |
(894,760 |
) |
$ |
— |
|
$ |
(564 |
) |
$ |
233,764 |
|
$ |
(30,394 |
) |
$ |
(2,619 |
) |
$ |
40 |
|
$ |
(694,533 |
) |
|
|
|
December 31, 2014 |
| ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
Consolidated |
|
Consolidated |
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
MPF |
|
Obligation |
|
Obligation |
|
Balance |
|
Intermediary |
|
|
| ||||||||
|
Earnings Impact |
|
Advances |
|
Investments |
|
Loans |
|
Bonds |
|
Discount Notes |
|
Sheet |
|
Positions |
|
Total |
| ||||||||
|
Amortization/accretion/interest accruals of hedging activities reported in net interest income (a) |
|
$ |
(1,001,326 |
) |
$ |
— |
|
$ |
(368 |
) |
$ |
251,205 |
|
$ |
(35,143 |
) |
$ |
— |
|
$ |
— |
|
$ |
(785,632 |
) |
|
Net realized and unrealized gains (losses) on derivatives and hedging activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
(Losses) gains on fair value hedges |
|
(622 |
) |
— |
|
— |
|
6,238 |
|
— |
|
— |
|
— |
|
5,616 |
| ||||||||
|
Gains on cash flow hedges |
|
— |
|
— |
|
— |
|
51 |
|
— |
|
— |
|
— |
|
51 |
| ||||||||
|
Net fair value gains and interest income on swaps in economic hedges of FVO instruments |
|
— |
|
— |
|
— |
|
10,740 |
|
1,690 |
|
— |
|
— |
|
12,430 |
| ||||||||
|
Net gains (losses) on swaps and caps in other economic hedges |
|
74 |
|
— |
|
1,027 |
|
559 |
|
— |
|
(19,657 |
) |
17 |
|
(17,980 |
) | ||||||||
|
Net realized and unrealized (losses) gains on derivatives and hedging activities (b) |
|
(548 |
) |
— |
|
1,027 |
|
17,588 |
|
1,690 |
|
(19,657 |
) |
17 |
|
117 |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total earnings impact |
|
$ |
(1,001,874 |
) |
$ |
— |
|
$ |
659 |
|
$ |
268,793 |
|
$ |
(33,453 |
) |
$ |
(19,657 |
) |
$ |
17 |
|
$ |
(785,515 |
) |
(a) Yield adjustments — The impact of amortization/accretion and interest accruals on hedging activities — Previously recorded hedge valuation basis on advances and debt that are no longer in a hedging relationship are amortized and recorded as a yield adjustment in the Statements of income in the same interest income or expense line as the hedged items. Interest accrual on a swap in a qualifying hedge relationship is also recorded as a yield adjustment in the Statements of income as an Interest income or Interest expense. Together, their impact due to hedging activities, specifically the impact of swap interest accruals on net interest margin and on Net interest income was significant. In 2016, net swap accruals and amortization resulted in a net charge (expense) to Net interest income of $336.4 million, compared to $707.1 million and $785.6 million in 2015 and 2014. See Table 10.8 “Impact of Interest Rate Swaps on Interest Income Earned from Advances” and Table 10.10 “Impact of Interest Rate Swaps on Consolidated Obligations Interest Expense” for a discussion on changes year-over-year. Interest accrued represents interest paid or received on swaps that generally hedged and synthetically converted fixed-rate cash flows of Advances and Consolidated obligation debt to floating-rate. In certain instances, we have converted the variability of forecasted discount note cash flows to fixed-rate cash flows by the execution of cash flow hedges.
While the impact of the interest rate exchanges on periodic earnings was unfavorable (an expense), the execution of the interest rate swap contracts achieved our interest rate risk management strategies, primarily to mitigate the interest risk arising from fixed-rate cash flows on fixed-rate advances borrowed by our members and the risk arising from the issuances of fixed-rate debt to finance our lending activities.
(b) Net realized and unrealized gains (losses) on derivatives and hedging activities recorded in Other income — The primary components were (a) fair value changes of derivatives in qualifying fair value hedges offset by fair value changes of hedged items, (b) the ineffective
portion of fair value changes of derivative in cash flow hedging relationships (de minimis), and (c) fair value changes of standalone derivatives that were in economic hedges, and (d) net interest accruals on the standalone derivatives.
· Standalone derivatives were primarily interest rate swaps, designated in economic hedges of advances and debt elected under the FVO, and interest rate caps in economic hedges of capped floating-rate investments. Standalone derivatives are marked to their fair values without the offset of fair value changes of advances and debt that are in an economic hedge. Fair value changes of instruments elected under the FVO are marked to their fair values and recorded in Other income in a separate line item “Instruments held at fair value”. Assets and liabilities that are economically hedged, other than those elected under the FVO, are not eligible under accounting rules to be marked to their fair values.
· Derivatives are marked to their fair values. If the hedge qualifies under ASC 815, an offsetting change in the fair values of the hedged advance and debt is also recorded in Other income as a component of “Derivatives and hedging activities”. The difference between fair value changes between the derivative and the hedged instruments is referred to as “the hedge ineffectiveness”.
Derivatives and hedging activities reported net fair value losses of $1.7 million in 2016, compared to net fair value gains of $12.6 million and $0.1 million in 2015 and 2014.
Primary drivers are discussed below:
Qualifying hedging
· Fair value gains and losses on Fair value hedges — Fair value hedges reported hedge ineffectiveness of a net gain of $2.2 million in 2016, compared to net gains of $2.9 million and $5.6 million in 2015 and 2014. We do not consider recorded hedge ineffectiveness to be significant relative to more than $63.3 billion in notional amounts of derivative transactions outstanding in fair value hedging relationships in each period in this report. The small amounts of hedge ineffectiveness were consistent with our hedging strategy of closely matching our derivatives with hedged advances and debt.
· Fair value gains and losses on Cash flow hedges — We have two primary cash flow hedging strategies — a rollover cash flow strategy that hedges the variability of long-term issuances of discount notes, and a strategy that mitigates the risk arising from anticipated issuances of debt. No ineffectiveness has been observed or recorded in the rollover strategy. Ineffectiveness from hedging anticipated issuances of debt resulted in insignificant amounts of ineffectiveness gains of less than $0.1 million in 2016, compared to a loss of $0.3 million in 2015 and less than $0.1 million gains in 2014.
Standalone derivative:
The impact on earnings from standalone derivatives are recorded in Other income as gains or losses from derivatives and hedging activities. By policy election, interest accruals on standalone swaps are also recorded as gains or losses from derivatives and hedging activities. The primary standalone derivative instruments were interest rate swaps and interest rate caps and floors that were in economic hedges of assets, liabilities or balance sheet risks.
Standalone derivatives reported net fair value losses of $4.0 million in 2016, compared to a net gain of $9.9 million in 2015 and a net loss of $5.6 million in 2014.
The primary components of fair value gains and losses in the reporting periods were:
· Fair value gains and losses on standalone derivatives.
Standalone derivatives were interest rate swaps, in economic hedges of advances and bonds elected under the FVO, and interest rate caps that mitigated the cash flow risk of capped floating-rate mortgage-backed securities.
Fair values of swaps in economic hedges are one-sided marks without the benefit of offsetting changes in the fair values of the FVO instruments. Inter-period valuation fluctuations were generally due to fair value gains and losses in a prior year period that were followed by reversals in subsequent periods in the current year as swaps approached maturity. The standalone swaps were of relatively short duration, generally with maturities of less than two years; as the swaps approached their maturity, gains and losses reversed, so that at maturity their values were zero.
Valuation changes on interest rate swaps designated in economic hedges of debt elected under the FVO reported a net gain of $8.1 million in 2016, compared to net losses of $11.6 million and $1.2 million in 2015 and 2014.
Valuation changes of interest rate swaps designated in economic hedges of advances elected under the FVO reported a net fair value loss of $1.9 million in 2016, compared to a net gain of $1.9 million in 2015. No swaps had been designated in 2014 in hedges of FVO advances.
Valuation changes of interest rate caps, designated as standalone derivatives in economic hedges of floating-rate capped MBS reported fair value gains of $0.3 million in 2016, compared to net losses of $2.6 million and $19.7 million in 2015 and 2014. The fair values of interest rate caps will decline if long-term swap rates decline or volatility of swap rates decline; fair values will increase when long-term rates rise or volatility of rates increase. The interest rate caps are expected to mitigate the cash flow risk exposure of capped floating-rate MBS in a rising interest rate environment.
· Interest accruals on standalone derivatives — Interest accruals are also a component of derivatives and hedging activities when the swaps are designated as standalone (in economic hedges of assets, liabilities or the balance sheet). Net interest accrual resulted in a net expense of $11.9 million in 2016, compared to a net income of $23.8 million and $14.9 million in 2015 and 2014. When net accrual is an expense, it represents payments to swap counterparties that exceed the payments received by the FHLBNY. Interest rate swaps in economic hedges of debt elected under the FVO were structured for us to pay LIBOR indexed cash flows and to receive fixed-rate cash flows. Interest rate swaps in economic hedges of advances elected under the FVO were structured for us to pay fixed-rate cash flows, and in return receive variable-rate cash flows.
The policy election, to record accruals on standalone derivatives as a component of derivatives and hedging activities in Other income, only affects the reporting classification of accruals and has no impact on Net income. If the swap was in an ASC 815 hedging relationship, the interest rate swap accruals would have been recorded in Net interest income.
For more information, also see financial statements, Components of net gains and losses on derivatives and hedging activities in Note 16. Derivatives and Hedging Activities.
Impact of Cash flow hedging on earnings and AOCI — 2016, 2015 and 2014
Derivative gains and losses reclassified from AOCI to current period income — The following table summarizes changes in derivative gains and (losses), including reclassifications into earnings from AOCI in the Statements of Condition (in thousands):
Table 10.15: Accumulated Other Comprehensive Income (Loss) to Current Period Income from Cash Flow Hedges
|
|
|
Years ended December 31, |
| |||||||
|
|
|
2016 |
|
2015 |
|
2014 |
| |||
|
Accumulated other comprehensive loss from cash flow hedges |
|
|
|
|
|
|
| |||
|
Beginning of period |
|
$ |
(91,037 |
) |
$ |
(86,667 |
) |
$ |
(30,983 |
) |
|
Net hedging transactions (a) |
|
41,892 |
|
(7,143 |
) |
(58,586 |
) | |||
|
Reclassified into earnings |
|
2,127 |
|
2,773 |
|
2,902 |
| |||
|
End of period (b) |
|
$ |
(47,018 |
) |
$ |
(91,037 |
) |
$ |
(86,667 |
) |
(a) Net hedging transactions represented changes in valuations recorded through AOCI. Valuation changes resulted in a net gain of $41.9 million in 2016. In 2015 and 2014, valuation losses of $7.1 million and $58.6 million were recorded. Valuation gains and losses were associated with the two cash flow programs discussed below, but primarily represented changes in fair values of swaps in the discount note cash flow hedging program.
(b) End of period balances represent fair value losses (effective portion) of contracts that were open at period end. Ineffectiveness, if any associated with the open contracts was de minimis. For more information, see table: Cash Flow hedges — Fair Value changes in AOCI Rollforward Analysis in financial statements Note 16. Derivatives and Hedging Activities.
The two Cash Flow hedging strategies were:
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 that is expected to settle in a future period and the cost of funding. The swaps are structured to pay fixed-rate, receive LIBOR indexed cash flows. Open swap contracts are valued at the end of each reporting period and fair values are recorded in the balance sheet as a derivative asset or a liability, with an offset to AOCI. The effective portion of changes in the fair values of the swaps is recorded in AOCI. Ineffectiveness, if any, is recorded through earnings. In this program, the swap is typically terminated upon issuance of the debt instrument. The termination fair value is recorded in AOCI and 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.
Hedges of discount note issuances — In the “rollover” cash flow hedge strategy, fair values of derivatives are recorded as a derivative asset or a liability in the balance sheet, and the effective portion is recorded as an offset to AOCI. The ineffective portion is recorded in earnings. The objective of this cash flow strategy is to hedge the long-term issuances of consolidated obligation discount notes, eliminate the variability of cash flows attributable to changes in the benchmark interest rate (3-month LIBOR), and to create predictable long term fixed-rate funding.
For more information, see financial statements, Note 16. Derivatives and Hedging Activities.
Operating Expenses, Compensation and Benefits, and Other Expenses — 2016, 2015 and 2014
The following table sets forth the major categories of operating expenses (dollars in thousands):
Table 10.16: Operating Expenses, and Compensation and Benefits
|
|
|
Years ended December 31, |
| |||||||||||||
|
|
|
2016 |
|
Percentage of |
|
2015 |
|
Percentage of |
|
2014 |
|
Percentage of |
| |||
|
Operating Expenses (a) |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
|
Occupancy |
|
$ |
4,365 |
|
13.06 |
% |
$ |
4,352 |
|
14.60 |
% |
$ |
4,190 |
|
15.49 |
% |
|
Depreciation and leasehold amortization |
|
3,462 |
|
10.36 |
|
3,673 |
|
12.33 |
|
3,443 |
|
12.73 |
| |||
|
All others (b) |
|
25,602 |
|
76.58 |
|
21,774 |
|
73.07 |
|
19,421 |
|
71.78 |
| |||
|
Total Operating Expenses |
|
$ |
33,429 |
|
100.00 |
% |
$ |
29,799 |
|
100.00 |
% |
$ |
27,054 |
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
|
Employee compensation |
|
$ |
38,463 |
|
55.66 |
% |
$ |
33,992 |
|
46.16 |
% |
$ |
32,496 |
|
54.67 |
% |
|
Employee benefits |
|
30,642 |
|
44.34 |
|
39,647 |
|
53.84 |
|
26,946 |
|
45.33 |
| |||
|
Total Compensation and Benefits |
|
$ |
69,105 |
|
100.00 |
% |
$ |
73,639 |
|
100.00 |
% |
$ |
59,442 |
|
100.00 |
% |
|
Finance Agency and Office of Finance (c) |
|
$ |
12,859 |
|
|
|
$ |
13,733 |
|
|
|
$ |
14,050 |
|
|
|
(a) Operating expenses included the administrative and overhead costs of operating the FHLBNY, as well as the operating costs of providing advances and managing collateral associated with the advances, managing the investment portfolios, and providing correspondent banking services to members.
(b) The category “All others” included temporary workers, computer service agreements, contractual services, professional and legal fees, audit fees, director fees and expenses, insurance and telecommunications.
(c) We are also assessed for our share of the operating expenses for the Finance Agency and the Office of Finance. The FHLBanks and two other GSEs share the entire cost of the Finance Agency. Expenses are allocated by the Finance Agency and the Office of Finance.
Assessments — 2016, 2015 and 2014
For more information about assessments, see Affordable Housing Program and Other Mission Related Programs and Assessments under Item 1 Business in this Form 10-K.
The following table provides roll-forward information with respect to changes in AHP liabilities (in thousands):
Table 11.1: Affordable Housing Program Liabilities
|
|
|
Years ended December 31, |
| |||||||
|
|
|
2016 |
|
2015 |
|
2014 |
| |||
|
Beginning balance |
|
$ |
113,352 |
|
$ |
113,544 |
|
$ |
123,060 |
|
|
Additions from current period’s assessments |
|
44,752 |
|
46,182 |
|
35,094 |
| |||
|
Net disbursements for grants and programs |
|
(33,042 |
) |
(46,374 |
) |
(44,610 |
) | |||
|
Ending balance |
|
$ |
125,062 |
|
$ |
113,352 |
|
$ |
113,544 |
|
AHP assessments allocated from net income totaled $44.8 million in 2016, compared to $46.2 million and $35.1 million in 2015 and 2014. Assessments are calculated as a percentage of Net income, and the changes in allocations were in parallel with changes in Net income.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Market Risk Management. Market risk or interest rate risk (“IRR”) is the risk of change to market value or future earnings due to a change in the interest rate environment. IRR arises from the Banks operation due to maturity mismatches between interest rate sensitive cash-flows of assets and liabilities. As the maturity mismatch increases so does the level of IRR. The Bank has opted to retain a modest level of IRR which allows for the preservation of capital value while generating steady and predictable income. Accordingly, 85% of the balance sheet consists of predominantly short-term and LIBOR-based assets and liabilities. A conservative and limited maturity gap profile of asset and liability positions protect our capital from changes in value arising from interest rate and rate volatility environment.
The desired risk profile is primarily affected by the use of interest rate exchange agreements (“Swaps”). All the LIBOR-based advances and long-term advances are swapped to 1- or 3-month LIBOR. Advances with adjustable rates are tailored to reset to a LIBOR index while long-term consolidated obligations are swapped to 1- or 3-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.
Although the Bank maintains a conservative IRR profile, income variability does arise from structural aspects our portfolio. These include: embedded prepayment rights, basis risk on asset and liability positions, yield curve risk, and liquidity and funding needs. These varied risks are controlled by monitoring IRR measures including re-pricing gaps, duration of equity (“DOE”), value at risk (“Vary”), net interest income (“NII”) at risk, key rate durations (“KRD”), and forecasted dividend rates.
Risk Measurements. Our Risk Management Policy assigns comprehensive risk limits which 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 +/-5.0 years in the +/-200bps shock cases. Due to the low interest rate environment beginning in early 2008, rates at December 2015, March 2016, June 2016, September 2016 and December 2016 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 in the 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 fourth quarter of 2015 and the fourth quarter of 2016):
|
|
|
Base Case DOE |
|
-200bps DOE |
|
+200bps DOE |
|
|
December 31, 2016 |
|
0.10 |
|
N/A |
|
0.77 |
|
|
September 30, 2016 |
|
-0.57 |
|
N/A |
|
0.50 |
|
|
June 30, 2016 |
|
-1.08 |
|
N/A |
|
0.60 |
|
|
March 31, 2016 |
|
-0.80 |
|
N/A |
|
0.36 |
|
|
December 31, 2015 |
|
-0.61 |
|
N/A |
|
0.84 |
|
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.
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 |
| |
|
December 31, 2016 |
|
$ |
5.631 Billion |
|
|
September 30, 2016 |
|
$ |
6.108 Billion |
|
|
June 30, 2016 |
|
$ |
5.994 Billion |
|
|
March 31, 2016 |
|
$ |
5.659 Billion |
|
|
December 31, 2015 |
|
$ |
5.640 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 fourth quarter of 2015 and the fourth quarter of 2016):
|
|
|
Sensitivity in |
|
Sensitivity in |
|
|
December 31, 2016 |
|
N/A |
|
4.78 |
% |
|
September 30, 2016 |
|
N/A |
|
3.18 |
% |
|
June 30, 2016 |
|
N/A |
|
7.99 |
% |
|
March 31, 2016 |
|
N/A |
|
9.55 |
% |
|
December 31, 2015 |
|
N/A |
|
5.01 |
% |
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 fourth quarter of 2015 and the fourth quarter of 2016):
|
|
|
Down-shock |
|
+200bps Change |
|
|
December 31, 2016 |
|
N/A |
|
-1.01 |
% |
|
September 30, 2016 |
|
N/A |
|
-0.15 |
% |
|
June 30, 2016 |
|
N/A |
|
0.07 |
% |
|
March 31, 2016 |
|
N/A |
|
0.35 |
% |
|
December 31, 2015 |
|
N/A |
|
-0.49 |
% |
As noted, the potential declines under these shocks are within our limits of a maximum 10 percent.
The following tables display the portfolio’s maturity/re-pricing gaps as of December 31, 2016 and December 31, 2015 (in millions):
|
|
|
Interest Rate Sensitivity |
| ||||||||||||||
|
|
|
December 31, 2016 |
| ||||||||||||||
|
|
|
|
|
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 |
|
$ |
15,227 |
|
$ |
126 |
|
$ |
439 |
|
$ |
371 |
|
$ |
1,797 |
| |
|
MBS investments |
|
8,581 |
|
339 |
|
2,287 |
|
2,334 |
|
2,129 |
| ||||||
|
Adjustable-rate loans and advances |
|
42,781 |
|
— |
|
— |
|
— |
|
— |
| ||||||
|
Net unswapped |
|
66,589 |
|
465 |
|
2,726 |
|
2,705 |
|
3,926 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Liquidity trading portfolio |
|
— |
|
131 |
|
— |
|
— |
|
— |
| ||||||
|
Swaps hedging investments |
|
131 |
|
(131 |
) |
— |
|
— |
|
— |
| ||||||
|
Net liquidity trading portfolio |
|
131 |
|
— |
|
— |
|
— |
|
— |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Fixed-rate loans and advances |
|
24,780 |
|
5,321 |
|
24,977 |
|
8,220 |
|
3,162 |
| ||||||
|
Swaps hedging advances |
|
38,704 |
|
(4,419 |
) |
(23,309 |
) |
(7,876 |
) |
(3,100 |
) | ||||||
|
Net fixed-rate loans and advances |
|
63,484 |
|
902 |
|
1,668 |
|
344 |
|
62 |
| ||||||
|
Loans to other FHLBanks |
|
255 |
|
— |
|
— |
|
— |
|
— |
| ||||||
|
Total interest-earning assets |
|
$ |
130,459 |
|
$ |
1,367 |
|
$ |
4,394 |
|
$ |
3,049 |
|
$ |
3,988 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Deposits |
|
$ |
1,569 |
|
$ |
4 |
|
$ |
— |
|
$ |
— |
|
$ |
— |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Discount notes |
|
49,034 |
|
324 |
|
— |
|
— |
|
— |
| ||||||
|
Swapped discount notes |
|
(1,839 |
) |
— |
|
— |
|
971 |
|
868 |
| ||||||
|
Net discount notes |
|
47,195 |
|
324 |
|
— |
|
971 |
|
868 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Consolidated Obligation Bonds |
|
|
|
|
|
|
|
|
|
|
| ||||||
|
FHLBank bonds |
|
53,906 |
|
11,352 |
|
13,791 |
|
2,115 |
|
3,198 |
| ||||||
|
Swaps hedging bonds |
|
21,045 |
|
(9,200 |
) |
(10,787 |
) |
(293 |
) |
(765 |
) | ||||||
|
Net FHLBank bonds |
|
74,951 |
|
2,152 |
|
3,004 |
|
1,822 |
|
2,433 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Total interest-bearing liabilities |
|
$ |
123,715 |
|
$ |
2,480 |
|
$ |
3,004 |
|
$ |
2,793 |
|
$ |
3,301 |
| |
|
Post hedge gaps (a): |
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Periodic gap |
|
$ |
6,744 |
|
$ |
(1,113 |
) |
$ |
1,390 |
|
$ |
256 |
|
$ |
687 |
| |
|
Cumulative gaps |
|
$ |
6,744 |
|
$ |
5,631 |
|
$ |
7,021 |
|
$ |
7,277 |
|
$ |
7,964 |
| |
|
|
|
Interest Rate Sensitivity |
| |||||||||||||
|
|
|
December 31, 2015 |
| |||||||||||||
|
|
|
|
|
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 |
|
$ |
12,702 |
|
$ |
123 |
|
$ |
432 |
|
$ |
361 |
|
$ |
1,573 |
|
|
MBS investments |
|
7,089 |
|
347 |
|
1,942 |
|
1,981 |
|
2,764 |
| |||||
|
Adjustable-rate loans and advances |
|
26,586 |
|
— |
|
— |
|
— |
|
— |
| |||||
|
Net unswapped |
|
46,377 |
|
470 |
|
2,374 |
|
2,342 |
|
4,337 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Fixed-rate loans and advances |
|
23,328 |
|
5,589 |
|
23,565 |
|
11,375 |
|
3,095 |
| |||||
|
Swaps hedging advances |
|
39,868 |
|
(4,500 |
) |
(21,512 |
) |
(10,819 |
) |
(3,037 |
) | |||||
|
Net fixed-rate loans and advances |
|
63,196 |
|
1,089 |
|
2,053 |
|
556 |
|
58 |
| |||||
|
Total interest-earning assets |
|
$ |
109,573 |
|
$ |
1,559 |
|
$ |
4,427 |
|
$ |
2,898 |
|
$ |
4,395 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
| |||||
|
Deposits |
|
$ |
1,663 |
|
$ |
2 |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Discount notes |
|
45,866 |
|
988 |
|
— |
|
— |
|
— |
| |||||
|
Swapped discount notes |
|
(1,219 |
) |
(348 |
) |
— |
|
525 |
|
1,042 |
| |||||
|
Net discount notes |
|
44,647 |
|
640 |
|
— |
|
525 |
|
1,042 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Consolidated Obligation Bonds |
|
|
|
|
|
|
|
|
|
|
| |||||
|
FHLBank bonds |
|
32,077 |
|
10,401 |
|
18,038 |
|
2,707 |
|
4,161 |
| |||||
|
Swaps hedging bonds |
|
25,487 |
|
(9,425 |
) |
(14,313 |
) |
(564 |
) |
(1,185 |
) | |||||
|
Net FHLBank bonds |
|
57,564 |
|
976 |
|
3,725 |
|
2,143 |
|
2,976 |
| |||||
|
Total interest-bearing liabilities |
|
$ |
103,874 |
|
$ |
1,618 |
|
$ |
3,725 |
|
$ |
2,668 |
|
$ |
4,018 |
|
|
Post hedge gaps (a): |
|
|
|
|
|
|
|
|
|
|
| |||||
|
Periodic gap |
|
$ |
5,699 |
|
$ |
(59 |
) |
$ |
702 |
|
$ |
230 |
|
$ |
377 |
|
|
Cumulative gaps |
|
$ |
5,699 |
|
$ |
5,640 |
|
$ |
6,342 |
|
$ |
6,572 |
|
$ |
6,949 |
|
(a) Re-pricing gaps are estimated at the scheduled rate reset dates for floating rate instruments, and at maturity for fixed rate instruments. For callable instruments, the re-pricing period is estimated by the earlier of the estimated call date under the current interest rate environment or the instrument’s contractual maturity.
Item 8. Financial Statements and Supplementary Data.
|
|
PAGE |
|
|
|
|
Financial Statements |
|
|
|
|
|
Management’s Report on Internal Control over Financial Reporting |
83 |
|
|
|
|
84 | |
|
85 | |
|
Statements of Income for the years ended December 31, 2016, 2015 and 2014 |
86 |
|
Statements of Comprehensive Income for the years ended December 31, 2016, 2015 and 2014 |
87 |
|
Statements of Capital for the years ended December 31, 2016, 2015 and 2014 |
88 |
|
Statements of Cash Flows for the years ended December 31, 2016, 2015 and 2014 |
89 |
|
91 | |
|
|
|
|
Supplementary Data |
|
|
|
|
|
Supplementary financial data for each full quarter within the two years ended December 31, 2016 are included in Item 6. Selected Financial Data. |
|
Federal Home Loan Bank of New York
Management’s Report on Internal Control over Financial Reporting
The management of the Federal Home Loan Bank of New York (the “Bank”) is responsible for establishing and maintaining adequate internal control over financial reporting. The Bank’s internal control over financial reporting is designed by, or under the supervision of, the Principal Executive Officer and the Principal Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States of America.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. The Bank’s management assessed the effectiveness of the Bank’s internal control over financial reporting as of December 31, 2016. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework (2013). Based on its assessment, management of the Bank determined that as of December 31, 2016, the Bank’s internal control over financial reporting was effective based on those criteria.
PricewaterhouseCoopers LLP, the Bank’s independent registered public accounting firm that audited the accompanying Financial Statements has also issued an audit report on the effectiveness of internal control over financial reporting. Their report appears on the following page.
Federal Home Loan Bank of New York
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders
of the Federal Home Loan Bank of New York:
In our opinion, the accompanying statements of condition and the related statements of income, comprehensive income, capital, and of cash flows present fairly, in all material respects, the financial position of the Federal Home Loan Bank of New York (the “FHLBank”) at December 31, 2016 and 2015, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2016 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the FHLBank maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The FHLBank’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on these financial statements and on the FHLBank’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
New York, New York
March 21, 2017
Federal Home Loan Bank of New York
Statements of Condition — (In Thousands, Except Par Value of Capital Stock)
As of December 31, 2016 and December 31, 2015
|
|
|
December 31, 2016 |
|
December 31, 2015 |
| ||
|
Assets |
|
|
|
|
| ||
|
Cash and due from banks (Note 3) |
|
$ |
151,769 |
|
$ |
327,482 |
|
|
Securities purchased under agreements to resell (Note 4) |
|
7,150,000 |
|
4,000,000 |
| ||
|
Federal funds sold (Note 4) |
|
6,683,000 |
|
7,245,000 |
| ||
|
Trading securities (Note 5) |
|
131,151 |
|
— |
| ||
|
Available-for-sale securities, net of unrealized gains of $4,224 at December 31, 2016 and $9,283 at December 31, 2015 (Note 6) |
|
697,812 |
|
990,129 |
| ||
|
Held-to-maturity securities (Note 7) |
|
16,022,293 |
|
13,932,372 |
| ||
|
Advances (Note 8) (Includes $9,873,157 at December 31, 2016 and $9,532,553 at December 31, 2015 at fair value under the fair value option) |
|
109,256,625 |
|
93,874,211 |
| ||
|
Mortgage loans held-for-portfolio, net of allowance for credit losses of $1,554 at December 31, 2016 and $326 at December 31, 2015 (Note 9) |
|
2,746,559 |
|
2,524,285 |
| ||
|
Loans to other FHLBanks (Note 19) |
|
255,000 |
|
— |
| ||
|
Accrued interest receivable |
|
163,379 |
|
145,913 |
| ||
|
Premises, software, and equipment |
|
12,621 |
|
9,466 |
| ||
|
Derivative assets (Note 16) |
|
328,875 |
|
181,676 |
| ||
|
Other assets |
|
7,198 |
|
8,097 |
| ||
|
Total assets |
|
$ |
143,606,282 |
|
$ |
123,238,631 |
|
|
|
|
|
|
|
| ||
|
Liabilities and capital |
|
|
|
|
| ||
|
|
|
|
|
|
| ||
|
Liabilities |
|
|
|
|
| ||
|
Deposits (Note 10) |
|
|
|
|
| ||
|
Interest-bearing demand |
|
$ |
1,183,468 |
|
$ |
1,308,923 |
|
|
Non-interest-bearing demand |
|
22,281 |
|
15,493 |
| ||
|
Term |
|
35,000 |
|
26,000 |
| ||
|
Total deposits |
|
1,240,749 |
|
1,350,416 |
| ||
|
|
|
|
|
|
| ||
|
Consolidated obligations, net (Note 11) |
|
|
|
|
| ||
|
Bonds (Includes $2,052,513 at December 31, 2016 and $13,320,909 at December 31, 2015 at fair value under the fair value option) |
|
84,784,664 |
|
67,715,952 |
| ||
|
Discount notes (Includes $12,228,412 at December 31, 2016 and $12,471,868 at December 31, 2015 at fair value under the fair value option) |
|
49,357,894 |
|
46,849,868 |
| ||
|
Total consolidated obligations |
|
134,142,558 |
|
114,565,820 |
| ||
|
|
|
|
|
|
| ||
|
Mandatorily redeemable capital stock (Note 13) |
|
31,435 |
|
19,499 |
| ||
|
|
|
|
|
|
| ||
|
Accrued interest payable |
|
130,178 |
|
108,575 |
| ||
|
Affordable Housing Program (Note 12) |
|
125,062 |
|
113,352 |
| ||
|
Derivative liabilities (Note 16) |
|
144,985 |
|
210,113 |
| ||
|
Other liabilities |
|
167,234 |
|
151,374 |
| ||
|
Total liabilities |
|
135,982,201 |
|
116,519,149 |
| ||
|
|
|
|
|
|
| ||
|
Commitments and Contingencies (Notes 13, 16 and 18) |
|
|
|
|
| ||
|
|
|
|
|
|
| ||
|
Capital (Note 13) |
|
|
|
|
| ||
|
Capital stock ($100 par value), putable, issued and outstanding shares: 63,077 at December 31, 2016 and 55,850 at December 31, 2015 |
|
6,307,766 |
|
5,585,030 |
| ||
|
Retained earnings |
|
|
|
|
| ||
|
Unrestricted |
|
1,028,674 |
|
967,078 |
| ||
|
Restricted (Note 13) |
|
383,291 |
|
303,061 |
| ||
|
Total retained earnings |
|
1,411,965 |
|
1,270,139 |
| ||
|
Total accumulated other comprehensive loss |
|
(95,650 |
) |
(135,687 |
) | ||
|
|
|
|
|
|
| ||
|
Total capital |
|
7,624,081 |
|
6,719,482 |
| ||
|
Total liabilities and capital |
|
$ |
143,606,282 |
|
$ |
123,238,631 |
|
The accompanying notes are an integral part of these financial statements.
Federal Home Loan Bank of New York
Statements of Income — (In Thousands, Except Per Share Data)
Years Ended December 31, 2016, 2015 and 2014
|
|
|
Years ended December 31, |
| |||||||
|
|
|
2016 |
|
2015 |
|
2014 |
| |||
|
Interest income |
|
|
|
|
|
|
| |||
|
Advances, net (Note 8) |
|
$ |
919,890 |
|
$ |
627,866 |
|
$ |
478,672 |
|
|
Interest-bearing deposits (Note 4) |
|
1,655 |
|
1,343 |
|
1,019 |
| |||
|
Securities purchased under agreements to resell (Note 4) |
|
6,940 |
|
1,615 |
|
481 |
| |||
|
Federal funds sold (Note 4) |
|
46,383 |
|
13,035 |
|
9,326 |
| |||
|
Trading securities (Note 5) |
|
56 |
|
— |
|
— |
| |||
|
Available-for-sale securities (Note 6) |
|
8,662 |
|
8,411 |
|
10,733 |
| |||
|
Held-to-maturity securities (Note 7) |
|
290,428 |
|
264,286 |
|
264,402 |
| |||
|
Mortgage loans held-for-portfolio (Note 9) |
|
86,800 |
|
81,103 |
|
71,514 |
| |||
|
Loans to other FHLBanks (Note 19) |
|
33 |
|
13 |
|
7 |
| |||
|
|
|
|
|
|
|
|
| |||
|
Total interest income |
|
1,360,847 |
|
997,672 |
|
836,154 |
| |||
|
|
|
|
|
|
|
|
| |||
|
Interest expense |
|
|
|
|
|
|
| |||
|
Consolidated obligation bonds (Note 11) |
|
581,900 |
|
338,916 |
|
318,743 |
| |||
|
Consolidated obligation discount notes (Note 11) |
|
216,545 |
|
102,913 |
|
71,388 |
| |||
|
Deposits (Note 10) |
|
3,091 |
|
455 |
|
579 |
| |||
|
Mandatorily redeemable capital stock (Note 13) |
|
1,617 |
|
820 |
|
925 |
| |||
|
Cash collateral held and other borrowings |
|
1,284 |
|
411 |
|
55 |
| |||
|
Total interest expense |
|
804,437 |
|
443,515 |
|
391,690 |
| |||
|
Net interest income before provision for credit losses |
|
556,410 |
|
554,157 |
|
444,464 |
| |||
|
Provision/(Reversal) for credit losses on mortgage loans |
|
1,966 |
|
518 |
|
(620 |
) | |||
|
Net interest income after provision for credit losses |
|
554,444 |
|
553,639 |
|
445,084 |
| |||
|
|
|
|
|
|
|
|
| |||
|
Other income (loss) |
|
|
|
|
|
|
| |||
|
Service fees and other |
|
13,824 |
|
12,096 |
|
9,516 |
| |||
|
Instruments held at fair value - Unrealized (losses) gains (Note 17) |
|
(1,854 |
) |
9,872 |
|
2,592 |
| |||
|
|
|
|
|
|
|
|
| |||
|
Total OTTI losses |
|
(113 |
) |
(394 |
) |
— |
| |||
|
Net amount of impairment losses reclassified (from)/to Accumulated other comprehensive loss |
|
(118 |
) |
188 |
|
— |
| |||
|
Net impairment losses recognized in earnings |
|
(231 |
) |
(206 |
) |
— |
| |||
|
|
|
|
|
|
|
|
| |||
|
Net realized and unrealized (losses) gains on derivatives and hedging activities (Note 16) |
|
(1,721 |
) |
12,557 |
|
117 |
| |||
|
Net gains on trading securities |
|
142 |
|
— |
|
— |
| |||
|
Net realized gains from sale of available-for-sale securities and redemption of held-to-maturity securities (Notes 6 and 7) |
|
250 |
|
— |
|
300 |
| |||
|
Losses from extinguishment of debt |
|
(3,557 |
) |
(9,794 |
) |
(7,046 |
) | |||
|
Total other income |
|
6,853 |
|
24,525 |
|
5,479 |
| |||
|
|
|
|
|
|
|
|
| |||
|
Other expenses |
|
|
|
|
|
|
| |||
|
Operating |
|
33,429 |
|
29,799 |
|
27,054 |
| |||
|
Compensation and benefits |
|
69,105 |
|
73,639 |
|
59,442 |
| |||
|
Finance Agency and Office of Finance |
|
12,859 |
|
13,733 |
|
14,050 |
| |||
|
Total other expenses |
|
115,393 |
|
117,171 |
|
100,546 |
| |||
|
Income before assessments |
|
445,904 |
|
460,993 |
|
350,017 |
| |||
|
Affordable Housing Program Assessments (Note 12) |
|
44,752 |
|
46,182 |
|
35,094 |
| |||
|
Net income |
|
$ |
401,152 |
|
$ |
414,811 |
|
$ |
314,923 |
|
|
Basic earnings per share (Note 14) |
|
$ |
7.02 |
|
$ |
7.83 |
|
$ |
5.69 |
|
|
Cash dividends paid per share |
|
$ |
4.73 |
|
$ |
4.22 |
|
$ |
4.19 |
|
The accompanying notes are an integral part of these financial statements.
Federal Home Loan Bank of New York
Statements of Comprehensive Income — (In Thousands)
Years Ended December 31, 2016, 2015 and 2014
|
|
|
Years ended December 31, |
| |||||||
|
|
|
2016 |
|
2015 |
|
2014 |
| |||
|
|
|
|
|
|
|
|
| |||
|
Net Income |
|
$ |
401,152 |
|
$ |
414,811 |
|
$ |
314,923 |
|
|
Other Comprehensive income (loss) |
|
|
|
|
|
|
| |||
|
Net change in unrealized (losses) gains on available-for-sale securities |
|
(5,059 |
) |
(6,091 |
) |
869 |
| |||
|
Net change in non-credit portion of other-than-temporary impairment losses on held-to-maturity securities |
|
|
|
|
|
|
| |||
|
Non-credit portion of other-than-temporary impairment losses |
|
(105 |
) |
(227 |
) |
— |
| |||
|
Reclassification of non-credit portion included in net income |
|
223 |
|
39 |
|
— |
| |||
|
Accretion of non-credit portion of OTTI |
|
6,461 |
|
7,658 |
|
9,008 |
| |||
|
Total net change in non-credit portion of other-than-temporary impairment losses on held-to-maturity securities |
|
6,579 |
|
7,470 |
|
9,008 |
| |||
|
Net change in unrealized gains/losses relating to hedging activities Unrealized gains (losses) |
|
41,892 |
|
(7,143 |
) |
(58,586 |
) | |||
|
Reclassification of losses included in net income |
|
2,127 |
|
2,773 |
|
2,902 |
| |||
|
Total net change in unrealized gains (losses) relating to hedging activities |
|
44,019 |
|
(4,370 |
) |
(55,684 |
) | |||
|
Net change in pension and postretirement benefits |
|
(5,502 |
) |
4,290 |
|
(6,907 |
) | |||
|
Total other comprehensive income (loss) |
|
40,037 |
|
1,299 |
|
(52,714 |
) | |||
|
Total comprehensive income |
|
$ |
441,189 |
|
$ |
416,110 |
|
$ |
262,209 |
|
The accompanying notes are an integral part of these financial statements.
Federal Home Loan Bank of New York
Statements of Capital — (In Thousands, Except Per Share Data)
Years Ended December 31, 2016, 2015 and 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
| ||||||
|
|
|
Capital Stock (a) |
|
|
|
|
|
|
|
Other |
|
|
| ||||||||
|
|
|
Class B |
|
Retained Earnings |
|
Comprehensive |
|
Total |
| ||||||||||||
|
|
|
Shares |
|
Par Value |
|
Unrestricted |
|
Restricted |
|
Total |
|
Income (Loss) |
|
Capital |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Balance, December 31, 2013 |
|
55,714 |
|
$ |
5,571,400 |
|
$ |
841,412 |
|
$ |
157,114 |
|
$ |
998,526 |
|
$ |
(84,272 |
) |
$ |
6,485,654 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Proceeds from issuance of capital stock |
|
38,521 |
|
3,852,061 |
|
— |
|
— |
|
— |
|
— |
|
3,852,061 |
| ||||||
|
Repurchase/redemption of capital stock |
|
(38,434 |
) |
(3,843,388 |
) |
— |
|
— |
|
— |
|
— |
|
(3,843,388 |
) | ||||||
|
Cash dividends ($4.19 per share) on capital stock |
|
— |
|
— |
|
(230,678 |
) |
— |
|
(230,678 |
) |
— |
|
(230,678 |
) | ||||||
|
Comprehensive income (loss) |
|
— |
|
— |
|
251,938 |
|
62,985 |
|
314,923 |
|
(52,714 |
) |
262,209 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Balance, December 31, 2014 |
|
55,801 |
|
$ |
5,580,073 |
|
$ |
862,672 |
|
$ |
220,099 |
|
$ |
1,082,771 |
|
$ |
(136,986 |
) |
$ |
6,525,858 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Proceeds from issuance of capital stock |
|
41,733 |
|
4,173,298 |
|
— |
|
— |
|
— |
|
— |
|
4,173,298 |
| ||||||
|
Repurchase/redemption of capital stock |
|
(41,595 |
) |
(4,159,427 |
) |
— |
|
— |
|
— |
|
— |
|
(4,159,427 |
) | ||||||
|
Shares reclassified to mandatorily redeemable capital stock |
|
(89 |
) |
(8,914 |
) |
— |
|
— |
|
— |
|
— |
|
(8,914 |
) | ||||||
|
Cash dividends ($4.22 per share) on capital stock |
|
— |
|
— |
|
(227,443 |
) |
— |
|
(227,443 |
) |
— |
|
(227,443 |
) | ||||||
|
Comprehensive income |
|
— |
|
— |
|
331,849 |
|
82,962 |
|
414,811 |
|
1,299 |
|
416,110 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Balance, December 31, 2015 |
|
55,850 |
|
$ |
5,585,030 |
|
$ |
967,078 |
|
$ |
303,061 |
|
$ |
1,270,139 |
|
$ |
(135,687 |
) |
$ |
6,719,482 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Proceeds from issuance of capital stock |
|
47,779 |
|
4,777,938 |
|
— |
|
— |
|
— |
|
— |
|
4,777,938 |
| ||||||
|
Repurchase/redemption of capital stock |
|
(40,023 |
) |
(4,002,300 |
) |
— |
|
— |
|
— |
|
— |
|
(4,002,300 |
) | ||||||
|
Shares reclassified to mandatorily redeemable capital stock |
|
(529 |
) |
(52,902 |
) |
— |
|
— |
|
— |
|
— |
|
(52,902 |
) | ||||||
|
Cash dividends ($4.73 per share) on capital stock |
|
— |
|
— |
|
(259,326 |
) |
— |
|
(259,326 |
) |
— |
|
(259,326 |
) | ||||||
|
Comprehensive income |
|
— |
|
— |
|
320,922 |
|
80,230 |
|
401,152 |
|
40,037 |
|
441,189 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Balance, December 31, 2016 |
|
63,077 |
|
$ |
6,307,766 |
|
$ |
1,028,674 |
|
$ |
383,291 |
|
$ |
1,411,965 |
|
$ |
(95,650 |
) |
$ |
7,624,081 |
|
(a) Putable stock
The accompanying notes are an integral part of these financial statements.
Federal Home Loan Bank of New York
Statements of Cash Flows — (In Thousands)
Years Ended December 31, 2016, 2015 and 2014
|
|
|
Years ended December 31, |
| |||||||
|
|
|
2016 |
|
2015 |
|
2014 |
| |||
|
Operating activities |
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
| |||
|
Net Income |
|
$ |
401,152 |
|
$ |
414,811 |
|
$ |
314,923 |
|
|
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 |
|
29,625 |
|
30,766 |
|
(37,586 |
) | |||
|
Concessions on consolidated obligations |
|
6,112 |
|
5,500 |
|
4,111 |
| |||
|
Premises, software, and equipment |
|
3,461 |
|
3,673 |
|
3,443 |
| |||
|
Provision/(Reversal) for credit losses on mortgage loans |
|
1,966 |
|
518 |
|
(620 |
) | |||
|
Net realized gains from redemption of held-to-maturity securities |
|
— |
|
— |
|
(300 |
) | |||
|
Net realized gains from sale of available-for-sale securities |
|
(250 |
) |
— |
|
— |
| |||
|
Credit impairment losses on held-to-maturity securities |
|
231 |
|
206 |
|
— |
| |||
|
Change in net fair value adjustments on derivatives and hedging activities |
|
5,523 |
|
221,836 |
|
316,059 |
| |||
|
Change in net fair value adjustments on trading securities |
|
(142 |
) |
— |
|
— |
| |||
|
Change in fair value adjustments on financial instruments held at fair value |
|
4,360 |
|
(9,092 |
) |
(2,592 |
) | |||
|
Losses from extinguishment of debt |
|
3,557 |
|
9,794 |
|
7,046 |
| |||
|
Net change in: |
|
|
|
|
|
|
| |||
|
Accrued interest receivable |
|
(17,328 |
) |
27,954 |
|
1,591 |
| |||
|
Derivative assets due to accrued interest |
|
(30,069 |
) |
1,709 |
|
(9,025 |
) | |||
|
Derivative liabilities due to accrued interest |
|
5,526 |
|
(31,540 |
) |
(5,759 |
) | |||
|
Other assets |
|
938 |
|
(555 |
) |
1,198 |
| |||
|
Affordable Housing Program liability |
|
11,710 |
|
(192 |
) |
(9,516 |
) | |||
|
Accrued interest payable |
|
21,603 |
|
(13,330 |
) |
10,411 |
| |||
|
Other liabilities |
|
2,049 |
|
19,976 |
|
(4,183 |
) | |||
|
Total adjustments |
|
48,872 |
|
267,223 |
|
274,278 |
| |||
|
Net cash provided by operating activities |
|
450,024 |
|
682,034 |
|
589,201 |
| |||
|
Investing activities |
|
|
|
|
|
|
| |||
|
Net change in: |
|
|
|
|
|
|
| |||
|
Interest-bearing deposits |
|
114,562 |
|
758,060 |
|
371,000 |
| |||
|
Securities purchased under agreements to resell |
|
(3,150,000 |
) |
(3,200,000 |
) |
(800,000 |
) | |||
|
Federal funds sold |
|
562,000 |
|
2,773,000 |
|
(4,032,000 |
) | |||
|
Deposits with other FHLBanks |
|
(170 |
) |
150 |
|
(173 |
) | |||
|
Premises, software, and equipment |
|
(6,618 |
) |
(2,469 |
) |
(2,404 |
) | |||
|
Trading securities: |
|
|
|
|
|
|
| |||
|
Purchased |
|
(131,013 |
) |
— |
|
— |
| |||
|
Available-for-sale securities: |
|
|
|
|
|
|
| |||
|
Purchased |
|
(8,100 |
) |
(16,862 |
) |
(8,136 |
) | |||
|
Repayments |
|
179,119 |
|
255,990 |
|
338,092 |
| |||
|
Proceeds from sales |
|
118,308 |
|
1,689 |
|
1,253 |
| |||
|
Held-to-maturity securities: |
|
|
|
|
|
|
| |||
|
Purchased |
|
(4,057,667 |
) |
(2,184,502 |
) |
(1,806,447 |
) | |||
|
Repayments |
|
1,968,561 |
|
1,402,820 |
|
1,182,904 |
| |||
|
In-substance maturities |
|
— |
|
— |
|
15,300 |
| |||
|
Advances: |
|
|
|
|
|
|
| |||
|
Principal collected |
|
771,152,466 |
|
863,850,455 |
|
657,980,465 |
| |||
|
Made |
|
(786,856,049 |
) |
(860,169,813 |
) |
(666,460,916 |
) | |||
|
Mortgage loans held-for-portfolio: |
|
|
|
|
|
|
| |||
|
Principal collected |
|
330,666 |
|
270,620 |
|
185,264 |
| |||
|
Purchased |
|
(564,083 |
) |
(674,968 |
) |
(392,629 |
) | |||
|
Proceeds from sales of REO |
|
3,249 |
|
2,768 |
|
2,330 |
| |||
|
Net change in loans to other FHLBanks |
|
(255,000 |
) |
— |
|
— |
| |||
|
Net cash (used in) provided by investing activities |
|
(20,599,769 |
) |
3,066,938 |
|
(13,426,097 |
) | |||
The accompanying notes are an integral part of these financial statements.
Federal Home Loan Bank of New York
Statements of Cash Flows — (In Thousands)
Years Ended December 31, 2016, 2015 and 2014
|
|
|
Years ended December 31, |
| |||||||
|
|
|
2016 |
|
2015 |
|
2014 |
| |||
|
Financing activities |
|
|
|
|
|
|
| |||
|
Net change in: |
|
|
|
|
|
|
| |||
|
Deposits and other borrowings |
|
$ |
(64,763 |
) |
$ |
(452,761 |
) |
$ |
171,005 |
|
|
Derivative contracts with financing element |
|
(49,357 |
) |
(221,185 |
) |
(237,403 |
) | |||
|
Consolidated obligation bonds: |
|
|
|
|
|
|
| |||
|
Proceeds from issuance |
|
59,498,806 |
|
50,339,433 |
|
57,185,396 |
| |||
|
Payments for maturing and early retirement |
|
(42,363,772 |
) |
(56,065,181 |
) |
(57,013,727 |
) | |||
|
Payments on bonds (transferred to) or assumed from other FHLBanks (a) |
|
— |
|
(52,853 |
) |
(65,576 |
) | |||
|
Consolidated obligation discount notes: |
|
|
|
|
|
|
| |||
|
Proceeds from issuance |
|
441,811,057 |
|
207,882,927 |
|
197,930,451 |
| |||
|
Payments for maturing |
|
(439,333,285 |
) |
(211,088,626 |
) |
(193,757,506 |
) | |||
|
Capital stock: |
|
|
|
|
|
|
| |||
|
Proceeds from issuance of capital stock |
|
4,777,938 |
|
4,173,298 |
|
3,852,061 |
| |||
|
Payments for repurchase/redemption of capital stock |
|
(4,002,300 |
) |
(4,159,427 |
) |
(3,843,388 |
) | |||
|
Redemption of mandatorily redeemable capital stock |
|
(40,966 |
) |
(8,615 |
) |
(4,794 |
) | |||
|
Cash dividends paid (b) |
|
(259,326 |
) |
(227,443 |
) |
(230,678 |
) | |||
|
Net cash provided by (used in) financing activities |
|
19,974,032 |
|
(9,880,433 |
) |
3,985,841 |
| |||
|
Net decrease in cash and due from banks |
|
(175,713 |
) |
(6,131,461 |
) |
(8,851,055 |
) | |||
|
Cash and due from banks at beginning of the period (d) |
|
327,482 |
|
6,458,943 |
|
15,309,998 |
| |||
|
Cash and due from banks at end of the period (d) |
|
$ |
151,769 |
|
$ |
327,482 |
|
$ |
6,458,943 |
|
|
|
|
|
|
|
|
|
| |||
|
Supplemental disclosures: |
|
|
|
|
|
|
| |||
|
Interest paid |
|
$ |
615,149 |
|
$ |
443,458 |
|
$ |
382,765 |
|
|
Affordable Housing Program payments (c) |
|
$ |
33,042 |
|
$ |
46,374 |
|
$ |
44,610 |
|
|
Transfers of mortgage loans to real estate owned |
|
$ |
1,089 |
|
$ |
2,348 |
|
$ |
3,008 |
|
|
Net amount of impairment losses reclassified (from)/to Accumulated other comprehensive loss |
|
$ |
(118 |
) |
$ |
188 |
|
$ |
— |
|
|
Capital stock subject to mandatory redemption reclassified from equity |
|
$ |
52,902 |
|
$ |
8,914 |
|
$ |
— |
|
(a) For information about bonds (transferred to) or assumed 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 considered as interest expense and reported within Operating cash flows.
(c) AHP payments = (beginning accrual - ending accrual) + AHP assessment for the period; payments represent funds released to the Affordable Housing Program.
(d) Cash and due from banks did not include any restricted cash or cash equivalents. Includes pass-thru reserves at the Federal Reserve Bank of New York; also includes an unrestricted compensating balance arrangement. For more information, see Note 3 Cash and Due from Banks.
The accompanying notes are an integral part of these financial statements.
Federal Home Loan Bank of New York
Background
The Federal Home Loan Bank of New York (“FHLBNY” or “the Bank”) is a federally chartered corporation, and is one of 11 district Federal Home Loan Banks (“FHLBanks”). The FHLBanks are U.S. government-sponsored enterprises (“GSEs”), organized under the authority of the Federal Home Loan Bank Act of 1932, as amended (“FHLBank Act”). Each FHLBank is a cooperative owned by member institutions located within a defined geographic district. The FHLBNY’s defined geographic district is New Jersey, New York, Puerto Rico, and the U.S. Virgin Islands.
Tax Status. The FHLBanks, including the FHLBNY, are exempt from ordinary federal, state, and local taxation except for real property taxes.
Assessments. Affordable Housing Program (“AHP”) Assessments — Each FHLBank, including the FHLBNY, provides subsidies in the form of direct grants and below-market interest rate advances to members, who use the funds to assist in the purchase, construction or rehabilitation of housing for very low-, low- and moderate-income households. Annually, the 11 FHLBanks must allocate the greater of $100 million or 10% of their regulatory defined net income for the Affordable Housing Program.
Note 1. Significant Accounting Policies and Estimates.
Basis of Presentation
The accompanying financial statements of the Federal Home Loan Bank of New York have been prepared in accordance with Generally Accepted Accounting Principles in the United States (“GAAP”) and with the instructions provided by the Securities and Exchange Commission (“SEC”).
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 FHLBNY’s securities portfolios, and estimating fair values of certain assets and liabilities.
Financial Instruments with Legal Right of Offset
The FHLBNY has derivative instruments, and from time to time, securities purchased under agreements to resell that are subject to enforceable master netting arrangements. The FHLBNY has elected to offset its derivative asset and liability positions, as well as cash collateral received or pledged, when it has the legal right of offset under these master agreements. The FHLBNY did not have any offsetting liabilities related to its securities purchased under agreements to resell for the periods presented.
The net exposure for these financial instruments can change on a daily basis; therefore, there may be a delay between the time this exposure change is identified and additional collateral is requested, and the time when this collateral is received or pledged. Likewise, there may be a delay for excess collateral to be returned. For derivative instruments, any excess cash collateral received or pledged is recognized as a derivative liability or as a derivative asset based on the terms of the individual master agreement between the FHLBNY and its derivative counterparty. Additional information regarding these agreements is provided in Note 16. Derivatives and Hedging Activities. For securities purchased under agreements to resell, the FHLBNY did not have any unsecured amounts based on the fair value of the related collateral held at the end of the periods presented. Additional information about the FHLBNY’s investments in securities purchased under agreements to resell is disclosed in Note 4. Federal Funds Sold, Interest-bearing Deposits, and Securities Purchased Under Agreements to Resell.
Fair Value Measurements and Disclosures
Accounting Standards Codification Topic 820, Fair Value Measurements, discusses how entities should measure fair value based on whether the inputs to those valuation techniques are observable or unobservable. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction in the principal or most advantageous market for the asset or liability between market participants at the measurement date. This definition is based on an exit price rather than transaction or entry price.
Valuation Techniques — Three valuation techniques are prescribed under the fair value measurement standards — Market approach, Income approach and Cost approach. Valuation techniques for which sufficient data is available and that are appropriate under the circumstances should be used.
In determining fair value, the FHLBNY uses various valuation methods, including both the market and income approaches.
· Market approach — This technique uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.
· Income approach — This technique uses valuation techniques to convert future amounts (for example, cash flows or earnings) to a single present amount (discounted), based on assumptions used by market
Federal Home Loan Bank of New York
Notes to Financial Statements
participants. When the income approach is used, the fair value measurement reflects current market expectations about those future amounts. The present value technique used to measure fair value depends on the facts and circumstances specific to the asset or liability being measured and the availability of data.
· Cost approach — This approach is based on the amount that currently would be required to replace the service capacity of an asset (often referred to as current replacement cost).
The FHLBNY has complied with the accounting standards under Fair Value Measurement that defines fair value, establishes a consistent framework for measuring fair value, and requires disclosure about fair value measurement.
For more information about the fair value hierarchy, and the hierarchy levels of the FHLBNY’s financial instruments, see Note 17. Fair Values of Financial Instruments.
On a recurring basis, fair values were measured and recorded in the Statements of Condition for derivatives, available-for-sale securities (“AFS securities”), securities designated as trading, and financial instruments elected under the Fair Value Option (“FVO”).
On a non-recurring basis, credit impaired (OTTI) held-to-maturity securities were measured and recorded at their fair values in the Statements of Condition. When credit impaired mortgage loans held-for-portfolio were partially charged off, the loans were written down to their collateral values on a non-recurring basis.
Fair values of derivative positions — The FHLBNY is an end-user of over-the-counter (“OTC”) derivatives to hedge assets, liabilities, and certain firm commitments to mitigate fair value risks. Valuations of derivative assets and liabilities reflect the value of the instrument including the value associated with counterparty risk. Derivative values also take into account the FHLBNY’s own credit standing. The computed fair values of the FHLBNY’s OTC derivatives take into consideration the effects of legally enforceable master netting agreements that allow the FHLBNY to settle positive and negative positions and offset cash collateral with the same counterparty on a net basis. The agreements include collateral thresholds that reflect the net credit differential between the FHLBNY and its derivative counterparties. On a contract-by-contract basis, the collateral and netting arrangements sufficiently mitigated the impact of the credit differential between the FHLBNY and its derivative counterparties to an immaterial level such that an adjustment for nonperformance risk was not deemed necessary.
Fair values of investments classified as AFS securities — The FHLBNY’s investments classified as AFS are primarily mortgage-backed securities (“MBS”) that are GSE issued variable-rate collateralized mortgage obligations and are recorded at fair values. The MBS fair values are estimated by management using specialized pricing services that employ pricing models or quoted prices of securities with similar characteristics. The FHLBNY has established that the pricing vendors use methods that generally employ, but are not limited to, benchmark yields, recent trades, dealer estimates, valuation models, benchmarking of like securities, sector groupings, and/or matrix pricing.
Fair values of Other assets and liabilities — For more information about methodologies used by the FHLBNY to validate vendor pricing, and fair value “Levels” associated with assets and liabilities recorded on the FHLBNY’s Statements of Condition at December 31, 2016 and 2015, see financial statements, Note 17. Fair Values of Financial Instruments.
Classification of Investment Securities
The FHLBNY classifies investment securities as held-to-maturity and available-for-sale at the date of the acquisition. Investments are primarily GSE issued mortgage-backed securities. Purchases and sales of securities are recorded on a trade date basis. Prepayments are estimated for purposes of amortizing premiums and accreting discounts on investment securities in accordance with accounting standards for investments in debt and equity securities, which requires premiums and discounts to be recognized in income at a constant effective yield over the life of the instrument. Because actual prepayments often deviate from the estimates, the effective yield is recalculated periodically to reflect actual prepayments to date. Adjustments of the effective yields for mortgage-backed securities are recorded on a retrospective basis, as if the new estimated life of the security had been known at its original acquisition date.
The Bank’s management approved a trading portfolio in December 2016 for liquidity purposes and has invested U.S. Treasury securities and GSE-issued bonds, which are carried at fair value.
Held-to-Maturity Securities — The FHLBNY classifies investments for which it has both the ability and intent to hold to maturity as held-to-maturity investments. Such investments are recorded at amortized cost basis, which includes adjustments made to the cost of an investment for accretion and amortization of discounts and premiums, collection of cash and, if hedged, the fair value hedge accounting adjustments. If a held-to-maturity security is determined to be credit impaired or other-than-temporarily impaired (“OTTI”), the amortized cost basis of the security is adjusted for credit losses. Amortized cost basis of a held-to-maturity OTTI security is further adjusted for impairment related to all other factors (also referred to as the non-credit component of OTTI) and recognized in AOCI; the adjusted amortized cost basis is the carrying value of the OTTI security as reported in the Statements of Condition. Carrying value for a held-to-maturity security that is not OTTI is its amortized cost basis. Interest earned on such securities is included in Interest income.
In accordance with accounting standards for investments in debt and equity securities, sales of debt securities that meet either of the following two conditions may be considered as maturities for purposes of the classification of securities: (1) the sale occurs near enough to its maturity date (or call date if exercise of the call is probable) such that interest rate risk is substantially eliminated as a pricing factor and the changes in market interest rates would not
Federal Home Loan Bank of New York
Notes to Financial Statements
have a significant effect on the security’s fair value, or (2) the sale of a security occurs after the FHLBNY has already collected a substantial portion (at least 85%) of the principal outstanding at acquisition.
Available-for-Sale Securities — The FHLBNY classifies investments that it may sell before maturity as AFS and carries them at fair value. Until AFS securities are sold, changes in fair values are recorded in AOCI as Net unrealized gain or (loss) on AFS securities. The FHLBNY computes gains and losses on sales of investment securities using the specific identification method and includes these gains and losses in Other income (loss).
Trading Securities - Securities classified as trading are held for liquidity purposes and carried at fair value. We record changes in the fair value of these investments through Other income as net realized and unrealized gains or losses on trading securities. The Finance Agency prohibits speculative trading practices but allows permitted securities to be deemed held for liquidity if invested in a trading portfolio. We periodically evaluate our liquidity needs and may dispose these investments as deemed prudent by liquidity and market conditions.
Other-Than-Temporary Impairment (“OTTI”) — Accounting and governance policies, and impairment analysis
The Financial Accounting Standards Board (“FASB”) guidance on the recognition and presentation of OTTI is primarily intended to provide greater clarity to investors about the credit and non-credit component of an OTTI event and to more effectively communicate when an OTTI event has occurred. The guidance is incorporated in the FHLBNY’s investment policies, and is summarized below.
The FHLBNY evaluates its investments for impairment quarterly, and determines if unrealized losses are temporary based in part on the creditworthiness of the issuers, and in part on the underlying collateral within the structure of the security and the cash flows expected to be collected on the security. A security is considered impaired if its fair value is less than its amortized cost basis.
To assess whether the amortized cost basis of the FHLBNY’s private-label MBS will be recovered in future periods, the FHLBNY performs OTTI analysis by cash flow testing its entire portfolio of private-label MBS, all of which were classified as held-to-maturity. The FHLBNY evaluates its individual securities issued by Fannie Mae and Freddie Mac, government agencies, or state and local housing agencies by considering the creditworthiness and performance of the debt securities and the strength of the guarantees underlying the securities. Additional testing is performed on housing agency bonds by a review of fair values of bonds that are in unrealized loss position to assess whether fair values are in line with pricing curves with similar credit parameters.
If a decision to sell the impaired investment has not been made, but management concludes that it is more likely than not that it will be required to sell such a security before recovery of the amortized cost basis of the security, an OTTI is also considered to have occurred.
For the FHLBNY’s PLMBS, even if management does not intend to sell an impaired PLMBS, management determines whether an OTTI has occurred by comparing the present value of the cash flows expected to be collected to the amortized cost basis of the security. If the present value of the cash flows expected to be collected is less than the security’s amortized cost, an OTTI exists, irrespective of whether management will be required to sell such a security. The FHLBNY’s methodology to calculate the present value of expected cash flows is to discount the expected cash flows (principal and interest) of a fixed-rate security that is being evaluated for OTTI, by using the effective interest rate of the security as of the date it was acquired. For a variable-rate security that is evaluated for OTTI, the expected cash flows are computed using a forward-rate curve and discounted using the forward rates.
If the FHLBNY determines that OTTI has occurred, it accounts for the investment security as if it had been purchased on the measurement date of the other-than-temporary impairment. The investment security is written down to fair value, which becomes its new amortized cost basis. The new amortized cost basis is not adjusted for subsequent recoveries in fair value.
For securities designated as AFS (all GSE/Agency issued securities), subsequent unrealized changes to the fair values (other than OTTI) are recorded in AOCI. For securities designated as held-to-maturity (less than 2% is represented by PLMBS), the amount of OTTI recorded in AOCI for the non-credit component of OTTI is amortized prospectively over the remaining life of the securities based on the timing and amounts of estimated future cash flows. Amortization out of AOCI is offset by an increase in the carrying value of securities until the securities are repaid or are sold or additional OTTI is recognized in earnings.
If subsequent evaluation indicates a significant increase in cash flows greater than previously expected to be collected or if actual cash flows are significantly greater than previously expected, the increases are accounted for as a prospective adjustment to the accretable yield through interest income. In subsequent periods, if the fair value of the investment security has further declined below its then-current carrying value and there has been a decrease in the estimated cash flows the FHLBNY expects to collect, the FHLBNY will deem the security as OTTI. Accretion to interest income will be discontinued and will resume if improvements in cash flows are subsequently observed.
OTTI FHLBank System Governance Committee — The OTTI Governance Committee (“OTTI Committee”) of the FHLBanks has the responsibility for reviewing and approving key modeling assumptions, inputs, and methodologies to be used by the FHLBanks to generate the cash flow projections used in analyzing credit losses and determining OTTI for PLMBS, also referred to as the “Common platform”. The goal is to promote consistency among all FHLBanks in the process for determining OTTI for PLMBS. The OTTI Committee charter provides a formal process by which the FHLBanks can provide input on and approve the assumptions. FHLBanks that hold the same PLMBS are required to consult with one another to make sure that any decision that a commonly held PLMBS is
Federal Home Loan Bank of New York
Notes to Financial Statements
OTTI, including the determination of fair value and the credit loss component of the unrealized loss, is consistent among those FHLBanks.
Consistent with guidelines provided by the OTTI Committee, the FHLBNY has contracted with the FHLBanks of San Francisco and Chicago to provide cash flows using the Common platform for about 50% of its PLMBS that had appropriate loan-level performance data that the Common platform could utilize to generate cash flows. Cash flows generated in the Common platform is the primary source for OTTI assumption parameters for those securities. For the remaining 50% of the FHLBNY’s portfolio, expected cash flows are generated using historical loan performance parameters, as described in the following paragraphs.
Cash Flow Analysis Derived from the FHLBNY’s Own Assumptions — Assessment for OTTI employed by the FHLBNY’s own techniques and assumptions are determined primarily using historical performance data. These are then benchmarked by comparing to performance parameters from the “Market consensus” measures, and for 50% of PLMBS to the assumptions and parameters provided through the Common platform, which is the primary source for OTTI assumption parameters for 23 securities of a total of 45 PLMBS. The FHLBNY performs a review of the cash flows generated by the Common platform.
For bonds that are not evaluated under the Common Platform, we calculate the historical average of each bond’s prepayments, defaults, and loss severities, and considers other factors such as delinquencies and foreclosures, primarily based on performance statistics extracted from reports from trustees, loan servicers and other sources. Many of the FHLBNY’s PLMBS are insured by monoline insurers, and the FHLBNY makes an assessment of the monoline’s ability to fulfill its guarantee obligations to cover future cash flow shortfalls. The analysis also considers various characteristics of each security including, but not limited to, the following: the credit rating and related outlook or status; the creditworthiness of the issuers of the debt securities; the underlying type of collateral; the year of securitization or vintage, the duration and level of the unrealized loss, credit enhancements, if any; and other collateral-related characteristics such as FICO® credit scores, and delinquency rates. The relative importance of this information varies based on the facts and circumstances surrounding each security as well as the economic environment at the time of assessment.
Under the FHLBNY’s internal processes, each bond’s performance parameters, primarily prepayments, defaults and loss severities, and bond insurance financial guarantee predictors, as calculated by the FHLBNY’s internal approach are then input into the specialized bond cash flow model that allocates the projected collateral level losses to the various security classes in the securitization structure in accordance with its prescribed cash flow and loss allocation rules. In a securitization in which the credit enhancements for the senior securities are derived from the presence of subordinate securities, losses are generally allocated first to the subordinate securities until their principal balance is reduced to zero.
Cash Flows derived by the FHLBanks OTTI Committee — The Common platform considers borrower characteristics and the particular attributes of the loans underlying a security, in conjunction with assumptions about future changes in home prices and interest rates, to project prepayments, defaults and loss severities.
· the remaining payment terms for the security;
· reliance on monoline insurers to fulfill guarantees;
· prepayment speeds based on underlying loan-level borrower and loan characteristics;
· default rates based on underlying loan-level borrower and loan characteristics;
· loss severity on the collateral supporting each FHLBank’s security based on underlying loan-level borrower and loan characteristics;
· expected housing price changes; and
· interest-rate assumptions.
Future loan performance parameters, such as projected prepayments, defaults and loss severities, and others, are then input into a second model that allocates the projected loan level cash flows and losses to the various security classes in the securitization structure in accordance with its prescribed cash flow and loss allocation rules. In a securitization in which the credit enhancement for the senior securities is derived from the presence of subordinate securities, losses are generally allocated first to the subordinate securities until their principal balance is reduced to zero.
GSE Issued Securities — The FHLBNY evaluates its individual securities issued by Fannie Mae and Freddie Mac or government agency, collectively GSE or Agency securities, by considering the creditworthiness and performance of the debt securities and the strength of the GSE’s guarantees of the securities. Based on the FHLBNY’s analysis, GSE securities are performing in accordance with their contractual agreements. The Housing Act contains provisions allowing the U.S. Treasury to provide support to Fannie Mae and Freddie Mac. In September 2008, the U.S. Treasury and the Finance Agency placed Fannie Mae and Freddie Mac into conservatorship in an attempt to stabilize their financial conditions and their ability to support the secondary mortgage market. The FHLBNY believes that it will recover its investments in GSE and agency issued securities given the current levels of collateral and credit enhancements and guarantees that exist to protect the investments.
Federal Home Loan Bank of New York
Notes to Financial Statements
Federal Funds Sold and Securities Purchased Under Agreements to Resell
Federal Funds Sold. Federal funds sold are recorded at cost on settlement date and interest is accrued using contractual rates.
Securities Purchased under Agreements to Resell. As part of FHLBNY’s banking activities with counterparties, the FHLBNY may enter into secured financing transactions that mature overnight, and can be extended only at the discretion of the FHLBNY. These transactions involve the lending of cash, against which securities are taken as collateral. The FHLBNY does not have the right to repledge the securities received. Securities purchased under agreements to resell generally do not constitute a sale of the underlying securities. The FHLBNY treats securities purchased under agreements to resell as collateralized financings because the counterparty retains control of the securities. Interest from such securities is included in Interest income. The FHLBNY did not have any offsetting liabilities related to its securities purchased under agreements to resell for the periods presented.
Advances
Accounting for Advances. The FHLBNY reports advances at amortized cost, net of unearned commitment fees, discounts and premiums (discounts are generally associated with advances for the Affordable Housing Program). If the advance is hedged in a benchmark hedge, its carrying value will include hedging valuation adjustments, which will typically be the result of changes in the LIBOR index. If an advance is accounted under the Fair Value Option, the carrying value of the advances elected will be its fair value.
The FHLBNY records interest on advances to income as earned, and amortizes the premium and accretes the discounts on a contractual basis to interest income using a level-yield methodology. Typically, advances are issued at par.
Impairment Analysis of Advances. An advance will be considered impaired when, based on current information and events, it is probable that the FHLBNY will be unable to collect all amounts due according to the contractual terms of the advance agreement. The FHLBNY has established asset classification and reserve policies. All adversely classified assets of the FHLBNY will have a reserve established for probable losses. Following the requirements of the Federal Home Loan Bank Act of 1932 (“FHLBank Act”), as amended, the FHLBNY obtains sufficient collateral on advances to protect it from losses. The FHLBank Act limits eligible collateral to certain investment securities, residential mortgage loans, cash or deposits with the FHLBNY, and other eligible real estate related assets. Borrowing members pledge their capital stock of the FHLBNY as additional collateral for advances.
The FHLBNY has not incurred any credit losses on advances since its inception. Based upon the financial condition of its borrowers, the collateral held as security on the advances and repayment history, management of the FHLBNY believes that an allowance for credit losses on advances is unnecessary.
Advance Modifications. From time to time, the FHLBNY will enter into an agreement with a member to modify the terms of an existing advance. The FHLBNY evaluates whether the modified advance meets the accounting criteria under ASC 310-20 to qualify as a modification of an existing advance or as a new advance in accordance with provisions under creditor’s accounting for a modification or exchange of debt instruments. The evaluation includes analysis of (i) whether the effective yield on the new advance is at least equal to the effective yield for a comparable advance to a similar member that is not refinancing or restructuring, and (ii) whether the modification of the original advance is more than minor. If the FHLBNY determines that the modification is more than minor, the transaction is treated as an advance termination and the subsequent funding of a new advance, with gains or losses recognized in earnings for the period. If the advance is in a hedging relationship, and the modification is more than minor, the FHLBNY will consider the hedge relationship as terminated and previously recorded hedge basis adjustments are amortized over the life of the hedged advance through interest income as a yield adjustment. If the modification of the hedged item and the derivative instrument is considered minor, and if the hedge relationship is de-designated and contemporaneously re-designated, the FHLBNY would not require amortization of previously recorded hedge basis adjustments, although the assumption of no ineffectiveness is removed if the hedge was previously designated as a short-cut hedge.
The FHLBNY performs a “test of a modification” under the guidance provided in ASC 310-20-35-11 each time a new advance is borrowed within a short-period of time, typically 5 business days after a prepayment. If a prepayment fee is received on an advance that is determined to be a modification of the original advance, the fee would be deferred, recorded in the basis of the modified advance, and amortized over the life of the modified advance using the level-yield method. This amortization would be recorded as a component of interest income from advances.
Prepayment Fees on Advances. Generally, advances are prepaid by members at their fair values. The FHLBNY also charges the member a prepayment fee to make the FHLBNY financially indifferent to the early termination of the advance.
For a prepaid advance that had been hedged under a qualifying fair value hedge, the FHLBNY would terminate the hedging relationship. Typically, the FHLBNY would terminate the interest rate swap, and would record the fair value exchanged with the swap counterparty as its settlement value. Prepayment fees received from the prepaying member to make the FHLBNY financially indifferent is recognized in earnings as interest income from advances.
For prepaid advances that are not hedged or that are economically hedged, the FHLBNY would also charge the member the fair value of the advance, in addition to a prepayment fee that would make the FHLBNY financially indifferent to the early termination.
Federal Home Loan Bank of New York
Notes to Financial Statements
Beginning with the fourth quarter of 2015, the FHLBNY offers a rebate, which is typically a portion of the prepayment fee charged to a member to make the FHLBNY financially indifferent. The rebate is contingent upon the prepaying member borrowing new advances within a 30-day period following prepayment, satisfying conditions to qualify for the rebate, and complying with the then prevailing terms and conditions for borrowing new advances.
At the time a prepayment fee is received, a portion of the fee that is deemed to be potentially rebatable is not recognized in earnings, and is deferred as a liability as the FHLBNY considers the rebate opportunity for the member a contingency for the FHLBNY. Until no likelihood exists, such that the member has a potential claim to a rebate within the 30-day rebate period, the potential rebatable amount will be considered to be contingently payable. That amount will be deferred, based on the supposition that the rebatable portion of the prepayment fee may not be recognized as a revenue in its entirety because it may be subject to a claim payable to third party, the borrowing member.
Amounts would be recorded once the contingency has been resolved, i.e. when any future potential claims to rebatable funds have expired (30-day rebate period has expired) or has been otherwise settled and resolved (member enters into new qualifying advances within the 30-day period). Only after the member has no further claims on the funds, and the FHLBNY has no obligations to rebate funds, the deferred amounts may only then be released to earnings. The actual rebate would depend on the amount and the maturity duration of the new advance.
Mortgage Loans Held-for-Portfolio
Credit Enhancement Obligations and Loss Layers. The FHLBNY and the PFI share the credit risks of the uninsured MPF loans by structuring potential credit losses into layers. Collectability of the loans is first supported by liens on the real estate securing the loan. For conventional mortgage loans, additional loss protection is provided by private mortgage insurance required for MPF loans with a loan-to-value ratio of more than 80% at origination, which is paid for by the borrower. Credit losses are absorbed by the FHLBNY to the extent of the First Loss Account (“FLA”) for which the maximum exposure is estimated to be $30.9 million at December 31, 2016 and $27.1 million at December 31, 2015. The aggregate amount of FLA is memorialized and tracked but is neither recorded nor reported as a loan loss reserve in the FHLBNY’s financial statements. If “second losses” beyond this layer are incurred, they are absorbed through a credit enhancement provided by the PFI. The credit enhancement held by PFIs ensures that the lender retains a credit stake in the loans it sells to the FHLBNY, or for the MPF 100 product that the PFI originates as an agent for the FHLBNY. For assuming the second loss credit risk, PFIs receive monthly credit enhancement fees from the FHLBNY.
The amount of the credit enhancement is computed with the use of a Standard & Poor’s model to determine the amount of credit enhancement necessary to bring a pool of uninsured loans to “AA” credit risk. The credit enhancement becomes an obligation of the PFI. 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 the FHLBNY has accrued 12 months of credit enhancement fees.
Delivery commitment fees are charged to a PFI for extending the scheduled delivery period of the loans. Pair-off fees may be assessed and charged to PFI when the settlement of the delivery commitment (1) fails to occur, or (2) the principal amount of the loans purchased by the FHLBNY under a delivery commitment is not equal to the contract amount beyond established limits.
Accounting for Mortgage Loans. The FHLBNY has the intent and ability to hold these mortgage loans for the foreseeable future or until maturity or payoff, and classifies mortgage loans as held-for-portfolio. Loans are reported at their principal amount outstanding, net of premiums and discounts, which is the fair value of the mortgage loan on settlement date. The FHLBNY defers premiums and discounts, and uses the contractual method to amortize premiums and accrete discounts on mortgage loans. The contractual method recognizes the income effects of premiums and discounts in a manner that is reflective of the actual behavior of the mortgage loans during the period in which the behavior occurs while also reflecting the contractual terms of the assets without regard to changes in estimated prepayments based upon assumptions about future borrower behavior.
Mortgage loans are written down to their fair values either at foreclosure or to their collateral values when collectability is doubtful, typically when delinquent 180 days or greater and the loan is not well collateralized. Mortgage loans are held-for-portfolio, and when a loan is partially charged off, the remaining loan balance is typically written down and recorded at its collateral value on a non-recurring basis (see Note 17. Fair Values of Financial Instruments).
The FHLBNY records credit enhancement fees as a reduction to mortgage loan interest income. Other non-origination fees, such as delivery commitment extension fees and pair-off fees, are considered as derivative income and recorded over the life of the commitment; all such fees were insignificant for all periods reported.
Non-Accrual Mortgage Loans. The FHLBNY places a mortgage loan on non-accrual status when the collection of the contractual principal or interest is seriously delinquent, which for the FHLBNY is typically 90 days or more past due. When a mortgage loan is placed on non-accrual status, accrued but uncollected interest is reversed against interest income. A loan on non-accrual status may be restored to accrual when (1) principal and interest is no longer delinquent, (2) the FHLBNY expects to collect the remaining interest and principal, and (3) the collection is not under legal proceedings. For mortgage loans on non-accrual status, impairment calculations would consider if the collection of the remaining principal and interest due is determined to be doubtful, and any cash received would be applied first to principal until the remaining principal amount due is collected, and then as a recovery of any charge-offs. Any remaining cash flows would be recorded as interest income. If the FHLBNY determines that the loan servicer on a non-accrual loan has paid the accrued interest receivable as an advance, which is likely to be subject to recovery by the borrower, the FHLBNY would consider the cash received as a liability until the impaired loan
Federal Home Loan Bank of New York
Notes to Financial Statements
returns to a performing status. The cumulative amounts of cash received and recorded as a liability was $4.4 million at December 31, 2016 and $4.3 million at December 31, 2015.
Allowance for Credit Losses on Mortgage Loans. The FHLBNY reviews its portfolio to identify the losses inherent within the portfolio and to determine the likelihood of collection of the principal and interest. A valuation allowance for credit loss is separately established for each identified loan (individually evaluated) in order to provide for probable losses inherent in loans that are either classified under regulatory criteria (Special Mention, Sub-standard, Doubtful, or Loss) or seriously delinquent. The FHLBNY deems that foreclosure is probable when its mortgage loans become seriously delinquent. For the purposes of impairment, the FHLBNY deems loans that are in bankruptcy as impaired, regardless of their delinquency status. Loans discharged from bankruptcy are considered as Troubled Debt Restructurings (“TDRs”), and an impairment analysis is performed if the loan is seriously delinquent.
Mortgage-loans that are not seriously delinquent or are performing are assessed for impairment on a collective basis under the accounting standards for evaluating “large groups of smaller-balance homogenous loans”. In determining our collective reserve, we base our impairment analysis by performing a “loss emergence analysis” that applies historical default rates and historical probability of default.
Credit losses calculated on a collective basis are aggregated with credit losses calculated on an individual basis. The aggregate allowance for credit losses on mortgage loans was $1.6 million at December 31, 2016 and $0.3 million at December 31, 2015.
Impairment Methodology and Portfolio Segmentation and Disaggregation — Except for VA and FHA insured mortgage loans, all MPF loans are measured for impairment and analyzed for credit losses. Measurement of credit losses is based on current information and events and when it is probable that the FHLBNY will be unable to collect all amounts due according to the contractual terms of the loan agreement. Credit losses are measured for impairment based on the fair value of the underlying property less estimated selling costs. It is assumed that repayment is expected to be provided solely by the sale of the underlying property, that is, there is no other available and reliable source of repayment. To the extent that the net fair value of the property (collateral) is less than the recorded investment in the loan, a loan loss allowance is recorded. FHA and VA are insured loans, and are excluded from the loan-by-loan analysis. FHA and VA insured mortgage loans have minimal inherent credit risk; risk generally arises mainly from the servicers defaulting on their obligations. FHA and VA insured mortgage loans, if adversely classified, would have reserves established only in the event of a default of a PFI, and would be based on aging, collateral value and estimated costs to recover any uninsured portion of the MPF loan.
Aside from separating conventional mortgage loans from FHA and VA insured loans, the FHLBNY has determined that no further disaggregation or portfolio segmentation is needed as the credit risk is measured at the individual loan level.
Charge-Off Policy — Prior to the first quarter of 2015, the FHLBNY recorded a charge-off on a conventional loan generally at the foreclosure of a loan.
Beginning January 1, 2015, the FHLBNY adopted the guidance provided by the FHFA and accelerated the charge- off analysis when a loan is on non-accrual status for 180 days or more and the loan is not well collateralized. For more information, see Note 2. Recently Issued Accounting Standards and Interpretations. The charge-off is calculated as the amount of the shortfall of the fair value of the underlying collateral, less estimated selling costs, compared to the recorded investment in the loan.
Real Estate Owned (“REO”) — REO includes assets that have been received in satisfaction of mortgage loans through foreclosure. REO is recorded at the lower of cost or fair value less estimated selling costs of the REO. At the date of transfer, from mortgage loan to REO, the FHLBNY recognizes a charge-off to allowance for credit losses if the fair value of the REO is less than the recorded investment in the loan. Any subsequent realized gains, realized or unrealized losses and carrying costs are included in Other income (non-interest) in the Statements of Income. REO is recorded in Other assets in the Statements of Condition.
Mandatorily Redeemable Capital Stock
Generally, the FHLBNY’s capital stock is redeemable at the option of both the member and the FHLBNY, subject to certain conditions, and is subject to the provisions under the accounting guidance for certain financial instruments with characteristics of both liabilities and equity. Dividends paid on capital stock classified as mandatorily redeemable stock are accrued at an estimated dividend rate and reported as interest expense in the Statements of Income.
Mandatorily redeemable capital stock at December 31, 2016 and 2015 represented stocks held by former members who were no longer members by virtue of being acquired by members of another FHLBank.
Accounting Considerations under the Capital Plan — There are three triggering events that could cause the FHLBNY to repurchase capital stock.
· a member requests redemption of excess membership stock;
· a member delivers notice of its intent to withdraw from membership; or
· a member attains non-member status (through merger into or acquisition by a non-member, charter termination, or involuntary termination from membership).
Federal Home Loan Bank of New York
Notes to Financial Statements
The member’s request to redeem excess Membership Stock will be considered to be revocable until the stock is repurchased. Since the member’s request to redeem excess Membership Stock can be withdrawn by the member without penalty, the FHLBNY considers the member’s intent regarding such request to not be substantive in nature; therefore, no reclassification to a liability will be made at the time the request is delivered.
Under the Capital Plan, when a member delivers a notification of its intent to withdraw from membership, the reclassification from equity to a liability will become effective upon receipt of the notification. The FHLBNY considers the member’s intent regarding such notification to be substantive in nature; therefore, reclassification to a liability will be made at the time the notification of the intent to withdraw is delivered. When a member is acquired by a non-member, the FHLBNY reclassifies stock of former members to a liability on the day the member’s charter is dissolved. Unpaid dividends related to capital stock reclassified as a liability are accrued at an estimated dividend rate and reported as interest expense in the Statements of Income. The repurchase of these mandatorily redeemable financial instruments is reflected as a cash outflow in the financing activities section of the Statements of Cash Flows.
The FHLBNY’s capital stock can only be acquired and redeemed at par value; and are not traded and no market mechanism exists for the exchange of stock outside the cooperative structure.
Affordable Housing Program
The FHLBank Act requires each FHLBank to establish and fund an AHP (see Note 12. Affordable Housing Program). The FHLBNY charges the required funding for AHP to earnings and establishes a liability. The AHP funds provide subsidies to members to assist in the purchase, construction, or rehabilitation of housing for very low-, low-, and moderate-income households. The AHP assessment is based on a fixed percentage of income before adjustment for dividends associated with mandatorily redeemable capital stock. Dividend payments are reported as interest expense in accordance with the accounting guidance for certain financial instruments with characteristics of both liabilities and equity. If the FHLBNY incurs a loss for the entire year, no AHP assessment or assessment credit is due or accrued, as explained more fully in Note 12. Affordable Housing Program.
From time to time, the FHLBNY may also issue AHP advances at interest rates below the customary interest rates for non-subsidized advances. When the FHLBNY makes an AHP advance, the present value of the variation in the cash flow caused by the difference between the AHP advance interest rate and the FHLBNY’s related cost of funds for comparable maturity funding is charged against the AHP liability. The amounts are then recorded as a discount on the AHP advance. As an alternative, the FHLBNY has the authority to make the AHP subsidy available to members as a grant.
Commitment Fees
The FHLBNY records the present value of fees receivable from standby letters of credit as an asset and an offsetting liability for the obligation. Fees, which are generally received for one year in advance, are recorded as unrecognized standby commitment fees (deferred credit) and amortized monthly over the commitment period. The FHLBNY amortizes fees received to income using the straight line method.
Derivatives
All derivatives are recognized on the balance sheet at their estimated fair values, including accrued unpaid interest as either a derivative asset or a derivative liability net of cash collateral received from and posted to derivative counterparties. The FHLBNY has no foreign currency assets, liabilities or hedges.
To qualify as an accounting hedge under the hedge accounting rules (versus an economic hedge where hedge accounting is not sought), a derivative must be highly effective in offsetting the risk designated as being hedged. The hedge relationship must be formally documented at inception, detailing the particular risk management objective and strategy for the hedge, which includes the item and risk that is being hedged and the derivative that is being used, as well as how effectiveness will be assessed and ineffectiveness measured. The effectiveness of these hedging relationships is evaluated on a retrospective and prospective basis, typically using quantitative measures of correlation with hedge ineffectiveness measured and recorded in current earnings. If a hedge relationship is found to be ineffective, it no longer qualifies as an accounting hedge and hedge accounting would not be applied.
Gains or losses attributable to the derivatives and subsequent changes in their fair values are recognized in Other Income (loss) as a Net realized and unrealized gains (losses) on derivatives and hedging activities. When hedge accounting is discontinued, the offsetting changes of fair values of the hedged item are also discontinued.
Each derivative is designated as one of the following:
(1) a qualifying (a) hedge of the fair value of a recognized asset or liability or an unrecognized firm commitment (a “Fair value” hedge);
(2) a qualifying (a) hedge of a forecasted transaction or the variability of cash flows that are to be received or paid in connection with a recognized asset or liability (a “Cash flow” hedge);
(3) a non-qualifying (a) hedge of an asset or liability (“economic hedge”) for asset-liability management purposes; or
(4) a non-qualifying (a) hedge of another derivative (an “intermediation” hedge) that is offered as a product to members or used to offset other derivatives with non-member counterparties.
(a) The terms “qualifying” and “non-qualifying” refer to accounting standards for derivatives and hedging.
Federal Home Loan Bank of New York
Notes to Financial Statements
· Fair value hedging. Changes in the fair value of a derivative that is designated and qualifies as a Fair value hedge, along with changes in the fair value of the hedged asset or liability that are attributable to the hedged risk (including changes that reflect losses or gains on firm commitments), are recorded in current period’s earnings in Other income (loss) as a Net realized and unrealized gain (loss) on derivatives and hedging activities.
· Cash flow hedging. Changes in the fair value of a derivative that is designated and qualifies as a Cash flow hedge, to the extent that the hedge is effective, are reported in AOCI, a component of equity, until earnings are affected by the variability of the cash flows of the hedged transaction (i.e., until the recognition of interest on a variable rate asset or liability is recorded in earnings).
Measurement of hedge ineffectiveness — For each financial statement reporting period, the FHLBNY measures the changes in the fair values of all derivatives, and changes in fair value of the hedged items attributable to the risk being hedged and reports changes through current earnings. To the extent the changes in fair values of the derivatives do not offset the changes in the fair values of the hedged item, the difference results in hedge ineffectiveness, which is recorded in current period earnings.
For hedged items eligible for the short-cut method, the FHLBNY will assume that during the life of the hedge the change in fair value of the hedged item attributable to the benchmark interest rates (LIBOR for us) equals the change in fair value of the derivative. The short-cut method is employed only for highly effective hedging relationships that meet certain specific criteria under the accounting standards for derivatives and hedging that would qualify for an assumption of no ineffectiveness.
Effectiveness testing — The FHLBNY has designed effectiveness testing criteria based on management’s knowledge of the hedged item and hedging instruments that are employed to create the hedging relationship. The FHLBNY uses statistical analyses to evaluate effectiveness results, which must fall within established tolerances. Effectiveness testing is performed at hedge inception and on at least a quarterly basis for both prospective considerations and retrospective evaluations.
Effectiveness is determined by how closely the changes in the fair value of the hedging instrument offset the changes in the fair value or cash flows of the hedged item relating to the risk being hedged. Hedge accounting is permitted only if the hedging relationship is expected to be highly effective at the inception of the hedge and on an ongoing basis. The FHLBNY assesses hedge effectiveness in the following manner:
· Inception prospective assessment. Upon designation of the hedging relationship and on an ongoing basis, the FHLBNY hedge documentation demonstrates that it expects the hedging relationship to be highly effective. This is a forward-looking consideration. A prospective assessment is performed at the designation of the hedging relationship. The assessment uses sensitivity analysis employing an option-adjusted valuation model to generate changes in market value of the hedged item and the swap. These projected market values are run under instantaneous parallel rate shocks, and the hedge is expected to be highly effective if the change in fair value of the swap divided by the change in the fair value of the hedged item is within the 80% - 125% dollar value offset boundaries.
· Retrospective assessment. At least quarterly, the FHLBNY’s hedge documentation demonstrates whether the hedging relationship was highly effective in offsetting changes in fair value or cash flows through the date of the periodic assessment. This is an evaluation of the past experience. The retrospective test utilizes multiple regression and statistical validation parameters to determine that the hedging relationship was highly effective (i.e., it has remained within the 80% - 125% dollar value offset boundaries).
· Ongoing prospective assessment. For purposes of assessing effectiveness on an ongoing basis, the FHLBNY’s documentation utilizes the regression results from the retrospective assessment as a means of demonstrating that the hedge relationships is expected to be highly effective in future periods.
Ineffectiveness on Fair value and Cash flow hedging. For both Fair value and Cash flow hedges that qualify for hedge accounting treatment, any hedge ineffectiveness (which represents the amount by which the change in the fair value of the derivative differs from the change in the fair value of the hedged item or the variability in the cash flows of the forecasted transaction) are recorded in current period’s earnings in Other income (loss) as a Net realized and unrealized gain (loss) on derivatives and hedging activities. The differentials between accruals of interest income and expense on derivatives designated as Fair value or Cash flow hedges that qualify for hedge accounting treatment are recognized as adjustments to the interest income or expense of the hedged advances and consolidated obligations.
Derivatives in economic hedges. Changes in the fair value of a derivative designated as economic hedges (also referred to as standalone hedges) and of a derivative that no longer qualifies as an accounting hedge are recorded in current period earnings with no fair value adjustment to the asset or liability that is being hedged on an economic basis. The net interest associated with a standalone derivative is recorded together with changes in its fair value in Other income (loss) as a Net realized and unrealized gain (loss) on derivatives and hedging activities. When derivatives are executed as intermediated derivatives for members, the derivatives are treated as standalone derivatives.
Trade date conventions. The FHLBNY records derivatives on trade date, but records the associated hedged consolidated obligations and advances on settlement date. Hedge accounting commences on trade date, at which time subsequent changes to the derivative’s fair value are recorded along with the offsetting changes in the fair value of the hedged item attributable to the risk being hedged. On settlement date, the basis adjustments to the hedged item’s carrying amount are combined with the principal amounts and the basis becomes part of the total carrying
Federal Home Loan Bank of New York
Notes to Financial Statements
amount of the hedged item. The FHLBNY has defined its market settlement conventions for hedged items to be five business days or less for advances and thirty calendar days or less, using a next business day convention, for consolidated obligations bonds and discount notes. These market settlement conventions are the shortest period possible for each type of advance and consolidated obligation from the time the instruments are committed to the time they settle.
The FHLBNY considers hedges of committed advances and consolidated obligation bonds eligible for the “short cut” provisions (assumption of no-ineffectiveness), as long as settlement of the committed asset or liability occurs within the market settlement conventions for that type of instrument. A short-cut hedge is a highly effective hedging relationship that uses an interest rate swap as the hedging instrument to hedge a recognized asset or liability and that meets the criteria under the accounting standards for derivatives and hedging to qualify for an assumption of no ineffectiveness. To meet the short-cut provisions that assume no ineffectiveness, hedge accounting standards also require the fair value of the swap to approximate zero on the date the FHLBNY designates the hedge.
Embedded Derivatives. The FHLBNY routinely issues debt to investors and makes advances to members. In certain such instruments, the FHLBNY may embed a derivative. Typically, such derivatives are call and put options to early terminate the instruments at par on pre-determined dates. The FHLBNY may also embed interest rate caps and floors, or step-up or step-down interest rate features within the instruments. The FHLBNY also routinely structures interest rate swaps to hedge the FHLBank debt and advances, and the FHLBNY may also embed derivative instruments, such as those identified in the previous discussion, in the swaps. When such instruments are conceived, designed and structured, our control procedures require the identification and evaluation of embedded derivatives, as defined under accounting standards for derivatives and hedging activities. This evaluation will consider whether the economic characteristics of the embedded derivative are clearly and closely related to the economic characteristics of the remaining component of the advance or debt (the host contract) and whether a separate, non-embedded instrument with the same terms as the embedded instrument would meet the definition of a derivative instrument. If the FHLBNY determines that (1) the embedded derivative has economic characteristics that are not clearly and closely related to the economic characteristics of the host contract, and (2) a separate, standalone instrument with the same terms would qualify as a derivative instrument, the embedded derivative would be separated from the host contract as prescribed for hybrid financial instruments under accounting standards for derivatives and hedge accounting, and carried at fair value. However, if the entire contract (the host contract and the embedded derivative) is to be measured at fair value, the changes in fair value would be reported in current earnings (such as an investment security classified as “trading”; or, if the FHLBNY cannot reliably identify and measure the embedded derivative for purposes of separating that derivative from its host contract, the entire contract would be carried on the balance sheet at fair value and no portion of the contract would be designated as a hedging instrument). The FHLBNY had no financial instruments with embedded derivatives that required separate accounting as a result of meeting the bifurcation test under ASC 815.
Discontinuation of Hedge Accounting. When hedge accounting is discontinued because the FHLBNY determines that the derivative no longer qualifies as an effective Fair value hedge of an existing hedged item, the FHLBNY continues to carry the derivative on the balance sheet at its fair value, ceases to adjust the hedged asset or liability for changes in fair value, and amortizes the cumulative basis adjustment on the hedged item into earnings over the remaining life of the hedged item (for callable as well as non-callable previously hedged debt and advances) using the level-yield methodology. When the hedged item is a firm commitment, and hedge accounting is discontinued because the hedged item no longer meets the definition of a firm commitment, the FHLBNY would continue to carry the derivative on the balance sheet at its fair value, removing from the balance sheet any asset or liability that was recorded to recognize the firm commitment and recording it as a gain or loss in current period earnings.
When hedge accounting is discontinued because the FHLBNY determines that the derivative no longer qualifies as an effective Cash flow hedge of an existing hedged item, the FHLBNY continues to carry the derivative on the balance sheet at its fair value and reclassifies the basis adjustment in AOCI to earnings when earnings are affected by the existing hedge item, which is the original forecasted transaction. Under limited circumstances, when the FHLBNY discontinues cash flow hedge accounting because it is no longer probable that the forecasted transaction will occur in the originally expected period plus the following two months, but it is probable the transaction will still occur in the future, the gain or loss on the derivative remains in AOCI and is recognized into earnings when the forecasted transaction affects earnings. However, if it is probable that a forecasted transaction will not occur by the end of the originally specified time period or within two months after that, the gains and losses that were included in AOCI are recognized immediately in earnings.
The FHLBNY treats modifications of hedged items (e.g. reduction in par amounts, change in maturity date, and change in strike rates) that are other than minor as a termination of a hedge relationship, and previously recorded hedge basis adjustments of the hedged items are amortized over the life of the hedged item.
Hedges of Similar Assets. It is not our practice to engage in portfolio hedging. However, from time-to-time, we may execute interest rate swaps in a portfolio hedge of advances if the hedge meets the specific provisions under hedge accounting. The FHLBNY has insignificant amounts of similar advances that were hedged in aggregate as a portfolio. For such hedges, the FHLBNY performs a similar asset test for homogeneity to ensure the hedged advances share the risk exposure for which they are designated as being hedged. Other than the very limited number of portfolio hedges, our other hedged items and derivatives are hedged as separately identifiable instruments.
Cash Collateral Associated with Derivative Contracts. The FHLBNY reports derivative assets and derivative liabilities in its Statements of Condition after giving effect to legally enforceable master netting, or when an agreement is not available as with OTC cleared derivatives, enforceability is based on a legal analysis or legal opinion.
Federal Home Loan Bank of New York
Notes to Financial Statements
Reported Derivative assets and liabilities include interest receivable and payable on derivative contracts and the fair values of the derivative contracts. The Bank records cash collateral received and posted in the Statements of Condition as an adjustment to Derivative assets and liabilities in the following manner — Cash collateral posted by the FHLBNY is reported as a deduction to Derivative liabilities; cash collateral received from derivative counterparties is reported as a deduction to Derivative assets. Cash posted by the FHLBNY in excess of margin requirements is recorded as a receivable in Derivative assets. Certain derivative counterparties had also pledged securities as collateral at December 31, 2016, and the counterparties retained title to the pledged securities. No securities were either pledged or received as collateral for derivatives executed with swap counterparties at December 31, 2015.
Premises, Software and Equipment
The Bank computes depreciation using the straight-line method over the estimated useful lives of assets ranging from four to five years. Leasehold improvements are amortized on a straight-line basis over the lesser of their useful life of the asset or the remaining term of the lease. The FHLBNY capitalizes improvements and major renewals but expenses ordinary maintenance and repairs when incurred, and would include gains and losses on disposal of premises and equipment in Other income (loss).
Consolidated Obligations
Accounting for Consolidated obligation debt. The FHLBNY reports consolidated obligation bonds and discount notes at amortized cost, net of discounts and premiums. If the consolidated obligation debt is hedged in a benchmark hedge, its carrying value will include hedging valuation adjustments, which will typically be the changes in the LIBOR index. The carrying value of consolidated obligation debt elected under the FVO will be its fair value. The FHLBNY records interest paid on consolidated obligation bond in interest expense. The FHLBNY expenses the discounts on consolidated obligation discount notes, using the level-yield method, over the term of the related notes and amortizes the discounts and premiums on callable and non-callable consolidated bonds, also using the contractual level-yield method, over the term to maturity of the consolidated obligation bonds.
Concessions on Consolidated Obligations. Concessions are paid to dealers in connection with the issuance of certain consolidated obligation bonds. The Office of Finance prorates the amount of the concession to the FHLBNY based upon the percentage of the debt issued that is assumed by the FHLBNY. Concessions paid on consolidated obligation bonds elected under the FVO are expensed as incurred. Concessions paid on consolidated obligation bonds not designated under the FVO are deferred and amortized, using the contractual level-yield method, over the term to maturity of the consolidated obligation bond. The FHLBNY charges to expense, as incurred, the concessions applicable to the sale of consolidated obligation discount notes because of their short maturities; amounts are recorded in consolidated obligations interest expense.
The FHLBNY adopted ASU 2015-03, Interest-imputation of interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs on January 1, 2016, and reclassified $9.7 million of unamortized debt issuance costs from Other assets to Consolidated obligations on the Statements of Condition. Comparative balances at December 31, 2015 were reclassified to conform to the presentation adopted under ASU 2015-03. For more information, see Recently Adopted Significant Accounting policies in this report.
Finance Agency and Office of Finance Expenses
The FHLBNY is assessed for its proportionate share of the costs of operating the Finance Agency and the Office of Finance. The Finance Agency is authorized to impose assessments on the FHLBanks and two other GSEs, in amounts sufficient to pay the Finance Agency’s annual operating expenses.
The Office of Finance is also authorized to impose assessments on the FHLBanks, including the FHLBNY, in amounts sufficient to pay the Office of Finance’s annual operating and capital expenditures. Each FHLBank is assessed a prorated — (1) two-thirds based upon each FHLBank’s share of total consolidated obligations outstanding and (2) one-third based upon an equal pro-rata allocation.
Earnings per Capital Share
Basic earnings per share is computed by dividing income available to stockholders by the weighted average number of shares outstanding for the period. Capital stock classified as mandatorily redeemable capital stock is excluded from this calculation. Basic and diluted earnings per share are the same, as the FHLBNY has no additional potential shares that may be dilutive.
Cash Flows
In the Statements of Cash Flows, the FHLBNY considers Cash and due from banks to be cash. Federal funds sold, and securities purchased under agreements to resell are reported in the Statements of Cash Flows as investing activities.
Federal funds sold, securities purchased under agreements to resell, and deposits with other FHLBanks are deemed short-term under ASC 320 and therefore, net presentation is appropriate.
Derivative instruments — Cash flows from a derivative instrument that is accounted for as a fair value or cash flow hedge, including those designated as economic hedges, are reflected as cash flows from operating activities if the derivative instrument did not include “an other-than-insignificant” financing element at inception. When the FHLBNY executes an off-market derivative, which would typically require an up-front cash exchange, the
Federal Home Loan Bank of New York
Notes to Financial Statements
FHLBNY will analyze the transaction and would deem it to contain a financing element if the cash exchange is more than insignificant. Financing elements are recorded as a financing activity in the Statements of Cash Flows.
Losses on debt extinguishment — Losses from debt retirement and transfers (debt retirement) are considered financing activities in the Statements of Cash Flows. Losses are added back as an adjustment to Net cash provided by operating activities, with an offsetting increase in payments on maturing consolidated obligation bonds as a financing activity.
Recently Adopted Significant Accounting Policies
Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships.
In March 2016, the FASB issued ASU No. 2016-05, Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships, as an amendment to Derivatives and Hedging Activities (Topic 815). The amendments clarify that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument under GAAP does not, in and of itself, require de-designation of that hedging relationship provided that all other hedge accounting criteria continue to be met. The amendments provided entities with the option to apply the guidance using either a prospective approach or a modified retrospective approach, retrospectively applied to all derivative instruments that meet the specific conditions. The FHLBNY elected to early adopt the guidance prospectively on January 1, 2016. The adoption of this guidance had no effect on the Bank’s financial condition, results of operations, and cash flows.
Disclosures for Investments in Certain Entities That Calculate Net Asset Value (NAV) per Share (or its Equivalent).
In May 2015, the FASB issued ASU No. 2015-07, Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent), which is intended to address diversity in practice related to how certain investments measured at net asset value (“NAV”) are reported within the financial statement footnotes. The new guidance removes the requirement to categorize investments measured under the current NAV practical expedient within the fair value hierarchy for all investments. The amendments also remove the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the NAV practical expedient. Rather, those disclosures are limited to investments for which the entity has elected to measure the fair value using that practical expedient. The amendments in this ASU were effective for public entities for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. A reporting entity should apply the amendments retrospectively to all periods presented. The FHLBNY owns a grantor trust, which invests in bond and equity funds that are readily marketable at their NAVs, which are considered as fair values, not a practical expedient. The application of this guidance had no impact on the categorization of investments within the fair value hierarchy in the financial statement footnotes, or the statements of condition or results of operations. For further information, see Note 17. Fair Values of Financial Instruments.
Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement.
In April 2015, the FASB ASU issued No. 2015-05, Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement to add guidance to Subtopic 350-40, Intangibles - Goodwill and Other - Internal-Use Software. The ASU clarifies a customer’s accounting for fees paid in a cloud computing arrangement, and provides guidance to customers on determining whether a cloud computing arrangement includes a software license that should be accounted for as internal-use software. If the arrangement does not contain a software license, it would be accounted for as a service contract. The FHLBNY adopted ASU 2015-05 prospectively on January 1, 2016, and the effect of adoption had no material impact on its financial condition, results of operations, and cash flows.
Simplifying the Presentation of Debt Issuance Costs.
In April 2015, the FASB issued ASU No. 2015-03, Interest-imputation of interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The ASU requires a reclassification on the statement of condition of debt issuance costs related to a recognized debt liability from other assets to a direct deduction from the carrying amount of that debt liability. The intent is to eliminate the different presentation requirements of debt issuance cost and debt discounts and premiums, which have caused confusion among users of financial statements. The FHLBNY adopted ASU 2015-03 on January 1, 2016, and reclassified $9.7 million of unamortized debt issuance costs from Other assets to Consolidated obligations on the Statements of Condition. Adoption had no material impact on the FHLBNY’s financial condition, results of operations, and cash flows.
Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.
In August 2014, the FASB issued ASU No. 2014-15, Going Concern (Subtopic 205-40). The final guidance requires management to evaluate whether there is substantial doubt about the entity’s ability to continue as a going concern and, if so, disclose that fact in the footnotes. Management will also be required to evaluate and disclose whether it plans to alleviate that doubt. The new standard defines substantial doubt as when it is probable (i.e. likely) based on management’s assessment of relevant qualitative and quantitative information and judgment that the entity will be unable to meet its obligations as they become due within one year of the date the financial statements are issued (or available to be issued, when applicable). The amendments in this ASU were effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. The FHLBNY adopted the guidance as of December 31, 2016. Management’s assessment of our ability to continue as a going concern required no additional disclosures and none has been made in these reports.
Federal Home Loan Bank of New York
Notes to Financial Statements
Note 2. Recently Issued Accounting Standards and Interpretations.
Accounting for Financial Instruments — Credit Losses.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326). The ASU introduces a new accounting model, the Current Expected Credit Losses model (“CECL”), which requires earlier recognition of credit losses, while also providing additional transparency about credit risk. The FASB’s CECL model utilizes a lifetime “expected credit loss” measurement objective for the recognition of credit losses for loans, held-to-maturity securities and other receivables at the time the financial asset is originated or acquired. The expected credit losses are adjusted each period for changes in expected lifetime credit losses. For available-for-sale securities where fair value is less than cost, credit-related impairment, if any, will be recognized in an allowance for credit losses and adjusted each period for changes in expected credit risk. This model replaces the multiple existing impairment models in current GAAP, which generally require that a loss be incurred before it is recognized. We are in the process of evaluating this guidance. The CECL model represents a significant departure from existing GAAP, but we do not expect adoption will have a material impact on our financial condition, results of operations, and cash flows. This guidance is effective for the FHLBNY for interim and annual periods beginning on January 1, 2020. Early application is permitted as of the interim and annual reporting periods beginning after December 15, 2018 (January 1, 2019 for the FHLBNY).
Contingent Put and Call Options in Debt Instruments.
In March 2016, the FASB issued ASU No. 2016-06, Contingent Put and Call options in Debt Instruments, as an amendment to Derivatives and Hedging Activities (Topic 815). The amendments clarify the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. The guidance requires entities to apply only the four-step decision sequence when assessing whether the economic characteristics and risks of call (put) options are clearly and closely related to the economic characteristics and risks of their debt hosts. Consequently, when a call (put) option is contingently exercisable, an entity does not have to assess whether the event that triggers the ability to exercise a call (put) option is related to interest rates or credit risks. This guidance becomes effective for the FHLBNY as of January 1, 2017, and early adoption is permitted. Certain FHLBNY’s debt instruments at December 31, 2016 are structured with call options, but the options are not considered as contingently exercisable. The guidance should be applied on a modified retrospective basis to existing debt instruments as of the beginning of the period for which the amendments are effective. The FHLBNY does not expect adoption will have an impact on its financial condition, results of operations, and cash flows.
Lease Accounting.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which is intended to increase transparency and comparability of accounting for lease transactions. The ASU will require lessees to recognize all leases on the balance sheet as lease assets and lease liabilities and will require both quantitative and qualitative disclosures regarding key information about leasing arrangements. Lessor accounting is largely unchanged. The guidance is effective beginning January 1, 2019 with an option to early adopt. Certain operating leases, specifically our premises in the New York and New Jersey locations, will be renewed under long-term contracts in 2017 and 2018 and recorded on our balance sheet when the new standards are adopted in 2019. Recognition of the “right-to-use” asset and an offsetting lease liability would have a minimal impact on our statements of condition and the statements of income upon adoption of ASU 2016-02 in 2019.
Recognition and Measurement of Financial Assets and Financial Liabilities.
In January 2016, the FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, as an amendment to Financial Instruments — Overall (Subtopic 825-10). The amendments provide guidance on certain aspects of recognition, measurement, presentation, and disclosure of financial instruments.
This ASU requires entities to present separately in OCI the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. It will also require equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income, thus eliminating eligibility for the current available-for-sale category.
The guidance becomes effective for the FHLBNY as of January 1, 2018. The amendments, in general, should be applied by means of a cumulative-effect adjustment on the statement of condition as of the beginning of the period of adoption. The FHLBNY is in the process of evaluating this guidance, but does not expect adoption will have a material impact on its financial condition, results of operations, and cash flows.
Revenue Recognition.
In May 2014, the FASB issued ASU No. 2014-09, (Topic 606): Revenue from Contracts with Customers. The FASB and the International Accounting Standards Board (“IASB”) initiated a joint project to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP and International Financial Reporting Standards (“IFRS”) that would remove inconsistencies and improve comparability of revenue recognition practices across entities and industries, and provide more useful information to users of financial statements through improved disclosure requirements. The core principle of the guidance is that an entity should recognize revenue to
Federal Home Loan Bank of New York
Notes to Financial Statements
depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance provides entities with the option of using either of the following adoption methods: a full retrospective method, retrospectively to each prior reporting period presented; or a modified retrospective method, retrospectively with the cumulative effect of initially applying this guidance recognized at the date of initial application.
On August 12, 2015, the FASB issued an amendment to defer the effective date of the guidance issued by one year. In 2016, the FASB has issued additional amendments to clarify certain aspects of the new revenue guidance. However, these amendments do not change the core principle of the new revenue standard. This guidance is effective for the FHLBNY as of January 1, 2018. Early application is permitted only as of the interim and annual reporting periods beginning after December 15, 2016. Our Net income is derived principally from net interest income on financial assets and liabilities, which is explicitly excluded from the scope of this guidance. Our non-interest income, which is typically not a material element of our Net income, is potentially subject to this guidance. The FHLBNY is in the process of evaluating this guidance to our non-interest income and on our presentation and disclosures, but we do not expect adoption will have a material impact on our financial condition, results of operations, and cash flows.
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. The FHLBNY is exempted from maintaining any required clearing balance at the Federal Reserve Bank of New York.
Compensating Balances
The FHLBNY maintains compensating collected cash balances at Citibank in return for certain fee based safekeeping and back office operational services that the counterparty provides to the FHLBNY. There are no restrictions on the withdrawal of funds. The balance was $90.4 million at December 31, 2016 and $100.0 million at December 31, 2015.
Pass-through Deposit Reserves
The FHLBNY acts as a pass-through correspondent for member institutions who are required by banking regulations to deposit reserves with the Federal Reserve Banks. Pass-through reserves deposited with Federal Reserve Banks on behalf of the members by the FHLBNY were $67.7 million and $47.5 million as of December 31, 2016 and December 31, 2015. The offsetting liabilities due to members were recorded in Other liabilities in the Statements of Condition.
Note 4. Federal Funds Sold, Interest-bearing Deposits, and Securities Purchased Under Agreements to Resell.
Federal funds sold — Federal funds sold are unsecured advances to third parties.
Interest-bearing deposits — Cash Collateral Posted to Derivative Counterparties — The FHLBNY executes derivatives with major swap dealers and financial institutions (“derivative counterparties” or “counterparties”), and enters into bilateral collateral agreements. Additionally, as mandated under the Dodd-Frank Act, certain of the FHLBNY’s derivatives are cleared and settled through one or several Derivative Clearing Organizations (“DCO”). The FHLBNY considers the DCO as a derivative counterparty. For both bilaterally executed derivatives and derivatives cleared through a DCO, when a derivative counterparty is exposed, the FHLBNY would post cash as pledged collateral to mitigate the counterparty’s credit exposure.
The FHLBNY had deposited $256.0 million and $370.5 million in cash at December 31, 2016 and December 31, 2015 with derivative counterparties and these amounts earned interest generally at the overnight Federal funds rate. As provided under master netting agreements or under a legal netting opinion, the cash posted was reclassified and recorded as a deduction to Derivative liabilities. Cash collateral or margin posted by the FHLBNY in excess of the fair value exposures were classified as a Derivative asset. Derivative asset and Derivative liabilities are line items in the Statements of Condition. Variation margin posted to clearing agents on cleared derivatives is considered as collateral at the reporting dates. Variation margin is settled daily and is generally equal to the fair values of cleared derivatives. See Credit Risk due to non-performance by counterparties in Note 16. Derivatives and Hedging Activities.
Securities purchased under agreements to resell — As part of the FHLBNY’s banking activities, the FHLBNY may enter into secured financing transactions that mature overnight, and can be extended only at the discretion of the FHLBNY. These transactions involve the lending of cash, against which marketable securities are taken as collateral. The amount of cash loaned against the collateral is a function of the liquidity and quality of the collateral. The collateral is typically in the form of securities that meet the FHLBNY’s credit quality standards, are highly-rated and readily marketable. The FHLBNY has the ability to call for additional collateral if the value of the securities falls below a pre-defined haircut. The FHLBNY can terminate the transaction and liquidate the collateral if the counterparty fails to post the additional margin. Under these agreements, the FHLBNY would not have the right to re-pledge the securities received. No adjustments for instrument-specific credit risk were deemed necessary as market values of collateral were in excess of principal amounts loaned.
At December 31, 2016 and December 31, 2015, the outstanding balances of Securities purchased under agreements to resell were $7.2 billion and $4.0 billion that matured overnight. Of these amounts, $7.2 billion and $4.0 billion at December 31, 2016 and December 31, 2015 were executed through a tri-party arrangement that involved transfer of
Federal Home Loan Bank of New York
Notes to Financial Statements
overnight funds to a segregated safekeeping account at the Bank of New York (“BONY”); BONY, acting as an independent agent on behalf of the FHLBNY and the counterparty to the transactions, assumes the responsibility of receiving eligible securities as collateral and releasing funds to the counterparty. At December 31, 2016 and December 31, 2015, U.S. Treasury securities, market values of $7.2 billion and $4.0 billion, were received at BONY to collateralize the overnight investments.
No overnight investments had been executed bilaterally with counterparties at December 31, 2016 and December 31, 2015.
Securities purchased under agreements to resell averaged $2.1 billion and $1.8 billion in the twelve months ended December 31, 2016 and 2015. Transactions recorded as Securities purchased under agreements to resell (reverse repos) were accounted as collateralized financing transactions. Interest income from securities purchased under agreements to resell were $6.9 million, $1.6 million and $0.5 million for the years ended December 31, 2016, 2015 and 2014.
Note 5. Trading Securities.
The carrying value of a trading security equals its fair value at December 31, 2016. The following table provides major security types (in thousands):
|
Fair value (in thousands) |
|
December 31, 2016 |
| |
|
Non-mortgage-backed securities |
|
|
| |
|
GSE securities |
|
$ |
30,969 |
|
|
U.S. treasury notes |
|
100,182 |
| |
|
Total non-mortgage-backed trading securities |
|
$ |
131,151 |
|
The carrying values of trading securities included unrealized fair value gains of $0.1 million at December 31, 2016. No security was sold in the period and accordingly no realized gains and losses were recorded.
Redemption Terms
The contractual maturities and estimated fair values (a) of investments classified as trading were as follows (in thousands):
|
|
|
December 31, 2016 |
| |||||||||||||
|
(Dollars in thousands) |
|
Due in one |
|
Due after one |
|
Due after five years through |
|
Due after ten |
|
Total Fair |
| |||||
|
Non-mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
| |||||
|
GSE securities |
|
$ |
30,969 |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
30,969 |
|
|
U.S. treasury notes |
|
100,182 |
|
— |
|
— |
|
— |
|
$ |
100,182 |
| ||||
|
Total non-mortgage-backed trading securities |
|
$ |
131,151 |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
131,151 |
|
|
Yield on trading securities |
|
0.90 |
% |
— |
% |
— |
% |
— |
% |
|
| |||||
(a) We have classified investments acquired for purposes of meeting short-term contingency liquidity needs trading securities, which are carried at their fair values. In accordance with Finance Agency guidance, we do not participate in speculative trading practices.
Federal Home Loan Bank of New York
Notes to Financial Statements
Note 6. Available-for-Sale Securities.
The carrying value of an AFS security equals its fair value. At December 31, 2016 and December 31, 2015; no AFS security was other-than-temporarily impaired. The following tables provide major security types (in thousands):
|
|
|
December 31, 2016 |
| ||||||||||
|
|
|
|
|
Gross |
|
Gross |
|
|
| ||||
|
|
|
Amortized |
|
Unrealized |
|
Unrealized |
|
Fair |
| ||||
|
|
|
Cost |
|
Gains (b) |
|
Losses (b) |
|
Value |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Cash equivalents (a) |
|
$ |
551 |
|
$ |
— |
|
$ |
— |
|
$ |
551 |
|
|
Equity funds (a) |
|
22,667 |
|
1,699 |
|
(417 |
) |
23,949 |
| ||||
|
Fixed income funds (a) |
|
17,642 |
|
— |
|
(424 |
) |
17,218 |
| ||||
|
GSE and U.S. Obligations |
|
|
|
|
|
|
|
|
| ||||
|
Mortgage-backed securities |
|
|
|
|
|
|
|
|
| ||||
|
CMO-Floating |
|
616,359 |
|
3,436 |
|
(151 |
) |
619,644 |
| ||||
|
CMBS-Floating |
|
36,369 |
|
81 |
|
— |
|
36,450 |
| ||||
|
Total Available-for-sale securities |
|
$ |
693,588 |
|
$ |
5,216 |
|
$ |
(992 |
) |
$ |
697,812 |
|
|
|
|
December 31, 2015 |
| ||||||||||
|
|
|
|
|
Gross |
|
Gross |
|
|
| ||||
|
|
|
Amortized |
|
Unrealized |
|
Unrealized |
|
Fair |
| ||||
|
|
|
Cost |
|
Gains (b) |
|
Losses (b) |
|
Value |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Cash equivalents (a) |
|
$ |
1,650 |
|
$ |
— |
|
$ |
— |
|
$ |
1,650 |
|
|
Equity funds (a) |
|
17,461 |
|
773 |
|
(711 |
) |
17,523 |
| ||||
|
Fixed income funds (a) |
|
14,212 |
|
— |
|
(512 |
) |
13,700 |
| ||||
|
GSE and U.S. Obligations |
|
|
|
|
|
|
|
|
| ||||
|
Mortgage-backed securities |
|
|
|
|
|
|
|
|
| ||||
|
CMO-Floating |
|
907,094 |
|
9,433 |
|
— |
|
916,527 |
| ||||
|
CMBS-Floating |
|
40,429 |
|
300 |
|
— |
|
40,729 |
| ||||
|
Total Available-for-sale securities |
|
$ |
980,846 |
|
$ |
10,506 |
|
$ |
(1,223 |
) |
$ |
990,129 |
|
(a) The FHLBNY has a grantor trust, the intent of which is to set aside cash to meet current and future payments for a supplemental unfunded pension plan. Neither the pension plan nor employees of the FHLBNY own the trust. 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 (NAVs) are readily available and investments are redeemable at short notice. NAVs are the fair values of the funds in the grantor trust. The mutual funds used to manage the assets of the Grantor trust will be sufficiently liquid to enable the trust to meet all future liabilities. Liquidity shall be assured by keeping an adequate amount of short-term investments in the portfolio to accommodate the cash needs of the trust. Dividend income and the net realized gain from sales of funds was $1.1 million, $1.9 million and $0.8 million in 2016, 2015 and 2014 were recorded in Other income in the Statements of Income.
(b) Recorded in AOCI — Net unrealized fair value gains were $4.2 million at December 31, 2016 and $9.3 million at December 31, 2015.
Unrealized Losses — MBS Classified as AFS Securities
Impairment Analysis of AFS Securities — The FHLBNY’s portfolio of MBS classified as AFS is comprised primarily of GSE-issued collateralized mortgage obligations, which are “pass through” securities, and floating rate CMBS. The FHLBNY evaluates its GSE-issued securities by considering the creditworthiness and performance of the debt securities and the strength of the government-sponsored enterprises’ guarantees of the securities. Based on 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. Fair values of a small number of mortgage-backed securities in the AFS portfolio were below their amortized costs at December 31, 2016, and none for 12 months or longer.
Redemption Terms
Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment fees. The amortized cost and estimated fair value (a) of investments classified as AFS, by contractual maturity, were as follows (in thousands):
|
|
|
December 31, 2016 |
|
December 31, 2015 |
| ||||||||
|
|
|
Amortized Cost (c) |
|
Fair Value |
|
Amortized Cost (c) |
|
Fair Value |
| ||||
|
Mortgage-backed securities |
|
|
|
|
|
|
|
|
| ||||
|
Due after one year through five years |
|
$ |
36,369 |
|
$ |
36,450 |
|
$ |
40,429 |
|
$ |
40,729 |
|
|
Due after ten years |
|
616,359 |
|
619,644 |
|
907,094 |
|
916,527 |
| ||||
|
Fixed income/bond funds, equity funds and cash equivalents (b) |
|
40,860 |
|
41,718 |
|
33,323 |
|
32,873 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Total Available-for-sale securities |
|
$ |
693,588 |
|
$ |
697,812 |
|
$ |
980,846 |
|
$ |
990,129 |
|
|
(a) |
|
The carrying value of AFS securities equals fair value. |
|
(b) |
|
Funds in the grantor trust are determined to be redeemable at short notice. Fair values are the daily NAVs of the bond and equity funds. |
|
(c) |
|
Amortized cost is after adjusting for net unamortized discounts of $2.4 million and $3.1 million at December 31, 2016 and December 31, 2015. |
Federal Home Loan Bank of New York
Notes to Financial Statements
Interest Rate Payment Terms
The following table summarizes interest rate payment terms of investments in mortgage-backed securities classified as AFS securities (in thousands):
|
|
|
December 31, 2016 |
|
December 31, 2015 |
| ||||||||
|
|
|
Amortized Cost |
|
Fair Value |
|
Amortized Cost |
|
Fair Value |
| ||||
|
Mortgage-backed securities |
|
|
|
|
|
|
|
|
| ||||
|
CMO floating - LIBOR |
|
$ |
616,359 |
|
$ |
619,644 |
|
$ |
907,094 |
|
$ |
916,527 |
|
|
CMBS floating - LIBOR |
|
36,369 |
|
36,450 |
|
40,429 |
|
40,729 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Total Mortgage-backed securities (a) |
|
$ |
652,728 |
|
$ |
656,094 |
|
$ |
947,523 |
|
$ |
957,256 |
|
(a) Total will not agree to total AFS portfolio because bond and equity funds in a grantor trust have been excluded.
Federal Home Loan Bank of New York
Notes to Financial Statements
Note 7. Held-to-Maturity Securities.
Major Security Types (in thousands)
|
|
|
December 31, 2016 |
| ||||||||||||||||
|
|
|
|
|
OTTI |
|
|
|
Gross |
|
Gross |
|
|
| ||||||
|
|
|
Amortized |
|
Recognized |
|
Carrying |
|
Unrecognized |
|
Unrecognized |
|
Fair |
| ||||||
|
Issued, guaranteed or insured: |
|
Cost (d) |
|
in AOCI |
|
Value |
|
Holding Gains (a) |
|
Holding Losses (a) |
|
Value |
| ||||||
|
Pools of Mortgages |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Fannie Mae |
|
$ |
133,071 |
|
$ |
— |
|
$ |
133,071 |
|
$ |
11,601 |
|
$ |
— |
|
$ |
144,672 |
|
|
Freddie Mac |
|
32,402 |
|
— |
|
32,402 |
|
2,325 |
|
— |
|
34,727 |
| ||||||
|
Total pools of mortgages |
|
165,473 |
|
— |
|
165,473 |
|
13,926 |
|
— |
|
179,399 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Collateralized Mortgage Obligations/Real Estate Mortgage Investment Conduits |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Fannie Mae |
|
1,972,878 |
|
— |
|
1,972,878 |
|
7,538 |
|
(1,015 |
) |
1,979,401 |
| ||||||
|
Freddie Mac |
|
1,214,823 |
|
— |
|
1,214,823 |
|
4,232 |
|
(561 |
) |
1,218,494 |
| ||||||
|
Ginnie Mae |
|
18,979 |
|
— |
|
18,979 |
|
126 |
|
(1 |
) |
19,104 |
| ||||||
|
Total CMOs/REMICs |
|
3,206,680 |
|
— |
|
3,206,680 |
|
11,896 |
|
(1,577 |
) |
3,216,999 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Commercial Mortgage-Backed Securities (b) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Fannie Mae |
|
2,612,688 |
|
— |
|
2,612,688 |
|
9,870 |
|
(15,660 |
) |
2,606,898 |
| ||||||
|
Freddie Mac |
|
8,740,573 |
|
— |
|
8,740,573 |
|
107,137 |
|
(19,338 |
) |
8,828,372 |
| ||||||
|
Total commercial mortgage-backed securities |
|
11,353,261 |
|
— |
|
11,353,261 |
|
117,007 |
|
(34,998 |
) |
11,435,270 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Non-GSE MBS (c) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
CMOs/REMICs |
|
15,844 |
|
(285 |
) |
15,559 |
|
1,372 |
|
(1,001 |
) |
15,930 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Asset-Backed Securities (c) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Manufactured housing (insured) |
|
61,293 |
|
— |
|
61,293 |
|
2,258 |
|
— |
|
63,551 |
| ||||||
|
Home equity loans (insured) |
|
119,527 |
|
(22,434 |
) |
97,093 |
|
45,228 |
|
(70 |
) |
142,251 |
| ||||||
|
Home equity loans (uninsured) |
|
66,949 |
|
(7,515 |
) |
59,434 |
|
9,307 |
|
(1,853 |
) |
66,888 |
| ||||||
|
Total asset-backed securities |
|
247,769 |
|
(29,949 |
) |
217,820 |
|
56,793 |
|
(1,923 |
) |
272,690 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Total MBS |
|
14,989,027 |
|
(30,234 |
) |
14,958,793 |
|
200,994 |
|
(39,499 |
) |
15,120,288 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
State and local housing finance agency obligations |
|
1,063,500 |
|
— |
|
1,063,500 |
|
196 |
|
(37,013 |
) |
1,026,683 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Total Held-to-maturity securities |
|
$ |
16,052,527 |
|
$ |
(30,234 |
) |
$ |
16,022,293 |
|
$ |
201,190 |
|
$ |
(76,512 |
) |
$ |
16,146,971 |
|
|
|
|
December 31, 2015 |
| ||||||||||||||||
|
|
|
|
|
OTTI |
|
|
|
Gross |
|
Gross |
|
|
| ||||||
|
|
|
Amortized |
|
Recognized |
|
Carrying |
|
Unrecognized |
|
Unrecognized |
|
Fair |
| ||||||
|
Issued, guaranteed or insured: |
|
Cost (d) |
|
in AOCI |
|
Value |
|
Holding Gains (a) |
|
Holding Losses (a) |
|
Value |
| ||||||
|
Pools of Mortgages |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Fannie Mae |
|
$ |
177,126 |
|
$ |
— |
|
$ |
177,126 |
|
$ |
15,621 |
|
$ |
— |
|
$ |
192,747 |
|
|
Freddie Mac |
|
48,138 |
|
— |
|
48,138 |
|
3,378 |
|
— |
|
51,516 |
| ||||||
|
Total pools of mortgages |
|
225,264 |
|
— |
|
225,264 |
|
18,999 |
|
— |
|
244,263 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Collateralized Mortgage Obligations/Real Estate Mortgage Investment Conduits |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Fannie Mae |
|
2,455,144 |
|
— |
|
2,455,144 |
|
20,985 |
|
(191 |
) |
2,475,938 |
| ||||||
|
Freddie Mac |
|
1,541,534 |
|
— |
|
1,541,534 |
|
13,586 |
|
(40 |
) |
1,555,080 |
| ||||||
|
Ginnie Mae |
|
24,539 |
|
— |
|
24,539 |
|
303 |
|
— |
|
24,842 |
| ||||||
|
Total CMOs/REMICs |
|
4,021,217 |
|
— |
|
4,021,217 |
|
34,874 |
|
(231 |
) |
4,055,860 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Commercial Mortgage-Backed Securities (b) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Fannie Mae |
|
2,119,393 |
|
— |
|
2,119,393 |
|
14,099 |
|
(5,575 |
) |
2,127,917 |
| ||||||
|
Freddie Mac |
|
6,459,282 |
|
— |
|
6,459,282 |
|
119,761 |
|
(21,962 |
) |
6,557,081 |
| ||||||
|
Total commercial mortgage-backed securities |
|
8,578,675 |
|
— |
|
8,578,675 |
|
133,860 |
|
(27,537 |
) |
8,684,998 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Non-GSE MBS (c) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
CMOs/REMICs |
|
24,017 |
|
(376 |
) |
23,641 |
|
1,446 |
|
(779 |
) |
24,308 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Asset-Backed Securities (c) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Manufactured housing (insured) |
|
76,193 |
|
— |
|
76,193 |
|
2,079 |
|
— |
|
78,272 |
| ||||||
|
Home equity loans (insured) |
|
137,005 |
|
(27,133 |
) |
109,872 |
|
53,315 |
|
(130 |
) |
163,057 |
| ||||||
|
Home equity loans (uninsured) |
|
81,764 |
|
(9,304 |
) |
72,460 |
|
10,750 |
|
(2,520 |
) |
80,690 |
| ||||||
|
Total asset-backed securities |
|
294,962 |
|
(36,437 |
) |
258,525 |
|
66,144 |
|
(2,650 |
) |
322,019 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Total MBS |
|
13,144,135 |
|
(36,813 |
) |
13,107,322 |
|
255,323 |
|
(31,197 |
) |
13,331,448 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
State and local housing finance agency obligations |
|
825,050 |
|
— |
|
825,050 |
|
126 |
|
(42,402 |
) |
782,774 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Total Held-to-maturity securities |
|
$ |
13,969,185 |
|
$ |
(36,813 |
) |
$ |
13,932,372 |
|
$ |
255,449 |
|
$ |
(73,599 |
) |
$ |
14,114,222 |
|
(a) Unrecognized gross holding gains and losses represent the difference between fair value and carrying value.
(b) Commercial mortgage-backed securities (“CMBS”) are Agency issued CMBS, collateralized by income-producing “multifamily properties”. Eligible property types include standard conventional multifamily apartments, affordable multifamily housing, seniors housing, student housing, military housing, and rural rent housing.
(c) The amounts represent non-agency private-label mortgage- and asset-backed securities.
(d) Amortized cost — For securities that were deemed to be OTTI, amortized cost represents unamortized cost less credit OTTI, net of credit OTTI reversed due to improvements in cash flows.
Federal Home Loan Bank of New York
Notes to Financial Statements
Certain non-Agency Private label MBS are insured by Ambac Assurance Corp (“Ambac”), MBIA Insurance Corp (“MBIA”) and Assured Guarantee Municipal Corp., (“AGM”). Assumptions by the FHLBNY on the extent of expected reliance by the FHLBNY on insurance support by Ambac and MBIA to make whole expected cash shortfalls are noted in Monoline insurance in a subsequent paragraph within this Note 7. Held-to-Maturity Securities.
Securities Pledged
The FHLBNY had pledged MBS with an amortized cost basis of $7.0 million at December 31, 2016 and $8.7 million at December 31, 2015 to the FDIC in connection with deposits maintained by the FDIC at the FHLBNY. The FDIC does not have rights to sell or re-pledge the collateral unless the FHLBNY defaults under the terms of its deposit arrangements with the FDIC.
Unrealized Losses
The fair values and gross unrealized holding losses are aggregated by major security type and by the length of time individual securities have been in a continuous unrealized loss position. Unrealized losses represent the difference between fair value and amortized cost. The baseline measure of unrealized loss is amortized cost, which is not adjusted for non-credit OTTI. Total unrealized losses in these tables will not equal unrecognized holding losses in the Major Security Types tables. Unrealized losses are calculated after adjusting for credit OTTI. In the previous tables, unrecognized holding losses are adjusted for credit and non-credit OTTI.
The following tables summarize held-to-maturity securities with estimated fair values below their amortized cost basis (in thousands):
|
|
|
December 31, 2016 |
| ||||||||||||||||
|
|
|
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 |
|
$ |
29,486 |
|
$ |
(13 |
) |
$ |
355,230 |
|
$ |
(37,000 |
) |
$ |
384,716 |
|
$ |
(37,013 |
) |
|
MBS Investment Securities |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
MBS-GSE |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Fannie Mae |
|
1,131,586 |
|
(15,615 |
) |
359,921 |
|
(1,060 |
) |
1,491,507 |
|
(16,675 |
) | ||||||
|
Freddie Mac |
|
2,245,856 |
|
(12,111 |
) |
1,364,856 |
|
(7,788 |
) |
3,610,712 |
|
(19,899 |
) | ||||||
|
Ginnie Mae |
|
3,828 |
|
(1 |
) |
— |
|
— |
|
3,828 |
|
(1 |
) | ||||||
|
Total MBS-GSE |
|
3,381,270 |
|
(27,727 |
) |
1,724,777 |
|
(8,848 |
) |
5,106,047 |
|
(36,575 |
) | ||||||
|
MBS-Private-Label |
|
7,432 |
|
(10 |
) |
39,078 |
|
(2,422 |
) |
46,510 |
|
(2,432 |
) | ||||||
|
Total MBS |
|
3,388,702 |
|
(27,737 |
) |
1,763,855 |
|
(11,270 |
) |
5,152,557 |
|
(39,007 |
) | ||||||
|
Total |
|
$ |
3,418,188 |
|
$ |
(27,750 |
) |
$ |
2,119,085 |
|
$ |
(48,270 |
) |
$ |
5,537,273 |
|
$ |
(76,020 |
) |
|
|
|
December 31, 2015 |
| ||||||||||||||||
|
|
|
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 |
|
$ |
— |
|
$ |
— |
|
$ |
317,419 |
|
$ |
(42,402 |
) |
$ |
317,419 |
|
$ |
(42,402 |
) |
|
MBS Investment Securities |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
MBS-GSE |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Fannie Mae |
|
1,143,422 |
|
(5,230 |
) |
169,291 |
|
(536 |
) |
1,312,713 |
|
(5,766 |
) | ||||||
|
Freddie Mac |
|
3,246,792 |
|
(19,016 |
) |
164,002 |
|
(2,986 |
) |
3,410,794 |
|
(22,002 |
) | ||||||
|
Total MBS-GSE |
|
4,390,214 |
|
(24,246 |
) |
333,293 |
|
(3,522 |
) |
4,723,507 |
|
(27,768 |
) | ||||||
|
MBS-Private-Label |
|
— |
|
— |
|
53,326 |
|
(3,049 |
) |
53,326 |
|
(3,049 |
) | ||||||
|
Total MBS |
|
4,390,214 |
|
(24,246 |
) |
386,619 |
|
(6,571 |
) |
4,776,833 |
|
(30,817 |
) | ||||||
|
Total |
|
$ |
4,390,214 |
|
$ |
(24,246 |
) |
$ |
704,038 |
|
$ |
(48,973 |
) |
$ |
5,094,252 |
|
$ |
(73,219 |
) |
The FHLBNY’s investments in housing finance agency bonds reported gross unrealized losses of $37.0 million at December 31, 2016 and $42.4 million at December 31, 2015. Management has reviewed the portfolio and has observed that the bonds are performing to their contractual terms, and has concluded that, as of December 31, 2016, all of the gross unrealized losses on its housing finance agency bonds are temporary because the underlying collateral and credit enhancements are sufficient to protect the FHLBNY from losses based on current expectations. The credit enhancements may include additional support from:
· Monoline Insurance
· Reserve and investment funds allocated to the securities that may be used to make principal and interest payments in the event that the underlying loans pledged for these securities are not sufficient to make the necessary payments.
· General obligation of the State
Our analyses of the fair values of HFA bonds have concluded that the market is generally pricing the bonds fairly to the “AA municipal sector”. Based on our review, the FHLBNY expects to recover the entire amortized cost basis of these securities. If conditions in the housing and mortgage markets and general business and economic conditions
Federal Home Loan Bank of New York
Notes to Financial Statements
remain stressed or deteriorate further, the fair value of the bonds may decline further and the FHLBNY may experience OTTI in future periods.
Redemption Terms
Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment features. The amortized cost and estimated fair value of held-to-maturity securities, arranged by contractual maturity, were as follows (in thousands):
|
|
|
December 31, 2016 |
|
December 31, 2015 |
| ||||||||
|
|
|
Amortized |
|
Estimated |
|
Amortized |
|
Estimated |
| ||||
|
|
|
Cost (a) |
|
Fair Value |
|
Cost (a) |
|
Fair Value |
| ||||
|
State and local housing finance agency obligations |
|
|
|
|
|
|
|
|
| ||||
|
Due after one year through five years |
|
$ |
22,800 |
|
$ |
22,552 |
|
$ |
28,000 |
|
$ |
27,517 |
|
|
Due after five years through ten years |
|
57,660 |
|
55,095 |
|
61,920 |
|
58,632 |
| ||||
|
Due after ten years |
|
983,040 |
|
949,036 |
|
735,130 |
|
696,625 |
| ||||
|
State and local housing finance agency obligations |
|
1,063,500 |
|
1,026,683 |
|
825,050 |
|
782,774 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Mortgage-backed securities |
|
|
|
|
|
|
|
|
| ||||
|
Due in one year or less |
|
101,348 |
|
102,474 |
|
79,921 |
|
79,960 |
| ||||
|
Due after one year through five years |
|
4,689,552 |
|
4,786,141 |
|
3,265,239 |
|
3,338,718 |
| ||||
|
Due after five years through ten years |
|
6,602,905 |
|
6,587,939 |
|
5,307,509 |
|
5,342,456 |
| ||||
|
Due after ten years |
|
3,595,222 |
|
3,643,734 |
|
4,491,466 |
|
4,570,314 |
| ||||
|
Mortgage-backed securities |
|
14,989,027 |
|
15,120,288 |
|
13,144,135 |
|
13,331,448 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Total Held-to-maturity securities |
|
$ |
16,052,527 |
|
$ |
16,146,971 |
|
$ |
13,969,185 |
|
$ |
14,114,222 |
|
(a) Amortized cost is after adjusting for net unamortized premiums of $36.6 million and $34.2 million (net of unamortized discounts) at December 31, 2016 and December 31, 2015.
Interest Rate Payment Terms
The following table summarizes interest rate payment terms of securities classified as held-to-maturity (in thousands):
|
|
|
December 31, 2016 |
|
December 31, 2015 |
| ||||||||
|
|
|
Amortized |
|
Carrying |
|
Amortized |
|
Carrying |
| ||||
|
|
|
Cost |
|
Value |
|
Cost |
|
Value |
| ||||
|
Mortgage-backed securities |
|
|
|
|
|
|
|
|
| ||||
|
CMO |
|
|
|
|
|
|
|
|
| ||||
|
Fixed |
|
$ |
1,117,308 |
|
$ |
1,117,023 |
|
$ |
1,378,454 |
|
$ |
1,377,916 |
|
|
Floating |
|
2,101,376 |
|
2,101,377 |
|
2,659,057 |
|
2,659,057 |
| ||||
|
Total CMO |
|
3,218,684 |
|
3,218,400 |
|
4,037,511 |
|
4,036,973 |
| ||||
|
CMBS |
|
|
|
|
|
|
|
|
| ||||
|
Fixed |
|
5,838,381 |
|
5,838,381 |
|
5,457,746 |
|
5,457,746 |
| ||||
|
Floating |
|
5,514,880 |
|
5,514,880 |
|
3,120,929 |
|
3,120,929 |
| ||||
|
Total CMBS |
|
11,353,261 |
|
11,353,261 |
|
8,578,675 |
|
8,578,675 |
| ||||
|
Pass Thru (a) |
|
|
|
|
|
|
|
|
| ||||
|
Fixed |
|
360,255 |
|
330,968 |
|
460,505 |
|
424,990 |
| ||||
|
Floating |
|
56,827 |
|
56,164 |
|
67,444 |
|
66,684 |
| ||||
|
Total Pass Thru |
|
417,082 |
|
387,132 |
|
527,949 |
|
491,674 |
| ||||
|
Total MBS |
|
14,989,027 |
|
14,958,793 |
|
13,144,135 |
|
13,107,322 |
| ||||
|
State and local housing finance agency obligations |
|
|
|
|
|
|
|
|
| ||||
|
Fixed |
|
9,790 |
|
9,790 |
|
10,860 |
|
10,860 |
| ||||
|
Floating |
|
1,053,710 |
|
1,053,710 |
|
814,190 |
|
814,190 |
| ||||
|
Total State and local housing finance agency obligations |
|
1,063,500 |
|
1,063,500 |
|
825,050 |
|
825,050 |
| ||||
|
Total Held-to-maturity securities |
|
$ |
16,052,527 |
|
$ |
16,022,293 |
|
$ |
13,969,185 |
|
$ |
13,932,372 |
|
(a) Includes MBS supported by pools of mortgages.
Impairment Analysis (OTTI) of GSE-issued and Private Label Mortgage-backed Securities
The FHLBNY evaluates its individual securities issued by Fannie Mae, Freddie Mac and U.S. government agency, (collectively GSE-issued securities), by considering the creditworthiness and performance of the debt securities and the strength of the GSEs’ guarantees of the securities. Based on analysis, GSE-issued securities are performing in accordance with their contractual agreements. 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 evaluates its investments in private-label MBS (“PLMBS”) for OTTI on a quarterly basis by performing cash flow tests on its entire portfolio of PLMBS.
OTTI — Insignificant numbers of PLMBS, which had been determined to be OTTI in prior years, were re-impaired in 2016 and 2015. Credit-related OTTI of $231 thousand during 2016, and $206 thousand in 2015. The re-impairment was due to further deterioration in the credit performance metrics of the security.
Federal Home Loan Bank of New York
Notes to Financial Statements
The following table presents the key characteristics of securities that were determined to be re-impaired or OTTI (in thousands):
|
|
|
Twelve months ended |
| ||||
|
|
|
December 31, 2016 |
| ||||
|
|
|
OTTI |
| ||||
|
|
|
Credit |
|
Non-credit |
| ||
|
Security Classification |
|
Loss (a) |
|
Loss (a) |
| ||
|
|
|
|
|
|
| ||
|
RMBS-Prime |
|
$ |
(97 |
) |
$ |
(16 |
) |
|
HEL Subprime |
|
(134 |
) |
134 |
| ||
|
Total Securities |
|
$ |
(231 |
) |
$ |
118 |
|
(a) Represent cumulative OTTI in the reporting periods 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 the fair value loss of an OTTI security, is recognized in AOCI.
Based on cash flow testing, the Bank believes no additional material OTTI exists for the remaining investments at December 31, 2016. 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 December 31, 2016, and has concluded that it will not be required to sell such securities before recovery of the amortized cost basis of the securities.
The following table provides rollforward information about the cumulative credit component of OTTI recognized as a charge to earnings related to held-to-maturity securities (in thousands):
|
|
|
Years ended December 31, |
| |||||||
|
|
|
2016 |
|
2015 |
|
2014 |
| |||
|
Beginning balance |
|
$ |
31,892 |
|
$ |
34,893 |
|
$ |
36,543 |
|
|
Additional credit losses for which an OTTI charge was previously recognized |
|
231 |
|
206 |
|
— |
| |||
|
Increases in cash flows expected to be collected, recognized over the remaining life of the securities |
|
(3,006 |
) |
(3,207 |
) |
(1,650 |
) | |||
|
Ending balance |
|
$ |
29,117 |
|
$ |
31,892 |
|
$ |
34,893 |
|
Monoline insurance — Certain PLMBS owned by the FHLBNY are insured by third-party bond insurers (“monoline insurers”). The bond insurance on these investments guarantees the timely payments of principal and interest if these payments cannot be satisfied from the cash flows of the underlying mortgage pool. The FHLBNY performs cash flow credit impairment tests on all of its PLMBS, and the analysis of the securities protected by such third-party insurance looks first to the performance of the underlying security, and considers its embedded credit enhancements in the form of excess spread, overcollateralization, and credit subordination, to determine the collectability of all amounts due. If the embedded credit enhancement protections are deemed insufficient to make timely payment of all amounts due, then the FHLBNY considers the capacity of the third-party bond insurer to cover any shortfalls. Certain monoline insurers have been subject to adverse ratings, rating downgrades, and weakening financial performance measures. In estimating the insurers’ capacity to provide credit protection in the future to cover any shortfall in cash flows expected to be collected for securities deemed to be OTTI, the FHLBNY has developed a methodology to analyze and assess the ability of the monoline insurers to meet future insurance obligations. Based on analysis performed, the FHLBNY has determined that for bond insurer AGM, insurance guarantees can be relied upon to cover projected shortfalls. For bond insurer MBIA, we anticipate it can be relied upon to cover projected shortfalls through December 31, 2016 and no financial guarantees are assumed in 2017. For bond insurer Ambac, the reliance period is through December 31, 2020 and is further limited to cover 45% of shortfalls.
Federal Home Loan Bank of New York
Notes to Financial Statements
Key Base Assumptions
The tables below summarize the range and weighted average of Key Base Assumptions for private-label MBS at December 31, 2016 and December 31, 2015, including those deemed OTTI:
|
|
|
Key Base Assumptions - All PLMBS at December 31, 2016 |
| ||||||||||
|
|
|
CDR % (a) |
|
CPR % (b) |
|
Loss Severity % (c) |
| ||||||
|
Security Classification |
|
Range |
|
Average |
|
Range |
|
Average |
|
Range |
|
Average |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RMBS Prime (d) |
|
0.1-5.2 |
|
2.2 |
|
7.5-14.8 |
|
10.7 |
|
0.0-70.8 |
|
45.4 |
|
|
RMBS Alt-A (d) |
|
1.0-2.7 |
|
1.2 |
|
2.0-4.2 |
|
2.8 |
|
30.0-30.0 |
|
30.0 |
|
|
HEL Subprime (e) |
|
1.0-12.3 |
|
3.9 |
|
2.0-16.3 |
|
4.1 |
|
30.0-100.0 |
|
62.9 |
|
|
Manufactured Housing Loans |
|
2.5-3.3 |
|
3.1 |
|
2.7-4.1 |
|
3.1 |
|
77.1-88.4 |
|
85.4 |
|
|
|
|
Key Base Assumptions - All PLMBS at December 31, 2015 |
| ||||||||||
|
|
|
CDR % (a) |
|
CPR % (b) |
|
Loss Severity % (c) |
| ||||||
|
Security Classification |
|
Range |
|
Average |
|
Range |
|
Average |
|
Range |
|
Average |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RMBS Prime (d) |
|
0.1-3.9 |
|
1.5 |
|
10.4-21.0 |
|
16.2 |
|
0.0-81.1 |
|
45.4 |
|
|
RMBS Alt-A (d) |
|
1.0-5.4 |
|
1.5 |
|
2.0-6.7 |
|
3.4 |
|
30.0-30.0 |
|
30.0 |
|
|
HEL Subprime (e) |
|
1.0-6.3 |
|
3.3 |
|
2.0-13.6 |
|
4.6 |
|
22.5-100.0 |
|
61.3 |
|
|
Manufactured Housing Loans |
|
2.1-4.1 |
|
3.5 |
|
2.9-4.2 |
|
3.3 |
|
81.8-82.8 |
|
82.1 |
|
(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
For determining the fair values of all MBS, the FHLBNY has obtained pricing from four pricing services; the prices were clustered, averaged, and then assessed qualitatively before adopting the “final price”. 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.
Federal Home Loan Bank of New York
Notes to Financial Statements
Note 8. Advances.
The FHLBNY offers to its members a wide range of fixed- and adjustable-rate advance loan products with different maturities, interest rates, payment characteristics, and optionality.
Redemption Terms
Contractual redemption terms and yields of advances were as follows (dollars in thousands):
|
|
|
December 31, 2016 |
|
December 31, 2015 |
| ||||||||||
|
|
|
|
|
Weighted (a) |
|
|
|
|
|
Weighted (a) |
|
|
| ||
|
|
|
|
|
Average |
|
Percentage |
|
|
|
Average |
|
Percentage |
| ||
|
|
|
Amount |
|
Yield |
|
of Total |
|
Amount |
|
Yield |
|
of Total |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
Overdrawn demand deposit accounts |
|
$ |
1,388 |
|
1.49 |
% |
— |
% |
$ |
— |
|
— |
% |
— |
% |
|
Due in one year or less |
|
50,260,910 |
|
1.01 |
|
46.01 |
|
37,008,547 |
|
1.11 |
|
39.57 |
| ||
|
Due after one year through two years |
|
34,111,721 |
|
1.39 |
|
31.23 |
|
19,452,065 |
|
1.09 |
|
20.80 |
| ||
|
Due after two years through three years |
|
11,078,731 |
|
1.67 |
|
10.14 |
|
20,904,050 |
|
1.45 |
|
22.34 |
| ||
|
Due after three years through four years |
|
6,467,290 |
|
2.03 |
|
5.92 |
|
6,467,223 |
|
1.81 |
|
6.91 |
| ||
|
Due after four years through five years |
|
3,106,275 |
|
2.16 |
|
2.84 |
|
5,544,755 |
|
2.11 |
|
5.93 |
| ||
|
Thereafter |
|
4,214,677 |
|
2.28 |
|
3.86 |
|
4,160,769 |
|
2.35 |
|
4.45 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
Total par value |
|
109,240,992 |
|
1.34 |
% |
100.00 |
% |
93,537,409 |
|
1.35 |
% |
100.00 |
% | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
Hedge valuation basis adjustments (b) |
|
1,980 |
|
|
|
|
|
336,489 |
|
|
|
|
| ||
|
Fair value option valuation adjustments and accrued interest (c) |
|
13,653 |
|
|
|
|
|
313 |
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
Total |
|
$ |
109,256,625 |
|
|
|
|
|
$ |
93,874,211 |
|
|
|
|
|
(a) The weighted average yield is the weighted average coupon rates for advances, unadjusted for swaps. For floating-rate advances, the weighted average rate is the rate outstanding at the reporting dates.
(b) Hedge valuation basis adjustments represent changes in the fair values of fixed-rate advances due to changes in LIBOR, which is the FHLBNY’s benchmark rate in a Fair value hedge.
(c) Valuation adjustments represent changes in the entire fair values of advances elected under the FVO.
Monitoring and Evaluating Credit Losses on Advances — Summarized below are the FHLBNY’s assessment methodologies for evaluating advances for credit losses.
The FHLBNY closely monitors the creditworthiness of the institutions to which it lends. The FHLBNY also closely monitors the quality and value of the assets that are pledged as collateral by its members. The FHLBNY’s members are required to pledge collateral to secure advances. Eligible collateral includes: (1) one-to-four-family and multi-family mortgages; (2) U.S. Treasury and government-agency securities; (3) mortgage-backed securities; and (4) certain other collateral which is real estate related and has a readily ascertainable value, and in which the FHLBNY can perfect a security interest. The FHLBNY has the right to take such steps, as it deems necessary to protect its secured position on outstanding advances, including requiring additional collateral (whether or not such additional collateral would otherwise be eligible to secure a loan; and the provision would benefit the FHLBNY in a scenario when a member defaults). The FHLBNY also has a statutory lien under the FHLBank Act on members’ capital stock, which serves as further collateral for members’ indebtedness to the FHLBNY.
Credit Risk. The FHLBNY 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 FHLBNY has not provided an allowance for credit losses on advances. 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. Advances borrowed by insurance companies accounted for 18.7% and 17.0% of total advances at December 31, 2016 and December 31, 2015. Lending to insurance companies poses a number of unique risks not present in lending to federally insured depository institutions. For example, there is no single federal regulator for insurance companies. They are supervised by state regulators and subject to state insurance codes and regulations. There is uncertainty about whether a state insurance commissioner would try to void the FHLBNY’s claims on collateral in the event of an insurance company failure. As with all members, insurance companies are also required to purchase the FHLBNY’s capital stock as a prerequisite to membership and borrowing activity. The FHLBNY’s management takes a number of steps to mitigate the unique risk of lending to insurance companies. At the time of membership, the FHLBNY requires an insurance company to be highly-rated and to meet the FHLBNY’s credit quality standards. The FHLBNY performs quarterly credit analysis of the insurance borrower.
The FHLBNY also requires member insurance companies to pledge highly-rated readily marketable securities or mortgage collateral which are held in FHLBNY’s custody or by our third party custodian. Such collateral must meet the FHLBNY’s credit quality standards, with appropriate minimum margins applied. Very high credit quality insurance companies may be allowed to retain possession of the mortgage collateral provided the mortgage collateral is held by a third-party custodian pursuant to a tri-party security agreement. Marketable securities pledged as collateral by the insurance company must be held by the FHLBNY’s third party custodian.
Federal Home Loan Bank of New York
Notes to Financial Statements
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 December 31, 2016 and December 31, 2015, 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’s priority over the claims or rights of any other party. The two exceptions are claims that would be entitled to priority under otherwise applicable law or perfected security interests. All member obligations with the FHLBNY were fully collateralized throughout their entire term. The total of collateral pledged to the FHLBNY includes excess collateral pledged above the minimum collateral requirements. However, a “Maximum Lendable Value” is established to ensure that the FHLBNY has sufficient eligible collateral securing credit extensions.
Note 9. Mortgage Loans Held-for-Portfolio.
Mortgage Partnership Finance® program loans, or (MPF®), are the mortgage loans held-for-portfolio. The FHLBNY participates in the MPF program by purchasing and originating conventional mortgage loans from its participating members, hereafter referred to as Participating Financial Institutions (“PFI”). The FHLBNY manages the liquidity, interest rate and prepayment option risk of the MPF loans, while the PFIs retain servicing activities, and may credit-enhance the portion of the loans participated to the FHLBNY. No intermediary trust is involved.
The FHLBNY classifies mortgage loans as held for investment, and accordingly reports them at their principal amount outstanding net of unamortized premiums, discounts, and unrealized gains and losses from loans initially classified as mortgage loan commitments.
The following table presents information on mortgage loans held-for-portfolio (dollars in thousands):
|
|
|
December 31, 2016 |
|
December 31, 2015 |
| ||||||
|
|
|
Amount |
|
Percentage |
|
Amount |
|
Percentage |
| ||
|
Real Estate(a): |
|
|
|
|
|
|
|
|
| ||
|
Fixed medium-term single-family mortgages |
|
$ |
259,742 |
|
9.62 |
% |
$ |
282,980 |
|
11.42 |
% |
|
Fixed long-term single-family mortgages |
|
2,441,109 |
|
90.38 |
|
2,195,149 |
|
88.58 |
| ||
|
Multi-family mortgages |
|
56 |
|
— |
|
60 |
|
— |
| ||
|
|
|
|
|
|
|
|
|
|
| ||
|
Total par value |
|
2,700,907 |
|
100.00 |
% |
2,478,189 |
|
100.00 |
% | ||
|
|
|
|
|
|
|
|
|
|
| ||
|
Unamortized premiums |
|
48,008 |
|
|
|
46,694 |
|
|
| ||
|
Unamortized discounts |
|
(1,928 |
) |
|
|
(2,157 |
) |
|
| ||
|
Basis adjustment (b) |
|
1,126 |
|
|
|
1,885 |
|
|
| ||
|
|
|
|
|
|
|
|
|
|
| ||
|
Total mortgage loans held-for-portfolio |
|
2,748,113 |
|
|
|
2,524,611 |
|
|
| ||
|
Allowance for credit losses |
|
(1,554 |
) |
|
|
(326 |
) |
|
| ||
|
Total mortgage loans held-for-portfolio, net of allowance for credit losses |
|
$ |
2,746,559 |
|
|
|
$ |
2,524,285 |
|
|
|
(a) Conventional mortgages represent the majority of mortgage loans held-for-portfolio, with the remainder invested in FHA and VA insured loans (also referred to as government loans).
(b) Balances represent unamortized fair value basis of closed delivery commitments. A basis adjustment is recorded at the settlement of the loan and represents the difference in trade price paid for acquiring the loan and the price at the settlement date for a similar loan. The basis adjustment is amortized as a yield adjustment to Interest income.
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 $30.9 million and $27.1 million at December 31, 2016 and December 31, 2015. 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 $2.3 million, $2.0 million, and $1.8 million in 2016, 2015 and 2014. These fees were reported as a reduction to mortgage loan interest income.
In terms of the credit enhancement waterfall, the MPF program structures potential credit losses on conventional MPF loans into layers on each loan pool as follows:
(1) The first layer of protection against loss is the liquidation value of the real property securing the loan.
(2) The next layer of protection comes from the primary mortgage insurance (“PMI”) that is required for loans with a loan-to-value ratio greater than 80% at origination.
(3) Losses that exceed the liquidation value of the real property and any PMI will be absorbed by the FHLBNY, limited to the amount of the FLA available under the Master Commitment. For certain MPF products, the FHLBNY could recover previously absorbed losses by withholding future credit enhancement fees (“CE Fees”) otherwise payable to the PFI, and applying the amounts to recover losses previously absorbed. In effect, the
Federal Home Loan Bank of New York
Notes to Financial Statements
FHLBNY may recover losses allocated to the FLA from CE Fees. The amount of CE Fees depends on the MPF product and the outstanding balances of loans funded in the Master Commitment. CE Fees payable (and potentially available for loss recovery) will decline as the outstanding loan balances in the Master Commitment declines.
(4) The second layer or portion of credit losses is incurred by the PFI and/or the Supplemental Mortgage Insurance (“SMI”) provider as follows: The PFI absorbs losses in excess of any FLA up to the amount of the PFI’s credit obligation amount and/or to the SMI provider for MPF 125 Plus products if the PFI has selected SMI coverage.
(5) The third layer of losses is absorbed by the FHLBNY.
Allowance Methodology for Loan Losses
Allowance Policy — 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 mortgage loan agreements. The FHLBNY considers the occurrence of serious delinquency as a primary confirming event of a credit loss. Bankruptcy and foreclosures are also considered as confirming events. When a loan is seriously delinquent, or in bankruptcy or in foreclosure, the FHLBNY measures estimated credit losses on an individual loan basis by looking to the value of the real property collateral. For such loans, the FHLBNY believes it is probable that we will be unable to collect all contractual interest and principal in accordance with the terms of the loan agreement. For loans that have not been individually measured for estimated credit losses (i.e. they are not seriously delinquent, or in bankruptcy or in foreclosure), the FHLBNY measures estimated incurred credit losses on a collective basis and records a valuation reserve.
When a loan is delinquent 180 days or more, the FHLBNY will charge off the excess carrying value over the net realizable value of the loan because the FHLBNY deems that foreclosure is probable at 180 days delinquency. When the loan is foreclosed and the FHLBNY takes possession of real estate, the balance of the loan that has not been charged off is recorded as real estate owned at the lower of carrying value or net realizable value.
Periodic review — The FHLBNY performs periodic reviews of impaired mortgage loans within the MPF loan portfolio to identify the potential for credit losses inherent in the impaired loan to determine the likelihood of collection of the principal and interest. We utilize an allowance for credit losses to reserve for estimated losses in our conventional mortgage loan portfolio (uninsured MPF loans). The measurement of our allowance for credit losses is determined by (i) reviewing certain conventional mortgage loans for impairment on an individual basis, (ii) reviewing remaining conventional mortgage loans (not individually assessed) on a collective basis, and (iii) reviewing government insured loans (FHA- and VA-insured MPF loans) on a collective basis.
We compute the provision for credit losses without considering the private mortgage insurance and other accompanying credit enhancement features that provide credit assurance to the FHLBNY.
· Individually evaluated conventional mortgage loans — We evaluate impaired conventional mortgage loans for impairment individually. A conventional mortgage loan is considered impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. The primary credit quality indicator that we use in evaluating impairment on mortgage loans includes a serious delinquency rate — MPF loans that are 90 days or more past due, in bankruptcy, or in the process of foreclosure. We also individually measure credit losses on loans that are restructured in a troubled debt restructuring involving a modification of terms. Loans discharged under Chapter 7 bankruptcy are considered TDR, and are individually measured for credit losses when seriously delinquent. We measure estimated credit impairment based on the estimated fair value of the underlying collateral, which is determined using property values, less selling costs.
· Collectively evaluated conventional mortgage loans — We collectively evaluate the majority of our conventional mortgage loan portfolio for impairment (excluding those individually evaluated), and estimate an allowance for credit losses based primarily upon the following factors: (i) loan delinquencies, and (ii) actual historical loss severities. We utilize a roll-rate methodology when estimating allowance for credit losses. This methodology projects loans migrating to charge off status (180 days delinquency) based on historical average rates of delinquency. We then apply a loss severity factor to calculate an estimate of credit losses. Prior to the first quarter of 2016, the results of the migration analysis were used as a qualitative measure to supplement and to corroborate credit loss allowance analysis performed on an individual loan level basis. Beginning with the first quarter of 2016, the FHLBNY records the results of loans collectively evaluated for impairment utilizing the migration analysis. The FHLBNY considered adoption as a refinement to its existing credit loss estimating methodology. In the first quarter of 2016, an allowance of approximately $1.0 million was recorded as a charge to earnings, with a corresponding increase in allowance for credit losses, an amount that we have deemed to be insignificant.
· Collectively evaluated government insured loans — The FHLBNY invests in government-insured mortgage loans that are insured or guaranteed by the Federal Housing Administration, the Department of Veterans Affairs, and/or the Rural Housing Service of the Department of Agriculture. The servicer or PFI obtains and maintains insurance or a guaranty from the applicable government agency. The servicer or PFI is responsible for compliance with all government agency requirements and for obtaining the benefit of the applicable guarantee or insurance with respect to defaulted government-insured mortgage loans. Any losses incurred on these loans that are not recovered from the insurer/guarantor are absorbed by the servicers. The FHLBNY’s credit risk for these loans is if the servicer or PFI fails to pay for losses not covered by the guarantee or insurance. We evaluate the credit worthiness of our member, the PFI.
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.
Federal Home Loan Bank of New York
Notes to Financial Statements
Credit Enhancement Fees
The credit enhancement fee (“CE fees”) due to the PFI for taking on a credit enhancement obligation is accrued based on the master commitments outstanding. For certain MPF products, the CE fees are held back for 12 months and then paid monthly to the PFIs. Under the MPF agreements with PFIs, the FHLBNY may recover credit losses from future CE fees. 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 there is no other available and reliable source of repayment. If a loss is incurred, the FHLBNY would withhold CE fee payments to the PFI associated with the loan that is in a loss position. The amount withheld would be commensurate with the credit loss and the loss layer for which the PFI has assumed the credit enhancement responsibility. The FHLBNY’s loss experience has been insignificant and amounts of CE fees withheld have been insignificant in all periods in this report.
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 table provides a rollforward analysis of the allowance for credit losses (in thousands):
|
|
|
Years ended December 31, |
| |||||||
|
|
|
2016 |
|
2015 |
|
2014 |
| |||
|
Allowance for credit losses: |
|
|
|
|
|
|
| |||
|
Beginning balance |
|
$ |
326 |
|
$ |
4,507 |
|
$ |
5,697 |
|
|
Charge-offs |
|
(738 |
) |
(4,699 |
) |
(771 |
) | |||
|
Recoveries |
|
— |
|
— |
|
201 |
| |||
|
Provision/(Reversal) for credit losses on mortgage loans |
|
1,966 |
|
518 |
|
(620 |
) | |||
|
Ending balance |
|
$ |
1,554 |
|
$ |
326 |
|
$ |
4,507 |
|
|
|
|
December 31, |
| |||||||
|
|
|
2016 |
|
2015 |
|
2014 |
| |||
|
Ending balance, individually evaluated for impairment |
|
$ |
600 |
|
$ |
326 |
|
$ |
4,507 |
|
|
Ending balance, collectively evaluated for impairment |
|
954 |
|
— |
|
— |
| |||
|
Total Allowance for credit losses |
|
$ |
1,554 |
|
$ |
326 |
|
$ |
4,507 |
|
Mortgage Loans — Non-performing Loans
The FHLBNY’s impaired mortgage loans are reported in the table below (in thousands):
|
|
|
December 31, 2016 |
|
December 31, 2015 |
| ||
|
Total Mortgage loans, net of allowance for credit losses (a) |
|
$ |
2,746,559 |
|
$ |
2,524,285 |
|
|
Non-performing mortgage loans - Conventional (a)(b) |
|
$ |
14,917 |
|
$ |
17,121 |
|
|
Insured MPF loans past due 90 days or more and still accruing interest (a)(b) |
|
$ |
5,227 |
|
$ |
3,920 |
|
(a) Includes loans classified as special mention, sub-standard, doubtful or loss under regulatory criteria, net of amounts charged-off if delinquent for 180 days or more.
(b) Data in this table represents unpaid principal balance, and would not agree to data reported in other tables at “recorded investment,” which includes interest receivable.
Mortgage Loans — Interest on Non-performing Loans
The table summarizes interest income that was not recognized in earnings. It also summarizes the actual cash that was received against interest due, but not recognized (in thousands):
|
|
|
Years ended December 31, |
| |||||||
|
|
|
2016 |
|
2015 |
|
2014 |
| |||
|
|
|
|
|
|
|
|
| |||
|
Interest contractually due (a) |
|
$ |
1,004 |
|
$ |
1,165 |
|
$ |
1,423 |
|
|
Interest actually received |
|
949 |
|
1,072 |
|
1,336 |
| |||
|
|
|
|
|
|
|
|
| |||
|
Shortfall |
|
$ |
55 |
|
$ |
93 |
|
$ |
87 |
|
(a) Represents the amount of interest accrual on non-accrual conventional loans that were not recorded as income. When interest is received on non-accrual loans, cash received is recorded as a liability as the FHLBNY considers such amounts received as an advance from servicers that would be subject to repayment at foreclosure; the cash received remains in Other liabilities until legal determination is made at foreclosure. For more information about the FHLBNY’s policy on non-accrual loans, see financial statements, Note 1. Significant Accounting Policies and Estimates.
Federal Home Loan Bank of New York
Notes to Financial Statements
The following tables summarize the recorded investment in impaired loans (excluding insured FHA/VA loans), the unpaid principal balance, and the related allowance (individually assessed), and the average recorded investment of loans for which the related allowance was individually measured (in thousands):
|
|
|
December 31, 2016 |
| ||||||||||
|
|
|
|
|
Unpaid |
|
|
|
Average |
| ||||
|
|
|
Recorded |
|
Principal |
|
Related |
|
Recorded |
| ||||
|
|
|
Investment |
|
Balance |
|
Allowance |
|
Investment (d) |
| ||||
|
Conventional MPF Loans (a)(c) |
|
|
|
|
|
|
|
|
| ||||
|
No related allowance (b) |
|
$ |
15,360 |
|
$ |
15,240 |
|
$ |
— |
|
$ |
16,655 |
|
|
With a related allowance |
|
2,682 |
|
2,651 |
|
600 |
|
1,789 |
| ||||
|
Total individually measured for impairment |
|
$ |
18,042 |
|
$ |
17,891 |
|
$ |
600 |
|
$ |
18,444 |
|
|
|
|
December 31, 2015 |
| ||||||||||
|
|
|
|
|
Unpaid |
|
|
|
Average |
| ||||
|
|
|
Recorded |
|
Principal |
|
Related |
|
Recorded |
| ||||
|
|
|
Investment |
|
Balance |
|
Allowance |
|
Investment (d) |
| ||||
|
Conventional MPF Loans (a)(c) |
|
|
|
|
|
|
|
|
| ||||
|
No related allowance (b) |
|
$ |
17,663 |
|
$ |
17,628 |
|
$ |
— |
|
$ |
17,087 |
|
|
With a related allowance |
|
1,983 |
|
1,973 |
|
326 |
|
5,046 |
| ||||
|
Total individually measured for impairment |
|
$ |
19,646 |
|
$ |
19,601 |
|
$ |
326 |
|
$ |
22,133 |
|
(a) Based on analysis of the nature of risks of the FHLBNY’s investments in MPF loans, including its methodologies for identifying and measuring impairment, management has determined that presenting such loans as a single class is appropriate.
(b) Collateral values, net of estimated costs to sell, exceeded the recorded investments in impaired loans and no allowances were deemed necessary.
(c) Interest received is not recorded as Interest income if an uninsured loan is past due 90 days or more. Cash received is recorded as a liability on the assumption that cash was remitted by the servicer to the FHLBNY that could potentially be recouped by the borrower in a foreclosure.
(d) Represents the average recorded investment for the twelve months ended December 31, 2016 and 2015.
The following tables summarize the recorded investment, the unpaid principal balance, and the average recorded investment of loans for which the related allowance was collectively measured (in thousands):
|
|
|
December 31, 2016 |
| ||||||||||
|
|
|
|
|
Unpaid |
|
|
|
Average |
| ||||
|
|
|
Recorded |
|
Principal |
|
Related |
|
Recorded |
| ||||
|
|
|
Investment |
|
Balance |
|
Allowance |
|
Investment (a) |
| ||||
|
Collectively measured for impairment |
|
|
|
|
|
|
|
|
| ||||
|
Insured loans |
|
$ |
232,888 |
|
$ |
226,504 |
|
$ |
— |
|
$ |
222,299 |
|
|
Uninsured loans |
|
2,510,550 |
|
2,456,512 |
|
954 |
|
2,405,685 |
| ||||
|
Total loans collectively measured for impairment |
|
$ |
2,743,438 |
|
$ |
2,683,016 |
|
$ |
954 |
|
$ |
2,627,984 |
|
|
|
|
December 31, 2015 |
| ||||||||||
|
|
|
|
|
Unpaid |
|
|
|
Average |
| ||||
|
|
|
Recorded |
|
Principal |
|
Related |
|
Recorded |
| ||||
|
|
|
Investment |
|
Balance |
|
Allowance |
|
Investment (a) |
| ||||
|
Collectively measured for impairment |
|
|
|
|
|
|
|
|
| ||||
|
Insured loans |
|
$ |
205,803 |
|
$ |
199,915 |
|
$ |
— |
|
$ |
185,081 |
|
(a) Represents the average recorded investment for the twelve months ended December 31, 2016 and 2015.
Federal Home Loan Bank of New York
Notes to Financial Statements
Recorded investments in MPF loans that were past due, and real estate owned are summarized below. Recorded investment, which includes accrued interest receivable, would not equal carrying values reported elsewhere (dollars in thousands):
|
|
|
December 31, 2016 |
|
December 31, 2015 |
| ||||||||||||||
|
|
|
Conventional |
|
Insured |
|
Other |
|
Conventional |
|
Insured |
|
Other |
| ||||||
|
|
|
MPF Loans |
|
Loans |
|
Loans |
|
MPF Loans |
|
Loans |
|
Loans |
| ||||||
|
Mortgage loans: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Past due 30 - 59 days |
|
$ |
18,935 |
|
$ |
8,529 |
|
$ |
— |
|
$ |
17,976 |
|
$ |
6,827 |
|
$ |
— |
|
|
Past due 60 - 89 days |
|
3,823 |
|
2,851 |
|
— |
|
5,967 |
|
1,541 |
|
— |
| ||||||
|
Past due 90 - 179 days |
|
3,215 |
|
2,029 |
|
— |
|
2,691 |
|
1,150 |
|
— |
| ||||||
|
Past due 180 days or more |
|
11,741 |
|
3,486 |
|
— |
|
14,467 |
|
2,953 |
|
— |
| ||||||
|
Total past due |
|
37,714 |
|
16,895 |
|
— |
|
41,101 |
|
12,471 |
|
— |
| ||||||
|
Total current loans |
|
2,490,821 |
|
215,993 |
|
57 |
|
2,289,982 |
|
193,332 |
|
60 |
| ||||||
|
Total mortgage loans |
|
$ |
2,528,535 |
|
$ |
232,888 |
|
$ |
57 |
|
$ |
2,331,083 |
|
$ |
205,803 |
|
$ |
60 |
|
|
Other delinquency statistics: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Loans in process of foreclosure, included above |
|
$ |
9,152 |
|
$ |
1,995 |
|
$ |
— |
|
$ |
11,849 |
|
$ |
1,583 |
|
$ |
— |
|
|
Number of foreclosures outstanding at period end |
|
77 |
|
17 |
|
— |
|
92 |
|
14 |
|
— |
| ||||||
|
Serious delinquency rate (a) |
|
0.59 |
% |
2.37 |
% |
— |
% |
0.74 |
% |
1.99 |
% |
— |
% | ||||||
|
Serious delinquent loans total used in calculation of serious delinquency rate |
|
$ |
14,956 |
|
$ |
5,515 |
|
$ |
— |
|
$ |
17,158 |
|
$ |
4,103 |
|
$ |
— |
|
|
Past due 90 days or more and still accruing interest |
|
$ |
— |
|
$ |
5,515 |
|
$ |
— |
|
$ |
— |
|
$ |
4,103 |
|
$ |
— |
|
|
Loans on non-accrual status |
|
$ |
14,956 |
|
$ |
— |
|
$ |
— |
|
$ |
17,158 |
|
$ |
— |
|
$ |
— |
|
|
Troubled debt restructurings: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Loans discharged from bankruptcy (b) |
|
$ |
9,723 |
|
$ |
622 |
|
$ |
— |
|
$ |
10,683 |
|
$ |
290 |
|
$ |
— |
|
|
Modified loans under MPF® program |
|
$ |
1,641 |
|
$ |
— |
|
$ |
— |
|
$ |
835 |
|
$ |
— |
|
$ |
— |
|
|
Real estate owned |
|
$ |
1,653 |
|
|
|
|
|
$ |
2,166 |
|
|
|
|
| ||||
(a) Serious delinquency rate is defined as recorded investments in loans that are 90 days or more past due or in the process of foreclosure expressed as a percentage of total loan class.
(b) Loans discharged from Chapter 7 bankruptcies are considered as TDRs.
Troubled Debt Restructurings (“TDRs”) and MPF Modification Standards. Troubled debt restructuring is considered to have occurred when a concession is granted to a borrower for economic or legal reasons related to the borrower’s financial difficulties and that concession would not have been otherwise considered. The MPF program offers a temporary loan payment modification plan for participating PFIs, which was initially available until December 31, 2011 and has been extended through December 31, 2017. This modification plan was made available to homeowners currently in default or imminent danger of default and only a few MPF loans had been modified under the plan and outstanding at December 31, 2016 and December 31, 2015. Due to the insignificant numbers of loans modified and considered to be a TDR, forgiveness and other information with respect to the modifications have been omitted. Loans modified under this program are considered impaired. The allowance for credit losses on those impaired loans were evaluated individually, and the allowance balances were $0.2 million and $0.1 million at December 31, 2016 and December 31, 2015. A loan involved in the MPF modification program is individually evaluated by the FHLBNY for impairment when determining its related allowance for credit losses. A modified loan is considered a TDR until the modified loan is performing to its original terms.
The FHLBNY measures all estimated credit losses based on 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.
Loans discharged from bankruptcy — The FHLBNY includes MPF loans discharged from Chapter 7 bankruptcy as TDRs; $9.7 million and $10.7 million of such loans were outstanding at December 31, 2016 and December 31, 2015. The FHLBNY has determined that the discharge of mortgage debt in bankruptcy is a concession as defined under existing accounting literature for TDRs. A loan discharged from bankruptcy is assessed for credit impairment only if past due 90 days or more, and $0.7 million were deemed impaired due to their past due delinquency status at December 31, 2016. The allowance for credit losses associated with those loans was immaterial as the loans were well collateralized.
The following table summarizes performing and non-performing troubled debt restructurings balances (in thousands):
|
|
|
December 31, 2016 |
|
December 31, 2015 |
| ||||||||||||||
|
Recorded Investment Outstanding |
|
Performing |
|
Non- performing |
|
Total TDRs |
|
Performing |
|
Non- performing |
|
Total TDRs |
| ||||||
|
Troubled debt restructurings (TDRs) (a)(b) : |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Loans discharged from bankruptcy |
|
$ |
9,026 |
|
$ |
697 |
|
$ |
9,723 |
|
$ |
10,017 |
|
$ |
666 |
|
$ |
10,683 |
|
|
Modified loans under MPF® program |
|
1,514 |
|
127 |
|
1,641 |
|
794 |
|
41 |
|
835 |
| ||||||
|
Total troubled debt restructurings |
|
$ |
10,540 |
|
$ |
824 |
|
$ |
11,364 |
|
$ |
10,811 |
|
$ |
707 |
|
$ |
11,518 |
|
|
Related Allowance |
|
|
|
|
|
$ |
183 |
|
|
|
|
|
$ |
113 |
| ||||
(a) Insured loans were not included in the calculation for troubled debt restructuring.
(b) Loans discharged from Chapter 7 bankruptcy are also considered as TDRs.
Federal Home Loan Bank of New York
Notes to Financial Statements
Note 10. Deposits.
The FHLBNY accepts demand, overnight and term deposits from its members. Also, a member that services mortgage loans may deposit funds collected in connection with the mortgage loans as a pending disbursement to the owners of the mortgage loans. The following table summarizes deposits (in thousands):
|
|
|
December 31, 2016 |
|
December 31, 2015 |
| ||
|
Interest-bearing deposits |
|
|
|
|
| ||
|
Interest-bearing demand |
|
$ |
1,183,468 |
|
$ |
1,308,923 |
|
|
Term (a) |
|
35,000 |
|
26,000 |
| ||
|
Total interest-bearing deposits |
|
1,218,468 |
|
1,334,923 |
| ||
|
Non-interest-bearing demand |
|
22,281 |
|
15,493 |
| ||
|
Total deposits (b) |
|
$ |
1,240,749 |
|
$ |
1,350,416 |
|
(a) Term deposits were for periods of one year or less.
(b) Specific disclosures about deposits that exceed FDIC limits have been omitted as deposits are not insured by the FDIC. Deposits are received in the ordinary course of the FHLBNY’s business. The FHLBNY has pledged securities to the FDIC to collateralize deposits maintained at the FHLBNY by the FDIC; for more information, see Securities Pledged in Note 7. Held-to-Maturity Securities.
Interest rate payment terms for deposits are summarized below (dollars in thousands):
|
|
|
December 31, 2016 |
|
December 31, 2015 |
| ||||||
|
|
|
Amount |
|
Weighted |
|
Amount |
|
Weighted |
| ||
|
Due in one year or less |
|
|
|
|
|
|
|
|
| ||
|
Interest-bearing deposits (a) |
|
$ |
1,218,468 |
|
0.22 |
% |
$ |
1,334,923 |
|
0.04 |
% |
|
Non-interest-bearing deposits |
|
22,281 |
|
|
|
15,493 |
|
|
| ||
|
Total deposits |
|
$ |
1,240,749 |
|
|
|
$ |
1,350,416 |
|
|
|
(a) Primarily adjustable rate; weighted average interest rates were for the periods in this table.
Note 11. 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 a 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 a 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 $1.0 trillion and $0.9 trillion as of December 31, 2016 and December 31, 2015.
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; 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:
|
|
|
December 31, 2016 |
|
December 31, 2015 |
|
|
Percentage of unpledged qualifying assets to consolidated obligations |
|
107 |
% |
107 |
% |
Federal Home Loan Bank of New York
Notes to Financial Statements
The following table summarizes consolidated obligations issued by the FHLBNY and outstanding at December 31, 2016 and December 31, 2015 (in thousands):
|
|
|
December 31, 2016 |
|
December 31, 2015 |
| ||
|
Consolidated obligation bonds-amortized cost |
|
$ |
84,351,354 |
|
$ |
67,225,768 |
|
|
Hedge valuation basis adjustments (a) |
|
290,016 |
|
346,423 |
| ||
|
Hedge basis adjustments on terminated hedges (b) |
|
140,331 |
|
145,512 |
| ||
|
FVO (c) - valuation adjustments and accrued interest |
|
2,963 |
|
(1,751 |
) | ||
|
|
|
|
|
|
| ||
|
Total Consolidated obligation bonds |
|
$ |
84,784,664 |
|
$ |
67,715,952 |
|
|
|
|
|
|
|
| ||
|
Discount notes-amortized cost |
|
$ |
49,334,380 |
|
$ |
46,837,709 |
|
|
FVO (c) - valuation adjustments and remaining accretion |
|
23,514 |
|
12,159 |
| ||
|
|
|
|
|
|
| ||
|
Total Consolidated obligation discount notes |
|
$ |
49,357,894 |
|
$ |
46,849,868 |
|
(a) Hedge valuation basis adjustments represent changes in the fair values due to changes in LIBOR on fixed-rate bonds in a Fair value hedge.
(b) Hedge basis adjustments on terminated hedges represent the unamortized balances of valuation basis of fixed-rate bonds that were previously in a qualifying hedge relationship. The valuation basis at the time of hedge termination is amortized as a yield adjustment through Interest expense.
(c) Valuation adjustments represent changes in the entire fair values of bonds and discount notes elected under the FVO.
Redemption Terms of Consolidated Obligation Bonds
The following table is a summary of consolidated obligation bonds outstanding by year of maturity (dollars in thousands):
|
|
|
December 31, 2016 |
|
December 31, 2015 |
| ||||||||||
|
|
|
|
|
Weighted |
|
|
|
|
|
Weighted |
|
|
| ||
|
|
|
|
|
Average |
|
Percentage |
|
|
|
Average |
|
Percentage |
| ||
|
Maturity |
|
Amount |
|
Rate (a) |
|
of Total |
|
Amount |
|
Rate (a) |
|
of Total |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
One year or less |
|
$ |
55,251,690 |
|
0.80 |
% |
65.52 |
% |
$ |
37,123,630 |
|
0.44 |
% |
55.23 |
% |
|
Over one year through two years |
|
19,603,965 |
|
0.95 |
|
23.25 |
|
18,265,465 |
|
0.80 |
|
27.18 |
| ||
|
Over two years through three years |
|
3,376,095 |
|
1.39 |
|
4.00 |
|
4,128,285 |
|
1.38 |
|
6.14 |
| ||
|
Over three years through four years |
|
1,225,175 |
|
2.12 |
|
1.45 |
|
1,708,750 |
|
1.65 |
|
2.54 |
| ||
|
Over four years through five years |
|
1,060,320 |
|
2.08 |
|
1.26 |
|
1,450,050 |
|
1.98 |
|
2.16 |
| ||
|
Thereafter |
|
3,810,300 |
|
3.25 |
|
4.52 |
|
4,540,420 |
|
3.08 |
|
6.75 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
Total par value |
|
84,327,545 |
|
1.00 |
% |
100.00 |
% |
67,216,600 |
|
0.84 |
% |
100.00 |
% | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
Bond premiums (b) |
|
52,336 |
|
|
|
|
|
42,169 |
|
|
|
|
| ||
|
Bond discounts (b) |
|
(28,527 |
) |
|
|
|
|
(33,001 |
) |
|
|
|
| ||
|
Hedge valuation basis adjustments (c) |
|
290,016 |
|
|
|
|
|
346,423 |
|
|
|
|
| ||
|
Hedge basis adjustments on terminated hedges (d) |
|
140,331 |
|
|
|
|
|
145,512 |
|
|
|
|
| ||
|
FVO (e) - valuation adjustments and accrued interest |
|
2,963 |
|
|
|
|
|
(1,751 |
) |
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
Total Consolidated obligation-bonds |
|
$ |
84,784,664 |
|
|
|
|
|
$ |
67,715,952 |
|
|
|
|
|
(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 by $15.6 million, $18.8 million, and $26.5 million in 2016, 2015 and 2014.
(c) Hedge valuation basis adjustments represent changes in the fair values due to changes in LIBOR on fixed-rate bonds in a Fair value hedge.
(d) Hedge basis adjustments on terminated hedges represent the unamortized balances of valuation basis of fixed-rate bonds that were previously in a fair value hedging relationship. Generally, when a hedging relationship is de-designated, the valuation basis is no longer adjusted for changes in the valuation of the debt for changes in the benchmark rate; instead, the basis is amortized over the debt’s remaining life, so that at its maturity, the unamortized basis is reversed to $0. The unamortized basis was $140.3 million and $145.5 million at December 31, 2016 and at December 31, 2015. Amortization of hedge basis adjustments was recorded as a yield adjustment, which reduced Interest expenses by $5.7 million, $5.5 million and $3.2 million in 2016, 2015 and 2014.
(e) Valuation adjustments represent changes in the entire fair values of bonds elected under the FVO.
Federal Home Loan Bank of New York
Notes to Financial Statements
Interest Rate Payment Terms
The following table summarizes types of bonds issued and outstanding (dollars in thousands):
|
|
|
December 31, 2016 |
|
December 31, 2015 |
| ||||||
|
|
|
Amount |
|
Percentage |
|
Amount |
|
Percentage |
| ||
|
|
|
|
|
|
|
|
|
|
| ||
|
Fixed-rate, non-callable |
|
$ |
32,878,545 |
|
38.99 |
% |
$ |
45,808,600 |
|
68.15 |
% |
|
Fixed-rate, callable |
|
1,255,000 |
|
1.49 |
|
3,698,000 |
|
5.50 |
| ||
|
Step Up, callable |
|
160,000 |
|
0.19 |
|
525,000 |
|
0.78 |
| ||
|
Single-index floating rate |
|
50,034,000 |
|
59.33 |
|
17,185,000 |
|
25.57 |
| ||
|
|
|
|
|
|
|
|
|
|
| ||
|
Total par value |
|
84,327,545 |
|
100.00 |
% |
67,216,600 |
|
100.00 |
% | ||
|
|
|
|
|
|
|
|
|
|
| ||
|
Bond premiums |
|
52,336 |
|
|
|
42,169 |
|
|
| ||
|
Bond discounts |
|
(28,527 |
) |
|
|
(33,001 |
) |
|
| ||
|
Hedge valuation basis adjustments (a) |
|
290,016 |
|
|
|
346,423 |
|
|
| ||
|
Hedge basis adjustments on terminated hedges (b) |
|
140,331 |
|
|
|
145,512 |
|
|
| ||
|
FVO (c) - valuation adjustments and accrued interest |
|
2,963 |
|
|
|
(1,751 |
) |
|
| ||
|
|
|
|
|
|
|
|
|
|
| ||
|
Total Consolidated obligation-bonds |
|
$ |
84,784,664 |
|
|
|
$ |
67,715,952 |
|
|
|
(a) Hedge valuation basis adjustments represent changes in the fair values due to changes in LIBOR on fixed-rate bonds in a Fair value hedge.
(b) Hedge basis adjustments on terminated hedges represent the unamortized balances of valuation basis of fixed-rate bonds that were previously in a hedging relationship.
(c) Valuation adjustments represent changes in the entire fair values of bonds elected under the FVO.
Discount Notes
Consolidated obligation discount notes are issued to raise short-term funds. Discount notes are consolidated obligations with original maturities of up to one year. These notes are issued at less than their face amount and redeemed at par when they mature.
The FHLBNY’s outstanding consolidated obligation discount notes were as follows (dollars in thousands):
|
|
|
December 31, 2016 |
|
December 31, 2015 |
| ||
|
|
|
|
|
|
| ||
|
Par value |
|
$ |
49,392,445 |
|
$ |
46,875,847 |
|
|
Amortized cost |
|
$ |
49,334,380 |
|
$ |
46,837,709 |
|
|
FVO (a) - valuation adjustments and remaining accretion |
|
23,514 |
|
12,159 |
| ||
|
Total discount notes |
|
$ |
49,357,894 |
|
$ |
46,849,868 |
|
|
|
|
|
|
|
| ||
|
Weighted average interest rate |
|
0.48 |
% |
0.26 |
% | ||
(a) Valuation adjustments represent changes in the entire fair values of discount notes elected under the FVO.
Note 12. Affordable Housing Program.
The FHLBank Act requires each FHLBank to establish an Affordable Housing Program. Each FHLBank provides subsidies in the form of direct grants and below-market interest rate advances to its members who use the funds to assist the purchase, construction, or rehabilitation of housing for very low-, low-, and moderate-income households. Annually, the FHLBanks must set aside, in aggregate, the greater of $100 million or 10% of regulatory income for the AHP. The FHLBNY charges the amount set aside for AHP to income and recognizes it as a liability. The FHLBNY relieves the AHP liability as members use the subsidies. If the result of the aggregate 10% calculation is less than $100 million for all eleven FHLBanks, then the FHLBank Act requires the shortfall to be allocated among the FHLBanks based on the ratio of each FHLBank’s pre-assessment income to the sum of total pre-assessment income for all 11 FHLBanks. There were no shortfalls in any periods in this report.
Each FHLBank accrues this expense monthly based on its income before assessments. Pre-assessment income is net income before the AHP assessment. If a FHLBank experienced a loss during a quarter, but still had income for the year, the FHLBank’s obligation to the AHP would be calculated based on the FHLBank’s year-to-date income. If the FHLBank had income in subsequent quarters, it would be required to contribute additional amounts to meet its calculated annual obligation. If the FHLBank experienced a loss for a full year, the FHLBank would have no obligation to the AHP for the year unless the aggregate 10% calculation was less than $100 million for all 11 FHLBanks, if it were, each FHLBank would be required to assure that the aggregate contribution of the FHLBanks equals $100 million. The proration would be made on the basis of a FHLBank’s income in relation to the income of all FHLBanks for the previous year. Each FHLBank’s required annual AHP contribution is limited to its annual net earnings.
Federal Home Loan Bank of New York
Notes to Financial Statements
The following table provides roll-forward information with respect to changes in Affordable Housing Program liabilities (in thousands):
|
|
|
Years ended December 31, |
| |||||||
|
|
|
2016 |
|
2015 |
|
2014 |
| |||
|
|
|
|
|
|
|
|
| |||
|
Beginning balance |
|
$ |
113,352 |
|
$ |
113,544 |
|
$ |
123,060 |
|
|
Additions from current period’s assessments |
|
44,752 |
|
46,182 |
|
35,094 |
| |||
|
Net disbursements for grants and programs |
|
(33,042 |
) |
(46,374 |
) |
(44,610 |
) | |||
|
Ending balance |
|
$ |
125,062 |
|
$ |
113,352 |
|
$ |
113,544 |
|
Note 13. Capital Stock, Mandatorily Redeemable Capital Stock and Restricted Retained Earnings.
The FHLBanks, including the FHLBNY, have a cooperative structure. To access the FHLBNY’s products and services, a financial institution must be approved for membership and purchase capital stock in the FHLBNY. A member’s stock requirement is generally based on its use of FHLBNY products, subject to a minimum membership requirement as prescribed by the FHLBank Act and the FHLBNY’s Capital Plan. FHLBNY stock can be issued, exchanged, redeemed and repurchased only at its stated par value of $100 per share. It is not publicly traded. An option to redeem capital stock that is greater than a member’s minimum requirement is held by both the member and the FHLBNY.
The FHLBNY’s Capital Plan offers two sub-classes of Class B capital stock, membership and activity-based capital stock.
Membership stock is issued to meet membership stock purchase requirements. The FHLBNY requires member institutions to maintain membership stock based on a percentage of the member’s mortgage-related assets.
Activity based stock is issued on a percentage of outstanding balances of advances, MPF loans and certain commitments.
Membership and Activity-based Class B capital stock have the same voting rights and dividend rates. Members can redeem Class B stock by giving five years notice. The FHLBNY’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 FHFA’s regulatory leverage ratio is defined as the sum of permanent capital weighted 1.5 times and non-permanent capital weighted 1.0 times divided by total assets.
The FHLBNY was in compliance with the aforementioned capital rules and requirements for all periods presented, and met the “adequately capitalized” classification, which is the highest rating, under the capital rule. However, the Finance Agency has discretion to reclassify a FHLBank and to modify or add to the corrective action requirements for a particular capital classification. If the FHLBNY became classified into a capital classification other than adequately capitalized, the Bank could be adversely impacted by the corrective action requirements for that capital classification.
The Capital Rules Are Summarized Below:
The Capital Rule, among other things, establishes criteria for four capital classifications and corrective action requirements for FHLBanks that are classified in any classification other than adequately capitalized. The Capital Rule requires the Director of the Finance Agency to determine on no less than a quarterly basis the capital classification of each FHLBank. Each FHLBank is required to notify the Director of the Finance Agency within 10 calendar days of any event or development that has caused or is likely to cause its permanent or total capital to fall below the level necessary to maintain its assigned capital classification.
The following describes each capital classification and its related corrective action requirements, if any.
· Adequately capitalized. A FHLBank is adequately capitalized if it has sufficient permanent and total capital to meet or exceed its risk-based and minimum capital requirements. FHLBanks that are adequately capitalized have no corrective action requirements.
· Undercapitalized. A FHLBank is undercapitalized if it does not have sufficient permanent or total capital to meet one or more of its risk-based and minimum capital requirements, but such deficiency is not large enough to classify the FHLBank as significantly undercapitalized or critically undercapitalized. A FHLBank classified as undercapitalized must submit a capital restoration plan that conforms with regulatory requirements to the Director of the Finance Agency for approval, execute the approved plan, suspend dividend payments and excess stock redemptions or repurchases, and not permit growth of its average total assets in any calendar quarter beyond the average total assets of the preceding quarter unless otherwise approved by the Director of the Finance Agency.
Federal Home Loan Bank of New York
Notes to Financial Statements
· Significantly undercapitalized. A FHLBank is significantly undercapitalized if either (1) the amount of permanent or total capital held by the FHLBank is less than 75% of any one of its risk-based or minimum capital requirements, but such deficiency is not large enough to classify the FHLBank as critically undercapitalized or (2) an undercapitalized FHLBank fails to submit or adhere to a Finance Agency Director-approved capital restoration plan in conformance with regulatory requirements. A FHLBank classified as significantly undercapitalized must submit a capital restoration plan that conforms with regulatory requirements to the Director of the Finance Agency for approval, execute the approved plan, suspend dividend payments and excess stock redemptions or repurchases, and is prohibited from paying a bonus to or increasing the compensation of its executive officers without prior approval of the Director of the Finance Agency.
· Critically undercapitalized. A FHLBank is critically undercapitalized if either (1) the amount of total capital held by the FHLBank is less than two percent of the FHLBank’s total assets or (2) a significantly undercapitalized FHLBank fails to submit or adhere to a Finance Agency Director-approved capital restoration plan in conformance with regulatory requirements. The Director of the Finance Agency may place a FHLBank in conservatorship or receivership. A FHLBank will be placed in mandatory receivership if (1) the assets of a FHLBank are less than its obligations during a 60-day period or (2) the FHLBank has not being paying its debts on a regular basis, or during a 60-day period. Until such time the Finance Agency is appointed as conservator or receiver for a critically undercapitalized FHLBank, the FHLBank is subject to all mandatory restrictions and obligations applicable to a significantly undercapitalized FHLBank.
Each required capital restoration plan must be submitted within 15 business days following notice from the Director of the Finance Agency unless an extension is granted and is subject to the Director of the Finance Agency’s review and must set forth a plan to restore permanent and total capital levels to levels sufficient to fulfill its risk-based and minimum capital requirements.
The Director of the Finance Agency has discretion to add to or modify the corrective action requirements for each capital classification other than adequately capitalized if the Director of the Finance Agency determines that such action is necessary to ensure the safe and sound operation of the FHLBank and the FHLBank’s compliance with its risk-based and minimum capital requirements. Further, the Capital Rule provides the Director of the Finance Agency discretion to reclassify a FHLBank’s capital classification if the Director of the Finance Agency determines that:
· The FHLBank is engaging in conduct that could result in the rapid depletion of permanent or total capital;
· The value of collateral pledged to the FHLBank has decreased significantly;
· The value of property subject to mortgages owned by the FHLBank has decreased significantly;
· The FHLBank is in an unsafe and unsound condition following notice to the FHLBank and an informal hearing before the Director of the Finance Agency; or
· The FHLBank is engaging in an unsafe and unsound practice because the FHLBank’s asset quality, management, earnings, or liquidity were found to be less than satisfactory during the most recent examination, and such deficiency has not been corrected.
If the FHLBNY became classified into a capital classification other than adequately capitalized, the FHLBNY could be adversely impacted by the corrective action requirements for that capital classification.
Risk-based Capital — The following table summarizes the FHLBNY’s risk-based capital ratios (dollars in thousands):
|
|
|
December 31, 2016 |
|
December 31, 2015 |
| ||||||||
|
|
|
Required (d) |
|
Actual |
|
Required (d) |
|
Actual |
| ||||
|
Regulatory capital requirements: |
|
|
|
|
|
|
|
|
| ||||
|
Risk-based capital (a)(e) |
|
$ |
747,937 |
|
$ |
7,751,165 |
|
$ |
691,580 |
|
$ |
6,874,668 |
|
|
Total capital-to-asset ratio |
|
4.00 |
% |
5.40 |
% |
4.00 |
% |
5.58 |
% | ||||
|
Total capital (b) |
|
$ |
5,744,251 |
|
$ |
7,751,165 |
|
$ |
4,929,936 |
|
$ |
6,874,668 |
|
|
Leverage ratio |
|
5.00 |
% |
8.10 |
% |
5.00 |
% |
8.37 |
% | ||||
|
Leverage capital (c ) |
|
$ |
7,180,314 |
|
$ |
11,626,748 |
|
$ |
6,162,420 |
|
$ |
10,312,002 |
|
(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) A leverage ratio of total capital to total assets of at least 5.0%. For the purposes of determining the leverage ratio, total capital shall be computed by multiplying the Bank’s Permanent Capital by 1.5.
(d) Required minimum.
(e) Under regulatory guidelines issued by the Finance Agency in August 2011 that was consistent with guidance provided by other federal banking agencies with respect to capital rules, risk weights are maintained at AAA for Treasury securities and other securities issued or guaranteed by the U.S. Government, government agencies, and government-sponsored entities for purposes of calculating risk-based capital.
Federal Home Loan Bank of New York
Notes to Financial Statements
Mandatorily Redeemable Capital Stock
Generally, the FHLBNY’s capital stock is redeemable at the option of either the member or the FHLBNY subject to certain conditions, including the provisions under the accounting guidance for certain financial instruments with characteristics of both liabilities and equity. In accordance with the accounting guidance, the FHLBNY generally reclassifies the stock subject to redemption from equity to a liability once a member irrevocably exercises a written redemption right, gives notice of intent to withdraw from membership, or attains non-member status by merger or acquisition, charter termination, or involuntary termination from membership. Under such circumstances, the member shares will then meet the definition of a mandatorily redeemable financial instrument.
|
|
|
December 31, 2016 |
|
December 31, 2015 |
| ||
|
|
|
|
|
|
| ||
|
Redemption less than one year |
|
$ |
11,384 |
|
$ |
5,033 |
|
|
Redemption from one year to less than three years |
|
14,000 |
|
12,214 |
| ||
|
Redemption from three years to less than five years |
|
483 |
|
271 |
| ||
|
Redemption from five years or greater |
|
5,568 |
|
1,981 |
| ||
|
|
|
|
|
|
| ||
|
Total |
|
$ |
31,435 |
|
$ |
19,499 |
|
Voluntary and Involuntary Withdrawal and Changes in Membership — Changes in membership due to mergers were not significant in 2016 and 2015. 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:
|
|
|
Years ended December 31, |
| ||
|
|
|
2016 |
|
2015 |
|
|
|
|
|
|
|
|
|
Involuntary Termination (a) |
|
1 |
|
3 |
|
|
|
|
|
|
|
|
|
Non-member due to merger |
|
4 |
|
3 |
|
(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 FHLBNY’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 rollforward information with respect to changes in mandatorily redeemable capital stock liabilities (in thousands):
|
|
|
Years ended December 31, |
| |||||||
|
|
|
2016 |
|
2015 |
|
2014 |
| |||
|
|
|
|
|
|
|
|
| |||
|
Beginning balance |
|
$ |
19,499 |
|
$ |
19,200 |
|
$ |
23,994 |
|
|
Capital stock subject to mandatory redemption reclassified from equity |
|
52,902 |
|
8,914 |
|
— |
| |||
|
Redemption of mandatorily redeemable capital stock (a) |
|
(40,966 |
) |
(8,615 |
) |
(4,794 |
) | |||
|
Ending balance |
|
$ |
31,435 |
|
$ |
19,499 |
|
$ |
19,200 |
|
|
Accrued interest payable (b) |
|
$ |
606 |
|
$ |
198 |
|
$ |
197 |
|
(a) Redemption includes repayment of excess stock.
(b) The annualized accrual rate were 5.00%, 4.10% and 4.05% for the three months ended December 31, 2016, December 31, 2015 and December 31, 2014. Accrual rates are based on estimated dividend rates.
Restricted Retained Earnings
Under the FHLBank Joint Capital Enhancement Agreement (“Capital Agreement”), each FHLBank is required to set aside 20% of its Net income each quarter to a restricted retained earnings account until the balance of that account equals at least one percent of that FHLBank’s average balance of outstanding consolidated obligations. The Capital Agreement is intended to enhance the capital position of each FHLBank. These restricted retained earnings will not be available to pay dividends. Retained earnings included $383.3 million and $303.1 million as restricted retained earnings in the FHLBNY’s Total Capital at December 31, 2016 and December 31, 2015.
Federal Home Loan Bank of New York
Notes to Financial Statements
Note 14. Earnings Per Share of Capital.
The following table sets forth the computation of earnings per share. Basic and diluted earnings per share of capital are the same. The FHLBNY has no dilutive potential common shares or other common stock equivalents (dollars in thousands except per share amounts):
|
|
|
Years ended December 31, |
| |||||||
|
|
|
2016 |
|
2015 |
|
2014 |
| |||
|
|
|
|
|
|
|
|
| |||
|
Net income |
|
$ |
401,152 |
|
$ |
414,811 |
|
$ |
314,923 |
|
|
|
|
|
|
|
|
|
| |||
|
Net income available to stockholders |
|
$ |
401,152 |
|
$ |
414,811 |
|
$ |
314,923 |
|
|
|
|
|
|
|
|
|
| |||
|
Weighted average shares of capital |
|
57,360 |
|
53,184 |
|
55,524 |
| |||
|
Less: Mandatorily redeemable capital stock |
|
(244 |
) |
(193 |
) |
(219 |
) | |||
|
Average number of shares of capital used to calculate earnings per share |
|
57,116 |
|
52,991 |
|
55,305 |
| |||
|
|
|
|
|
|
|
|
| |||
|
Basic earnings per share |
|
$ |
7.02 |
|
$ |
7.83 |
|
$ |
5.69 |
|
Note 15. Employee Retirement Plans.
The FHLBNY participates in the Pentegra Defined Benefit Plan for Financial Institutions (“Pentegra DB Plan”), a tax-qualified, defined-benefit multiemployer pension plan that covers all 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 FHLBNY maintains a non-qualified 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. In the first quarter of 2014, the Board of Directors of the FHLBNY voted to make changes to the Pentegra DB Plan and the BEP plan effective July 1, 2014 for new employees hired on or after the effective date; changes to the plans will reduce obligations and expenses for the new employees when the employees become eligible for the pension benefits; changes to the plans had no significant impact on the financial obligations as of December 31, 2016 or any periods in this report.
Plan amendments were made to the Retiree Medical Benefits Plan for retired employees and for eligible employees. Effective January 1, 2015, the Retiree Medical Benefits Plan is available to active employees who have completed 10 years of employment service at the FHLBNY and attained age 55 as of that date. For those employees who qualified to remain in the plan, the current Defined Dollar Plan subsidy was reduced by 50% for all service earned after December 31, 2014, and the annual “Cost of Living Adjustment” was eliminated. Retired employees remain eligible to participate in the Retiree Medical Benefits Plan.
Retirement Plan Expenses — Summary
The following table presents employee retirement plan expenses for the years ended (in thousands):
|
|
|
Years ended December 31, |
| |||||||
|
|
|
2016 |
|
2015 |
|
2014 |
| |||
|
Defined Benefit Plan |
|
$ |
7,947 |
|
$ |
18,201 |
|
$ |
6,385 |
|
|
Benefit Equalization Plan (defined benefit) |
|
4,566 |
|
4,748 |
|
3,488 |
| |||
|
Defined Contribution Plan |
|
2,003 |
|
1,803 |
|
1,659 |
| |||
|
Postretirement Health Benefit Plan |
|
(176 |
) |
(27 |
) |
124 |
| |||
|
|
|
|
|
|
|
|
| |||
|
Total retirement plan expenses |
|
$ |
14,340 |
|
$ |
24,725 |
|
$ |
11,656 |
|
Pentegra DB Plan Net Pension Cost and Funded Status
The Pentegra DB Plan operates as a multiemployer plan for accounting purposes and as a multiple-employer plan under the Employee Retirement Income Security Act of 1974 (“ERISA”) and the Internal Revenue Code. As a result, certain multiemployer plan disclosures, including the certified zone status, are not applicable to the Pentegra DB Plan. Typically, multiemployer plans contain provisions for collective bargaining arrangements. There are no collective bargaining agreements in place at any of the FHLBanks (including the FHLBNY) that participate in the plan. Under the Pentegra DB Plan, contributions made by a participating employer may be used to provide benefits to employees of other participating employers because assets contributed by an employer are not segregated in a separate account or restricted to provide benefits only to employees of that employer. In addition, in the event a participating employer is unable to meet its contribution requirements, the required contributions for the other participating employers could increase proportionately. If an employee transfers employment to the FHLBNY, and the employee was a participant in the Pentegra Benefit Plan with another employer, the FHLBNY is responsible for the entire benefit. At the time of transfer, the former employer will transfer assets to the FHLBNY’s plan, in the amount of the liability for the accrued benefit.
The Pentegra DB Plan operates on a fiscal year from July 1 through June 30, and files one Form 5500 on behalf of all employers who participate in the plan. The Employer Identification Number is 13-5645888 and the three-digit plan number is 333.
The Pentegra DB Plan’s annual valuation process includes calculating the plan’s funded status, and separately calculating the funded status of each participating employer. The funded status is defined as the market value of assets divided by the funding target (100 percent of the present value of all benefit liabilities accrued at that date). As permitted by ERISA, the Pentegra DB Plan accepts contributions for the prior plan year up to eight and a half
Federal Home Loan Bank of New York
Notes to Financial Statements
months after the asset valuation date. As a result, the market value of assets at the valuation date (July 1) may increase by any subsequent contributions designated for the immediately preceding plan year ended June 30.
The following table presents multiemployer plan disclosure for the three years ended December 31, (dollars in thousands):
|
|
|
2016 |
|
2015 (d) |
|
2014 |
|
| |||
|
|
|
|
|
|
|
|
|
| |||
|
Net pension cost charged to compensation and benefit expense for the year ended December 31 |
|
$ |
7,947 |
|
$ |
18,201 |
|
$ |
6,385 |
|
|
|
Contributions allocated to plan year ended June 30 |
|
$ |
8,344 |
(a) |
$ |
17,651 |
|
$ |
6,319 |
|
|
|
Pentegra DB Plan funded status as of July 1 (b) |
|
104.12 |
% |
106.89 |
% |
111.44 |
% |
| |||
|
FHLBNY’s funded status as of July 1 (c) |
|
114.86 |
% |
115.08 |
% |
113.36 |
% |
| |||
(a) Contribution in 2016 was not more than 5% of the total contribution made to the multi-employer plan by all participants for the most recent Form 5500 files by the plan. Contribution in December 2015 was $18.8 million which was more than 5% of the total contributions to the Pentegra DB Plan for the plan year ending June 30, 2014.
(b) Funded status is based on actuarial valuation of the Pentegra DB Plan, and includes all participants allocated to plan years and known at the time of the preparation of the actuarial valuation. The funded status may increase because the plan’s participants are permitted to make contributions through March 15 of the following year. Funded status remains preliminary until the Form 5500 is filed no later than April 15, 2017 for the plan year ended June 30, 2016. For information with respect to contributions expensed by the FHLBNY, see previous Table — Retirement Plan Expenses Summary. Contributions include minimum required under ERISA that are prepaid for the plan year ended June 30, 2017, and as a result contributions may not equal amounts expensed.
(c) Based on cash contributions made through December 31, 2016 and allocated to the DB Plan year(s). The funded status may increase because the FHLBNY is permitted to make contribution through March 15 of the following year.
(d) A catch up contribution was made in 2015 for the DB Plan. The most recent Form 5500 available for the Pentegra DB Plan is for the plan year ended June 30, 2015.
Benefit Equalization Plan (BEP)
The BEP restores defined benefits for those employees who have had their qualified defined benefits limited by IRS regulations. The method for determining the accrual expense and liabilities of the plan is the Projected Unit Credit Accrual Method. Under this method, the liability of the plan is composed mainly of two components, Projected Benefit Obligation (“PBO”) and Service Cost accruals. The total liability is determined by projecting each person’s expected plan benefits. These projected benefits are then discounted to the measurement date. Finally, the liability is allocated to service already worked (PBO) and service to be worked (Service Cost). There were no plan assets (this is an unfunded plan) that have been designated for the BEP plan.
The accrued pension costs for the BEP plan were as follows (in thousands):
|
|
|
December 31, |
| ||||
|
|
|
2016 |
|
2015 |
| ||
|
|
|
|
|
|
| ||
|
Accumulated benefit obligation |
|
$ |
43,673 |
|
$ |
40,814 |
|
|
Effect of future salary increases |
|
10,068 |
|
6,168 |
| ||
|
Projected benefit obligation |
|
53,741 |
|
46,982 |
| ||
|
Unrecognized prior service credit/(cost) |
|
— |
|
48 |
| ||
|
Unrecognized net (loss)/gain |
|
(22,331 |
) |
(18,482 |
) | ||
|
|
|
|
|
|
| ||
|
Accrued pension cost |
|
$ |
31,410 |
|
$ |
28,548 |
|
Components of the projected benefit obligation for the BEP plan were as follows (in thousands):
|
|
|
December 31, |
| ||||
|
|
|
2016 |
|
2015 |
| ||
|
|
|
|
|
|
| ||
|
Projected benefit obligation at the beginning of the year |
|
$ |
46,982 |
|
$ |
47,826 |
|
|
Service cost |
|
743 |
|
739 |
| ||
|
Interest cost |
|
1,904 |
|
1,790 |
| ||
|
Benefits paid |
|
(1,704 |
) |
(1,689 |
) | ||
|
Actuarial loss/(gain) (a) |
|
5,816 |
|
(1,684 |
) | ||
|
|
|
|
|
|
| ||
|
Projected benefit obligation at the end of the year |
|
$ |
53,741 |
|
$ |
46,982 |
|
The measurement date used to determine projected benefit obligation for the BEP plan was December 31 in each of the two years.
(a) Actuarial loss of $5.8 million in 2016 was primarily due to unfavorable changes in demographic experience, and decrease in the discount rate. Unfavorable changes were partly offset by gain due to change in mortality assumptions. Actuarial gain of $1.7 million in 2015 was primarily due to increase in the discount rate, and change in mortality assumptions, partly offset by unfavorable changes in demographic experience.
Federal Home Loan Bank of New York
Notes to Financial Statements
Amounts recognized in AOCI for the BEP plan were as follows (in thousands):
|
|
|
December 31, |
| ||||
|
|
|
2016 |
|
2015 |
| ||
|
|
|
|
|
|
| ||
|
Net loss/(gain) |
|
$ |
22,331 |
|
$ |
18,482 |
|
|
Prior service (credit)/cost |
|
— |
|
(48 |
) | ||
|
Accumulated other comprehensive loss/(gain) |
|
$ |
22,331 |
|
$ |
18,434 |
|
Changes in the BEP plan assets were as follows (in thousands):
|
|
|
December 31, |
| ||||
|
|
|
2016 |
|
2015 |
| ||
|
|
|
|
|
|
| ||
|
Fair value of the plan assets at the beginning of the year |
|
$ |
— |
|
$ |
— |
|
|
Employer contributions |
|
1,704 |
|
1,689 |
| ||
|
Benefits paid |
|
(1,704 |
) |
(1,689 |
) | ||
|
Fair value of the plan assets at the end of the year |
|
$ |
— |
|
$ |
— |
|
Components of the net periodic pension cost for the defined benefit component of the BEP were as follows (in thousands):
|
|
|
Years ended December 31, |
| |||||||
|
|
|
2016 |
|
2015 |
|
2014 |
| |||
|
Service cost |
|
$ |
743 |
|
$ |
739 |
|
$ |
709 |
|
|
Interest cost |
|
1,904 |
|
1,790 |
|
1,605 |
| |||
|
Amortization of unrecognized net loss/(gain) |
|
1,966 |
|
2,272 |
|
1,227 |
| |||
|
Amortization of unrecognized past service (credit)/cost |
|
(47 |
) |
(53 |
) |
(53 |
) | |||
|
|
|
|
|
|
|
|
| |||
|
Net periodic benefit cost |
|
$ |
4,566 |
|
$ |
4,748 |
|
$ |
3,488 |
|
Other changes in benefit obligations recognized in AOCI were as follows (in thousands):
|
|
|
December 31, |
| ||||
|
|
|
2016 |
|
2015 |
| ||
|
|
|
|
|
|
| ||
|
Net loss/(gain) |
|
$ |
5,816 |
|
$ |
(1,684 |
) |
|
Amortization of net (gain)/loss |
|
(1,966 |
) |
(2,272 |
) | ||
|
Amortization of prior service cost/(credit) |
|
47 |
|
53 |
| ||
|
|
|
|
|
|
| ||
|
Total recognized in other comprehensive loss/(income) |
|
$ |
3,897 |
|
$ |
(3,903 |
) |
|
|
|
|
|
|
| ||
|
Total recognized in net periodic benefit cost and other comprehensive income |
|
$ |
8,463 |
|
$ |
845 |
|
The net transition obligation (asset), prior service cost (credit), and the estimated net loss (gain) for the BEP plan that are expected to be amortized from AOCI into net periodic benefit cost over the next fiscal year are shown in the table below (in thousands):
|
|
|
December 31, 2017 |
| |
|
|
|
|
| |
|
Expected amortization of net loss/(gain) |
|
$ |
2,554 |
|
Key assumptions and other information for the actuarial calculations to determine benefit obligations for the BEP plan were as follows (dollars in thousands):
|
|
|
December 31, 2016 |
|
December 31, 2015 |
|
December 31, 2014 |
| |||
|
|
|
|
|
|
|
|
| |||
|
Discount rate (a) |
|
3.96 |
% |
4.13 |
% |
3.81 |
% | |||
|
Salary increases |
|
4.50 |
% |
4.50 |
% |
4.50 |
% | |||
|
Amortization period (years) |
|
7 |
|
7 |
|
8 |
| |||
|
Benefits paid during the period |
|
$ |
(1,704 |
) |
$ |
(1,689 |
) |
$ |
(1,266 |
) |
(a) The discount rates were based on the Citigroup Pension Liability Index at December 31, adjusted for duration in each of the three years.
Future BEP plan benefits to be paid were estimated to be as follows (in thousands):
|
Years |
|
Payments |
| |
|
|
|
|
| |
|
2017 |
|
$ |
1,795 |
|
|
2018 |
|
1,898 |
| |
|
2019 |
|
2,068 |
| |
|
2020 |
|
2,219 |
| |
|
2021 |
|
2,440 |
| |
|
2022-2026 |
|
15,092 |
| |
|
|
|
|
| |
|
Total |
|
$ |
25,512 |
|
The net periodic benefit cost for 2017 is expected to be $5.5 million ($4.6 million in 2016).
Federal Home Loan Bank of New York
Notes to Financial Statements
Postretirement Health Benefit Plan
The Retiree Medical Benefit Plan (the Plan) is for retired employees and for employees who are eligible for retirement benefits. The Plan is unfunded. The Plan, as amended, is no longer be offered to active employees who had not completed 10 years of employment service at the FHLBNY and attained age 55 as of January 1, 2015, the effective date of the amendment. For those employees who qualified to remain in the Plan, the current Defined Dollar Plan subsidy was reduced by 50% for all service earned after December 31, 2014, and the annual “Cost of Living Adjustment” was also eliminated. The impact of the amendments to the Plan is summarized below.
The net periodic benefit costs in 2016 and 2015 were immaterial credits to expense, benefitting from amortization of gains from plan amendments in the first quarter of 2014 that resulted in a reduction of $8.8 million in plan obligations. The gains will be amortized over an actuarially determined period, effectively reducing net periodic benefit cost in each period.
Assumptions used in determining the accumulated postretirement benefit obligation (“APBO”) included a discount rate assumption of 3.88%. At December 31, 2016, the effect of a percentage point increase in the assumed healthcare trend rates would be a decrease in postretirement benefit expense of $49.5 thousand ($50.3 thousand at December 31, 2015) and an increase in APBO of $1.3 million ($1.3 million at December 31, 2015). At December 31, 2016, the effect of a percentage point decrease in the assumed healthcare trend rates would be a decrease in postretirement benefit expense of $42.7 thousand ($42.7 thousand at December 31, 2015) and an increase in APBO of $1.1 million ($1.1 million at December 31, 2015).
Components of the accumulated postretirement benefit obligation for the postretirement health benefits plan for the years ended December 31, 2016 and 2015 (in thousands):
|
|
|
December 31, |
| ||||
|
|
|
2016 |
|
2015 |
| ||
|
|
|
|
|
|
| ||
|
Accumulated postretirement benefit obligation at the beginning of the year |
|
$ |
14,320 |
|
$ |
15,636 |
|
|
Service cost |
|
119 |
|
125 |
| ||
|
Interest cost |
|
598 |
|
551 |
| ||
|
Actuarial loss/(gain) |
|
712 |
|
(1,090 |
) | ||
|
Plan participant contributions |
|
277 |
|
225 |
| ||
|
Actual benefits paid |
|
(846 |
) |
(1,177 |
) | ||
|
Retiree drug subsidy reimbursement |
|
58 |
|
50 |
| ||
|
Accumulated postretirement benefit obligation at the end of the year |
|
15,238 |
|
14,320 |
| ||
Changes in postretirement health benefit plan assets (in thousands):
|
|
|
December 31, |
| ||||
|
|
|
2016 |
|
2015 |
| ||
|
|
|
|
|
|
| ||
|
Fair value of plan assets at the beginning of the year |
|
$ |
— |
|
$ |
— |
|
|
Employer contributions |
|
569 |
|
952 |
| ||
|
Plan participant contributions |
|
277 |
|
225 |
| ||
|
Actual benefits paid |
|
(846 |
) |
(1,177 |
) | ||
|
Fair value of plan assets at the end of the year |
|
$ |
— |
|
$ |
— |
|
Amounts recognized in AOCI for the postretirement benefit obligation (in thousands):
|
|
|
December 31, |
| ||||
|
|
|
2016 |
|
2015 |
| ||
|
|
|
|
|
|
| ||
|
Prior service (credit)/cost |
|
$ |
(3,780 |
) |
$ |
(5,540 |
) |
|
Net loss/(gain) |
|
4,070 |
|
4,226 |
| ||
|
Accumulated other comprehensive loss/(gain) |
|
$ |
290 |
|
$ |
(1,314 |
) |
The net transition obligation (asset), prior service cost (credit), and estimated net loss (gain) for the postretirement health benefit plan are expected to be amortized from AOCI into net periodic benefit cost over the next fiscal year are shown in the table below (in thousands):
|
|
|
December 31, 2017 |
| |
|
|
|
|
| |
|
Expected amortization of net loss/(gain) |
|
$ |
567 |
|
|
Expected amortization of prior service (credit)/cost |
|
$ |
(1,761 |
) |
Federal Home Loan Bank of New York
Notes to Financial Statements
Components of the net periodic benefit cost for the postretirement health benefit plan were as follows (in thousands):
|
|
|
Years ended December 31, |
| |||||||
|
|
|
2016 |
|
2015 |
|
2014 |
| |||
|
|
|
|
|
|
|
|
| |||
|
Service cost (benefits attributed to service during the period) |
|
$ |
119 |
|
$ |
125 |
|
$ |
426 |
|
|
Interest cost on accumulated postretirement health benefit obligation |
|
598 |
|
551 |
|
594 |
| |||
|
Amortization of loss/(gain) |
|
868 |
|
1,058 |
|
425 |
| |||
|
Amortization of prior service (credit)/cost |
|
(1,761 |
) |
(1,761 |
) |
(1,321 |
) | |||
|
|
|
|
|
|
|
|
| |||
|
Net periodic postretirement health benefit (income)/cost (a) |
|
$ |
(176 |
) |
$ |
(27 |
) |
$ |
124 |
|
(a) Plan amendments in a prior year reduced plan obligations by $8.8 million, and the resulting gain is being amortized over an actuarially determined period, reducing net periodic benefit costs.
Other changes in benefit obligations recognized in AOCI were as follows (in thousands):
|
|
|
December 31, |
| ||||
|
|
|
2016 |
|
2015 |
| ||
|
|
|
|
|
|
| ||
|
Net (gain)/loss |
|
$ |
712 |
|
$ |
(1,090 |
) |
|
Amortization of net (gain)/loss |
|
(868 |
) |
(1,058 |
) | ||
|
Amortization of prior service cost/(credit) |
|
1,761 |
|
1,761 |
| ||
|
|
|
|
|
|
| ||
|
Total recognized in other comprehensive income |
|
$ |
1,605 |
|
$ |
(387 |
) |
|
|
|
|
|
|
| ||
|
Total recognized in net periodic benefit cost and other comprehensive income |
|
$ |
1,429 |
|
$ |
(414 |
) |
The measurement date used to determine benefit obligations was December 31 in each of the two years.
Key assumptions and other information to determine current year’s obligation for the postretirement health benefit plan were as follows:
|
|
|
Years ended December 31, |
| ||||
|
|
|
2016 |
|
2015 |
|
2014 |
|
|
|
|
|
|
|
|
|
|
|
Weighted average discount rate (a) |
|
3.88% |
|
3.94% |
|
3.65% |
|
|
|
|
|
|
|
|
|
|
|
Health care cost trend rates: |
|
|
|
|
|
|
|
|
Assumed for next year |
|
|
|
|
|
|
|
|
Pre 65 |
|
6.65% |
|
7.00% |
|
7.75% |
|
|
Post 65 |
|
6.00% |
|
6.25% |
|
7.25% |
|
|
Pre 65 Ultimate rate |
|
4.50% |
|
4.50% |
|
5.00% |
|
|
Pre 65 Year that ultimate rate is reached |
|
2023 |
|
2024/2023 |
|
2022 |
|
|
Post 65 Ultimate rate |
|
4.50% |
|
4.50% |
|
5.00% |
|
|
Post 65 Year that ultimate rate is reached |
|
2023 |
|
2024/2023 |
|
2022 |
|
|
Alternative amortization methods used to amortize |
|
|
|
|
|
|
|
|
Prior service cost |
|
Straight - line |
|
Straight - line |
|
Straight - line |
|
|
Unrecognized net (gain) or loss |
|
Straight - line |
|
Straight - line |
|
Straight - line |
|
(a) The discount rates were based on the Citigroup Pension Liability Index adjusted for duration in each of the periods in this report.
Future postretirement health benefit plan expenses to be paid were estimated to be as follows (in thousands):
|
Years |
|
Payments |
| |
|
|
|
|
| |
|
2017 |
|
$ |
792 |
|
|
2018 |
|
846 |
| |
|
2019 |
|
899 |
| |
|
2020 |
|
940 |
| |
|
2021 |
|
981 |
| |
|
2022-2026 |
|
5,139 |
| |
|
Total |
|
$ |
9,597 |
|
The postretirement health benefit plan accrual for 2017 is expected to be a credit of $0.5 million (a credit of $0.2 million in 2016).
Federal Home Loan Bank of New York
Notes to Financial Statements
Note 16. Derivatives and Hedging Activities.
General — The FHLBNY accounts for its hedging activities in accordance with ASC 815, Derivatives and Hedging (formerly SFAS 133). As a general rule, hedge accounting is permitted where the FHLBNY is exposed to a particular risk, such as interest-rate risk that causes changes in the fair value of an asset or liability or variability in the expected future cash flows of an existing asset, liability or a forecasted transaction that may affect earnings.
Derivative contracts hedging the risks associated with the changes in fair value are referred to as Fair value hedges, while contracts hedging the risks affecting the expected future cash flows are called Cash flow hedges. For more information, see Derivatives in Note 1. Significant Accounting Polices and Estimates.
The FHLBNY, consistent with the Finance Agency’s regulations, may enter into interest-rate swaps, swaptions, and interest-rate cap and floor agreements to manage its interest rate exposure inherent in otherwise unhedged assets and funding positions. We are not a derivatives dealer and do not trade derivatives for short-term profit.
We use derivatives in three ways — by designating them as a fair value or cash flow hedge of an underlying financial instrument or a forecasted transaction that qualifies for hedge accounting treatment; by acting as an intermediary; or by designating the derivative as an asset-liability management hedge (i.e. an “economic hedge”).
For fair value hedges, in which derivatives hedge the fair values of assets and liabilities, changes in the fair value of derivatives are recorded in Other income in the Statements of Income, together with fair values of the hedged item related to the hedged risk. These amounts are expected to, and generally do, offset each other.
For cash flow hedges, in which derivatives hedge the variability of cash flows related to floating- and fixed-rate assets, liabilities or forecasted transactions, the accounting treatment depends on the effectiveness of the hedge. To the extent these derivatives are effective in offsetting the variability of hedged cash flows, the effective portion of the changes in the derivatives’ fair values will not be included in current earnings, but is reported in AOCI. These changes in fair value will be included in earnings of future periods when the hedged cash flows impact earnings. To the extent these cash flows are not effective, changes in their fair values are immediately included in Other income, in the Statements of Income.
When designating a derivative in an economic hedge, it is after considering the operational costs and benefits of executing a hedge that would qualify for hedge accounting. When entering into such hedges that do not qualify for hedge accounting, changes in fair value of the derivatives is recorded in earnings with no offsetting fair value adjustments for the hedged asset, liability, or firm commitment. As a result, an economic hedge introduces the potential for earnings variability. Economic hedges are an acceptable hedging strategy under the FHLBNY’s risk management program, and the strategies comply with the Finance Agency’s regulatory requirements prohibiting speculative use of derivatives.
Principal hedging activities are summarized below:
Consolidated Obligations
The FHLBNY may manage the risk arising from changing market prices and volatility of a consolidated obligation debt by matching the cash inflows on the derivative with the cash outflow on the consolidated obligation debt.
Fair value hedges — In a typical transaction, fixed-rate consolidated obligations are issued by the FHLBNY and we would concurrently enter into a matching interest rate swap in which the counterparty pays to the FHLBNY fixed cash flows designed to mirror, in timing and amounts, the cash outflows the FHLBNY pays to the holders of the consolidated obligations.
When such a transaction qualifies for hedge accounting, it is treated as a “Fair value hedge” under the accounting standards for derivatives and hedging. By electing to use fair value hedge accounting, the carrying value of the debt is adjusted for changes in the benchmark interest rate, with any such changes in fair value recorded in current earnings. The interest-rate swap that hedges the interest rate risk of the debt is also recorded on the balance sheet at fair value, with any changes in fair value reflected in earnings.
Cash flow hedges — The FHLBNY also hedges variable cash flows resulting from rollover (re-issuance) of 3-month consolidated obligation discount notes. Variable cash flows from those liabilities are converted to fixed-rate cash flows by entering into receive-variable, pay-fixed interest rate swaps. We also hedge the variability of cash flows of anticipated issuance of fixed-rate debt to changes in the benchmark rate.
When such a transaction qualifies for hedge accounting, the hedge is accounted for under the provisions of a “Cash flow hedge”. The interest-rate swaps are recorded at fair values on the balance sheet as a derivative asset or liability, with the offset in AOCI. Changes in fair values of the hedging derivatives are reflected in AOCI to the extent the hedges are effective. Hedge ineffectiveness, if any, is recorded in current earnings. Fair values of swaps in the cash flow hedge programs are reclassified from AOCI to earnings as an interest expense at the same time as when the interest expense from the discount note or the anticipated debt impacts interest expense. Since efforts are made to match the terms of the derivatives to those of the hedged forecasted cash flows as closely as possible, the amount of hedge ineffectiveness is not significant. The two Cash flow strategies are described below:
· Cash flow hedges of “Anticipated Consolidated Bond Issuance” — The FHLBNY enters into interest-rate swaps to hedge the anticipated issuance of debt, and to “lock in” the interest to be paid for the cost of funding.
Federal Home Loan Bank of New York
Notes to Financial Statements
The swaps are terminated upon issuance of the debt instrument, and gains or losses upon termination are recorded in AOCI. Gains and losses are reclassified to earnings in the periods in which earnings are affected by the variability of the cash flows of the debt that was issued.
· Cash flow hedges of “Rolling Issuance of Discount Notes” — The FHLBNY executes long-term pay-fixed, receive-variable interest rate swaps as hedges of the variable quarterly interest payments on the discount note borrowing program. In this program, we issue a series of discount notes with 91-day terms over periods typically up to 15 years. We will continue issuing new 91-day discount notes over the terms of the swaps as each outstanding discount note matures. The interest rate swaps require a settlement every 91 days, and the variable rate, which is based on the 3-month LIBOR, is reset immediately following each payment. The swaps are expected to eliminate the risk of variability of cash flows for each forecasted discount note issuance every 91 days. The fair values of the interest rate swaps are recorded in AOCI and ineffectiveness, if any, is recorded in earnings. Amounts recorded in AOCI are reclassified to earnings in the same periods in which interest expenses are affected by the variability of the cash flows of the discount notes.
Economic hedges of consolidated obligation debt — When we issue variable-rate consolidated obligation bonds indexed to 1-month LIBOR, the U.S. Prime rate, or Federal funds rate, we will generally simultaneously execute interest-rate swaps (“basis swaps”) to hedge the basis risk of the variable rate debt to 3-month LIBOR, the FHLBNY’s preferred funding base. The basis swaps are designated as economic hedges of the floating-rate bonds. The choice of an economic hedge is made because the FHLBNY has determined that the operational cost of designating the hedges under accounting standards for derivatives and hedge accounting would outweigh the accounting benefits. In this economic hedge, only the interest rate swap is carried at fair value, with changes in fair values recorded though earnings.
Consolidated obligation debt elected under the Fair Value Option — An alternative to hedge accounting, which permits the debt to be carried at the benchmark (LIBOR) fair value, is to elect debt under the FVO. Once the irrevocable election is made upon issuance of the debt, the entire change in fair value of the debt is reported in earnings. We have elected to carry certain fixed-rate consolidated bonds and discount notes under the FVO. For more information, see Fair Value Option Disclosures in Note 17. Fair Values of Financial Instruments. Typically, we would also execute interest rate swaps (to convert the fixed-rate cash flows of the FVO debt to variable-rate cash flows), and changes in the fair values of the swaps are also recorded in earnings, creating a natural offset to the debt’s fair value changes through earnings. The interest rate swap would be designated as an economic hedge of the debt.
Advances
We offer a wide array of advances structures to meet members’ funding needs. These advances may have maturities up to 30 years with fixed or adjustable rates and may include early termination features or options. We may use derivatives to adjust the repricing and/or options characteristics of advances to more closely match the characteristics of its funding liabilities.
Fair value hedges — In general, whenever a member executes a longer-term fixed rate advance, or a fixed or variable-rate advance with call or put or other embedded options, we will simultaneously execute a derivative transaction, generally an interest rate swap, with terms that offset the terms of the fixed rate advance, or terms of the advance with embedded put or call options or other options. When such instruments are conceived, designed and structured, our control procedures require the identification and evaluation of embedded derivatives, as defined under accounting standards for derivatives and hedging activities.
When a fixed-rate advance is hedged, the combination of the fixed rate advance and the derivative transaction effectively creates a variable rate asset, indexed to LIBOR. With a putable advance borrowed by a member, we would purchase from the member a put option that is embedded in the advance. We may hedge a putable advance by entering into a cancellable interest rate swap in which we pay to the swap counterparty fixed-rate cash flows, and in return the swap counterparty pays us variable-rate cash flows. The swap counterparty can cancel the swap on the put date, which would normally occur in a rising rate environment, and we can terminate the advance and extend additional credit to the member on new terms. We also offer callable advances to members, which is a fixed-rate advance borrowed by a member. Within the structure of the advance, the FHLBNY sells to the member an embedded call option that enables the member to terminate the advance at pre-determined exercise dates. The call option is embedded in the advance. We hedge such advances by executing interest rate swaps with cancellable option features that would allow us to terminate the swaps also at pre-determined option exercise dates.
Advances elected under the Fair Value Option — We have elected to carry certain advances under the FVO. Once the irrevocable election is made upon issuance of the advance, the entire change in fair value of the advance is reported in earnings, and provides a natural economic offset when a consolidated obligation debt is elected under the FVO.
Economic hedges of variable rate capped advances — We offer variable rate advances with an embedded option that caps the interest rate payable by the borrower. The FHLBNY would typically offset the risk presented by the embedded cap by executing a matching standalone cap.
Mortgage Loans
Mortgage loans are fixed-rate MPF loans held-for-portfolio, and the FHLBNY manages the interest rate and prepayment risk associated with mortgages through debt issuance, without the use of derivatives. Firm commitments to purchase or deliver mortgage loans are accounted for as a derivative. See “Firm Commitment Strategies” described below.
Federal Home Loan Bank of New York
Notes to Financial Statements
Firm Commitment Strategies — Mortgage delivery commitments are considered derivatives under the accounting standards for derivatives and hedging. We account for them as freestanding derivatives, and record the fair values of mortgage loan delivery commitments on the balance sheet with an offset to Other income (loss) as Net realized and unrealized gains (losses) on derivatives and hedging activities. Fair values were not significant for all periods in this report.
Member Intermediation
To meet the hedging needs of its members, the FHLBNY acts as an intermediary between the members and the other counterparties. This intermediation allows smaller members to access the derivatives market. The derivatives used in intermediary activities do not qualify for hedge accounting, and fair value changes are recorded in earnings. Since the FHLBNY mitigates the fair value exposure of these positions by executing identical offsetting transactions, the net impact in earnings is not significant. The notional principal of interest rate swaps outstanding were $129.0 million and $31.0 million at December 31, 2016 and December 31, 2015. The FHLBNY’s exposure with respect to the transactions with members was fully collateralized.
Other Economic Hedges
The derivatives in economic hedges are considered freestanding and changes in the fair values of the swaps are recorded through income. In general, economic hedges comprised of (1) interest rate caps to hedge balance sheet risk, specifically interest rate risk from certain capped floating rate investment securities, (2) interest rate swaps that had previously qualified as hedges under the accounting standards for derivatives and hedging, but had been subsequently de-designated from hedge accounting as they were assessed as being not highly effective hedges, (3) interest rate swaps in economic hedges of advances and debt elected under the FVO, and (4) interest rate swaps in economic hedges of securities in the trading/liquidity portfolio.
Credit Risk Due to Non-performance by Counterparties
The contractual or notional amount of derivatives reflects the involvement of the FHLBNY in the various classes of financial instruments, and serves as a basis for calculating periodic interest payments or cash flows. Notional amount of a derivative does not measure the credit risk exposure, and the maximum credit exposure is substantially less than the notional amount. The maximum credit risk is the estimated cost of replacing interest-rate swaps, forward agreements, mandatory delivery contracts for mortgage loans and purchased caps and floors (“derivatives”) in a gain position if the counterparty defaults and the related collateral, if any, is of insufficient value to the FHLBNY.
Derivatives are instruments that derive their value from underlying asset prices, indices, reference rates and other inputs, or a combination of these factors. The FHLBNY executes derivatives with swap dealers and financial institution swap counterparties as negotiated contracts, which are usually referred to as over-the-counter (“OTC”) derivatives. The majority of OTC derivative contracts are primarily bilateral contracts between the FHLBNY and the swap counterparties that are executed and settled bilaterally with counterparties, rather than settling the transaction with a derivative clearing organization (“DCO”). Certain of the FHLBNY’s OTC derivatives are executed bilaterally with executing swap counterparties, then cleared and settled through one or more DCOs as mandated under the Dodd-Frank Act. When transacting a derivative for clearing, the FHLBNY utilizes a designated clearing agent, the Futures Clearing Merchant (“FCM”) that acts on behalf of the FHLBNY to clear and settle the interest rate exchange transaction through the DCO. Once the transaction is accepted for clearing by the FCM, acting in the capacity of an intermediary between the FHLBNY and the DCO, the original transaction between the FHLBNY and the executing swap counterparty is extinguished, and is replaced by an identical transaction between the FHLBNY and the DCO. The DCO becomes the counterparty to the FHLBNY. However, the FCM remains as the principal operational contact and interacts with the DCO through the life cycle events of the derivative transaction on behalf of the FHLBNY.
Credit risk on bilateral OTC derivative contracts — For derivatives that are not eligible for clearing with a DCO under the Dodd-Frank Act, the FHLBNY is subject to credit risk as a result of non-performance by swap counterparties to the derivative agreements. The FHLBNY enters into master netting arrangements and bilateral security agreements with all active derivative counterparties that provide for delivery of collateral at specified levels to limit the net unsecured credit exposure to these counterparties. The FHLBNY makes judgments on each counterparty’s creditworthiness, and makes estimates of the collateral values in analyzing counterparty non-performance credit risk. Bilateral agreements consider the credit risks and the agreement specifies thresholds to post or receive collateral with changes in credit ratings. When the FHLBNY has more than one derivative transaction outstanding with the counterparty, and a legally enforceable master netting agreement exists with the counterparty, the net exposure (less collateral held) represents the appropriate measure of credit risk. The FHLBNY conducts all its bilaterally executed derivative transactions under ISDA master netting agreements.
Credit risk on OTC cleared derivative transactions — The FHLBNY’s derivative transactions that are eligible for clearing are subject to mandatory clearing rules under the Commodity Futures Trading Commission (“CFTC”) as provided under the Dodd-Frank Act. If a derivative transaction is listed as eligible for clearing, the FHLBNY must abide by the CFTC rules to clear the transaction through a DCO. The FHLBNY’s cleared derivatives are also initially executed bilaterally with a swap dealer (the executing swap counterparty), in the OTC market. The clearing process requires all parties to the derivative transaction to novate the contracts to a DCO, which then becomes the counterparty to all parties, including the FHLBNY, to the transaction.
The enforceability of offsetting rights incorporated in the agreements for the cleared derivative transactions has been analyzed by the FHLBNY to establish the extent to which supportive legal opinion, obtained from counsel of recognized standing, provides the requisite level of certainty regarding the enforceability of these agreements. Further analysis was performed to reach a view that the exercise of rights by the non-defaulting party under these agreements would not be stayed, or avoided under applicable law upon an event of default including bankruptcy,
Federal Home Loan Bank of New York
Notes to Financial Statements
insolvency or similar proceeding involving the DCO or the FHLBNY’s clearing agents or both. Based on the analysis of the rules, and legal analysis obtained, the FHLBNY has made a determination that it has the right of setoff that is enforceable under applicable law that would allow it to net individual derivative contracts executed through a specific clearing agent, the FCM, to a designated DCO, so that a net derivative receivable or payable will be recorded for the DCO; that exposure (less margin held) would be represented by a single amount receivable from the DCO, and that amount be the appropriate measure of credit risk. This policy election for netting cleared derivatives is consistent with the policy election for netting bilaterally settled derivative transactions under master netting agreements.
Typically, margin consists of “Initial margin” and “Variation margin”. Variation margin fluctuates with the fair values of the open contracts. Initial margin fluctuates with the volatility of the FHLBNY’s portfolio of cleared derivatives, and volatility is measured by the speed and severity of market price changes of the portfolio. Initial margin and Variation margins are posted in cash by the FHLBNY and are accounted as cash collateral.
Offsetting of Derivative Assets and Derivative Liabilities — Net Presentation
The following table presents the gross and net derivatives receivables by contract type and amount for those derivatives contracts for which netting is permissible under U.S. GAAP (“Derivative instruments — Nettable”). Derivatives receivables have been netted with respect to those receivables as to which the netting requirements have been met, including obtaining a legal analysis with respect to the enforceability of the netting. Where such a legal analysis has not been either sought or obtained, the receivables were not netted, and were reported as Derivative instruments — Not Nettable (in thousands):
|
|
|
December 31, 2016 |
|
December 31, 2015 |
| ||||||||
|
|
|
Derivative |
|
Derivative |
|
Derivative |
|
Derivative |
| ||||
|
Derivative instruments -Nettable |
|
|
|
|
|
|
|
|
| ||||
|
Gross recognized amount |
|
|
|
|
|
|
|
|
| ||||
|
Bilateral derivatives |
|
$ |
207,462 |
|
$ |
230,084 |
|
$ |
237,981 |
|
$ |
527,061 |
|
|
Cleared derivatives |
|
518,962 |
|
213,719 |
|
355,644 |
|
135,638 |
| ||||
|
Total gross recognized amount |
|
726,424 |
|
443,803 |
|
593,625 |
|
662,699 |
| ||||
|
Gross amounts of netting adjustments and cash collateral |
|
|
|
|
|
|
|
|
| ||||
|
Bilateral derivatives |
|
(94,742 |
) |
(85,199 |
) |
(227,007 |
) |
(316,962 |
) | ||||
|
Cleared derivatives |
|
(302,867 |
) |
(213,719 |
) |
(184,959 |
) |
(135,638 |
) | ||||
|
Total gross amounts of netting adjustments and cash collateral |
|
(397,609 |
) |
(298,918 |
) |
(411,966 |
) |
(452,600 |
) | ||||
|
Net amounts after offsetting adjustments |
|
|
|
|
|
|
|
|
| ||||
|
Bilateral derivatives |
|
112,720 |
|
144,885 |
|
10,974 |
|
210,099 |
| ||||
|
Cleared derivatives |
|
216,095 |
|
— |
|
170,685 |
|
— |
| ||||
|
Total net amounts after offsetting adjustments |
|
328,815 |
|
144,885 |
|
181,659 |
|
210,099 |
| ||||
|
Derivative instruments -Not Nettable |
|
|
|
|
|
|
|
|
| ||||
|
Delivery commitments (a) |
|
60 |
|
100 |
|
17 |
|
14 |
| ||||
|
Total derivative assets and total derivative liabilities presented in the Statements of Condition (b) |
|
$ |
328,875 |
|
$ |
144,985 |
|
$ |
181,676 |
|
$ |
210,113 |
|
|
Non-cash collateral received or pledged not offset (c) |
|
|
|
|
|
|
|
|
| ||||
|
Cannot be sold or repledged |
|
|
|
|
|
|
|
|
| ||||
|
Bilateral derivatives |
|
$ |
104,470 |
|
$ |
— |
|
$ |
345 |
|
$ |
— |
|
|
Delivery commitments (a) |
|
60 |
|
— |
|
17 |
|
— |
| ||||
|
Total cannot be sold or repledged |
|
104,530 |
|
— |
|
362 |
|
— |
| ||||
|
Net unsecured amount |
|
|
|
|
|
|
|
|
| ||||
|
Bilateral derivatives |
|
8,250 |
|
144,985 |
|
10,629 |
|
210,113 |
| ||||
|
Cleared derivatives |
|
216,095 |
|
— |
|
170,685 |
|
— |
| ||||
|
Total net amount (d) |
|
$ |
224,345 |
|
$ |
144,985 |
|
$ |
181,314 |
|
$ |
210,113 |
|
(a) Derivative instruments without legal right of offset were synthetic derivatives representing forward mortgage delivery commitments of 45 business days or less. Amounts were not material, and it was operationally not practical to separate receivable from payables, and net presentation was adopted. No cash collateral was involved with the mortgage delivery commitments accounted as derivatives.
(b) Total net amount represents net unsecured amounts of Derivative assets and liabilities recorded in the Statements of Condition at December 31, 2016 and December 31, 2015. The amounts primarily represent (1) the aggregate credit support thresholds that were waived under ISDA Credit Support and Master netting agreements between the FHLBNY and derivative counterparties for uncleared derivative contracts, and (2) Initial margins posted by the FHLBNY to DCO on cleared derivative transactions. It does not include non-cash collateral received or pledged.
(c) Non-Cash collateral received or pledged not offset — Bilateral derivative: certain counterparties have pledged U.S. treasury securities to collateralize FHLBNY’s exposure. Delivery commitments - amounts represent exposure arising from derivative positions with member counterparties where we acted as an intermediary, and a small amount of delivery commitments (see footnote a). Amounts are collateralized by pledged non-cash collateral, primarily 1-4 family housing collateral.
(d) Represents net exposure after applying non-cash collateral pledged to the FHLBNY.
The gross derivative exposure, as represented by derivatives in fair value gain positions for the FHLBNY, before netting and offsetting cash collateral, was $726.4 million at December 31, 2016 and $593.6 million at December 31, 2015. Fair value amounts that were netted as a result of master netting agreements, or as a result of a determination that netting requirements had been met (including obtaining a legal analysis supporting the enforceability of the netting for cleared OTC derivatives), were $397.6 million and $412.0 million at those dates. These netting adjustments included $354.7 million and $329.9 million in cash posted by counterparties to mitigate the FHLBNY’s exposures at December 31, 2016 and December 31, 2015, and the net exposures after offsetting adjustments were $328.9 million and $181.7 million at those dates.
Derivative counterparties are also exposed to credit losses resulting from potential non-performance risk of the FHLBNY with respect to derivative contracts, and their exposure, due to a potential default or non-performance by the FHLBNY, is measured by derivatives in a fair value loss position from the FHLBNY’s perspective (and a gain position from the counterparty’s perspective). At December 31, 2016 and December 31, 2015, net fair values of
Federal Home Loan Bank of New York
Notes to Financial Statements
derivatives in unrealized loss positions were $145.0 million and $210.1 million, after deducting $256.0 million and $370.5 million of cash collateral posted to the exposed counterparties.
With respect to cleared derivatives, cash posted to the DCOs were in excess of required margins, primarily due to the requirement to post Initial margin. The DCOs were exposed to the extent of the failure of the FHLBNY to deliver cash margin, which is typically paid one day following the execution of a cleared derivative, and that specific exposure was not significant at December 31, 2016 and December 31, 2015.
The FHLBNY is also exposed to the risk of derivative counterparties failing to return cash collateral deposited with counterparties due to counterparty bankruptcy or other similar scenarios. If such an event were to occur, the FHLBNY would be forced to replace derivatives by executing similar derivative contracts with other counterparties. To the extent that the FHLBNY receives cash from the replacement trades that is less than the amount of cash deposited with the defaulting counterparty, the FHLBNY’s cash pledged as a deposit is exposed to credit risk of the defaulting counterparty. Derivative counterparties, including the DCO, holding the FHLBNY’s cash as posted collateral, were analyzed from a credit performance perspective, and based on credit analysis and collateral requirements, the management of the FHLBNY does not anticipate any credit losses on its derivative agreements.
Offsetting of Derivative Assets and Derivative Liabilities
The following tables represent outstanding notional balances and estimated fair values of the derivatives outstanding at December 31, 2016 and December 31, 2015 (in thousands):
|
|
|
December 31, 2016 |
| |||||||
|
|
|
Notional Amount |
|
Derivative Assets |
|
Derivative |
| |||
|
Fair value of derivative instruments (a) |
|
|
|
|
|
|
| |||
|
Derivatives designated in hedging relationships |
|
|
|
|
|
|
| |||
|
Interest rate swaps-fair value hedges |
|
$ |
63,333,846 |
|
$ |
670,694 |
|
$ |
344,126 |
|
|
Interest rate swaps-cash flow hedges |
|
1,934,000 |
|
17,719 |
|
68,793 |
| |||
|
Total derivatives in hedging instruments |
|
65,267,846 |
|
688,413 |
|
412,919 |
| |||
|
Derivatives not designated as hedging instruments |
|
|
|
|
|
|
| |||
|
Interest rate swaps |
|
26,125,822 |
|
27,993 |
|
26,405 |
| |||
|
Interest rate caps or floors |
|
2,698,000 |
|
5,214 |
|
— |
| |||
|
Mortgage delivery commitments |
|
28,447 |
|
60 |
|
100 |
| |||
|
Other (b) |
|
258,000 |
|
4,804 |
|
4,479 |
| |||
|
Total derivatives not designated as hedging instruments |
|
29,110,269 |
|
38,071 |
|
30,984 |
| |||
|
Total derivatives before netting and collateral adjustments |
|
$ |
94,378,115 |
|
726,484 |
|
443,903 |
| ||
|
Netting adjustments and cash collateral (c) |
|
|
|
(397,609 |
) |
(298,918 |
) | |||
|
Net after cash collateral reported on the Statements of Condition |
|
|
|
328,875 |
|
$ |
144,985 |
| ||
|
Security collateral received from counterparty (d) |
|
|
|
(104,470 |
) |
|
| |||
|
Net exposure |
|
|
|
$ |
224,405 |
|
|
| ||
|
|
|
December 31, 2015 |
| |||||||
|
|
|
Notional Amount |
|
Derivative Assets |
|
Derivative |
| |||
|
Fair value of derivative instruments (a) |
|
|
|
|
|
|
| |||
|
Derivatives designated in hedging relationships |
|
|
|
|
|
|
| |||
|
Interest rate swaps-fair value hedges |
|
$ |
69,075,046 |
|
$ |
561,016 |
|
$ |
551,617 |
|
|
Interest rate swaps-cash flow hedges |
|
1,624,000 |
|
2,017 |
|
87,259 |
| |||
|
Total derivatives in hedging instruments |
|
70,699,046 |
|
563,033 |
|
638,876 |
| |||
|
Derivatives not designated as hedging instruments |
|
|
|
|
|
|
| |||
|
Interest rate swaps |
|
33,322,944 |
|
25,174 |
|
23,414 |
| |||
|
Interest rate caps or floors |
|
2,698,000 |
|
4,947 |
|
— |
| |||
|
Mortgage delivery commitments |
|
14,806 |
|
17 |
|
14 |
| |||
|
Other (b) |
|
62,000 |
|
471 |
|
409 |
| |||
|
Total derivatives not designated as hedging instruments |
|
36,097,750 |
|
30,609 |
|
23,837 |
| |||
|
Total derivatives before netting and collateral adjustments |
|
$ |
106,796,796 |
|
593,642 |
|
662,713 |
| ||
|
Netting adjustments and cash collateral (c) |
|
|
|
(411,966 |
) |
(452,600 |
) | |||
|
Net after cash collateral reported on the Statements of Condition |
|
|
|
$ |
181,676 |
|
$ |
210,113 |
| |
(a) All derivative assets and liabilities with swap dealers and counterparties are collateralized by cash; derivative instruments executed bilaterally are subject to legal right of offset under master netting agreements.
(b) The Other category comprised of swaps intermediated for member, and notional amounts represent purchases from dealers and an offsetting purchase by the members from us.
(c) Cash collateral and related accrued interest posted by counterparties to the FHLBNY of $354.7 million and $329.9 million at December 31, 2016 and December 31, 2015 were netted in Netting adjustments in Derivative assets; cash collateral posted by the FHLBNY of $256.0 million and $370.5 million at December 31, 2016 and December 31, 2015 were netted in Netting adjustments in Derivative liabilities. Variation margin on cleared derivatives were accounted as cash collateral and included in the netting adjustments.
(d) At December 31, 2016, counterparties had pledged U.S. government treasury security as collateral; does not include $60.0 thousand mortgage collateral pledged to the FHLBNY to secure delivery commitments at December 31, 2016. No securities had been pledged to the FHLBNY at December 31, 2015.
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
Federal Home Loan Bank of New York
Notes to Financial Statements
being hedged (benchmark interest-rate risk, which is LIBOR for the FHLBNY) may also be recorded so that some or all of the unrealized fair value gains or losses recognized on the derivatives are offset by corresponding unrealized gains or losses on the associated hedged financial assets and liabilities. The net differential between fair value changes of the derivatives and the hedged items represents hedge ineffectiveness. The net ineffectiveness from hedges that qualify under hedge accounting rules is recorded as a Net realized and unrealized gain (loss) on derivatives and hedging activities in Other income (loss) in the Statements of Income. If derivatives do not qualify for the hedging criteria under hedge accounting rules, but are executed as economic hedges of financial assets or liabilities under a FHLBNY-approved hedge strategy, only the fair value changes of the derivatives are recorded as a Net realized and unrealized gain (loss) on derivatives and hedging activities in Other income (loss) in the Statements of Income.
The FHLBNY has elected to measure certain debt under the accounting designation for the fair value option (“FVO”), and has executed interest rate swaps as economic hedges of the debt. While changes in fair values of the interest rate swap and the debt elected under the FVO are recorded in earnings in Other income (loss), the changes in the fair value changes of the swaps are recorded as a Net realized and unrealized gain (loss) on derivatives and hedging activities. Fair value changes of debt and advances elected under the FVO are recorded as an Unrealized (losses) or gains from Instruments held at fair value.
Components of net gains/(losses) on Derivatives and hedging activities as presented in the Statements of Income are summarized below (in thousands):
|
|
|
December 31, 2016 |
| ||||||||||
|
|
|
Gains (Losses) |
|
Gains (Losses) |
|
Earnings |
|
Effect of Derivatives |
| ||||
|
Derivatives designated as hedging instruments |
|
|
|
|
|
|
|
|
| ||||
|
Interest rate swaps |
|
|
|
|
|
|
|
|
| ||||
|
Advances |
|
$ |
295,080 |
|
$ |
(293,720 |
) |
$ |
1,360 |
|
$ |
(392,473 |
) |
|
Consolidated obligation bonds |
|
(55,503 |
) |
56,385 |
|
882 |
|
91,243 |
| ||||
|
Net gains (losses) related to fair value hedges |
|
239,577 |
|
(237,335 |
) |
2,242 |
|
$ |
(301,230 |
) | |||
|
Cash flow hedges |
|
58 |
|
|
|
58 |
|
$ |
(34,908 |
) | |||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Derivatives not designated as hedging instruments |
|
|
|
|
|
|
|
|
| ||||
|
Interest rate swaps (a) |
|
(3,302 |
) |
|
|
(3,302 |
) |
|
| ||||
|
Caps or floors |
|
253 |
|
|
|
253 |
|
|
| ||||
|
Mortgage delivery commitments |
|
(530 |
) |
|
|
(530 |
) |
|
| ||||
|
Swaps economically hedging instruments designated under FVO |
|
6,231 |
|
|
|
6,231 |
|
|
| ||||
|
Accrued interest-swaps (a) |
|
(6,673 |
) |
|
|
(6,673 |
) |
|
| ||||
|
Net (losses) related to derivatives not designated as hedging instruments |
|
(4,021 |
) |
|
|
(4,021 |
) |
|
| ||||
|
Net gains (losses) on derivatives and hedging activities |
|
$ |
235,614 |
|
$ |
(237,335 |
) |
$ |
(1,721 |
) |
|
| |
|
|
|
December 31, 2015 |
| ||||||||||
|
|
|
Gains (Losses) |
|
Gains (Losses) |
|
Earnings |
|
Effect of |
| ||||
|
Derivatives designated as hedging instruments |
|
|
|
|
|
|
|
|
| ||||
|
Interest rate swaps |
|
|
|
|
|
|
|
|
| ||||
|
Advances |
|
$ |
429,007 |
|
$ |
(434,946 |
) |
$ |
(5,939 |
) |
$ |
(888,800 |
) |
|
Consolidated obligation bonds |
|
(1,071 |
) |
9,939 |
|
8,868 |
|
218,299 |
| ||||
|
Net gains (losses) related to fair value hedges |
|
427,936 |
|
(425,007 |
) |
2,929 |
|
$ |
(670,501 |
) | |||
|
Cash flow hedges |
|
(284 |
) |
|
|
(284 |
) |
$ |
(36,162 |
) | |||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Derivatives not designated as hedging instruments |
|
|
|
|
|
|
|
|
| ||||
|
Interest rate swaps (a) |
|
(782 |
) |
|
|
(782 |
) |
|
| ||||
|
Caps or floors |
|
(2,640 |
) |
|
|
(2,640 |
) |
|
| ||||
|
Mortgage delivery commitments |
|
(137 |
) |
|
|
(137 |
) |
|
| ||||
|
Swaps economically hedging instruments designated under FVO |
|
(9,712 |
) |
|
|
(9,712 |
) |
|
| ||||
|
Accrued interest-swaps (a) |
|
23,183 |
|
|
|
23,183 |
|
|
| ||||
|
Net gains related to derivatives not designated as hedging instruments |
|
9,912 |
|
|
|
9,912 |
|
|
| ||||
|
Net gains (losses) on derivatives and hedging activities |
|
$ |
437,564 |
|
$ |
(425,007 |
) |
$ |
12,557 |
|
|
| |
Federal Home Loan Bank of New York
Notes to Financial Statements
|
|
|
December 31, 2014 |
| ||||||||||
|
|
|
Gains (Losses) |
|
Gains (Losses) |
|
Earnings |
|
Effect of |
| ||||
|
Derivatives designated as hedging instruments |
|
|
|
|
|
|
|
|
| ||||
|
Interest rate swaps |
|
|
|
|
|
|
|
|
| ||||
|
Advances |
|
$ |
415,444 |
|
$ |
(416,066 |
) |
$ |
(622 |
) |
$ |
(1,001,326 |
) |
|
Consolidated obligation bonds |
|
179,072 |
|
(172,834 |
) |
6,238 |
|
251,205 |
| ||||
|
Net gains (losses) related to fair value hedges |
|
594,516 |
|
(588,900 |
) |
5,616 |
|
$ |
(750,121 |
) | |||
|
Cash flow hedges |
|
51 |
|
|
|
51 |
|
$ |
(35,143 |
) | |||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Derivatives not designated as hedging instruments |
|
|
|
|
|
|
|
|
| ||||
|
Interest rate swaps (a) |
|
657 |
|
|
|
657 |
|
|
| ||||
|
Caps or floors |
|
(19,664 |
) |
|
|
(19,664 |
) |
|
| ||||
|
Mortgage delivery commitments |
|
1,027 |
|
|
|
1,027 |
|
|
| ||||
|
Swaps economically hedging instruments designated under FVO |
|
(1,233 |
) |
|
|
(1,233 |
) |
|
| ||||
|
Accrued interest-swaps (a) |
|
13,663 |
|
|
|
13,663 |
|
|
| ||||
|
Net (losses) related to derivatives not designated as hedging instruments |
|
(5,550 |
) |
|
|
(5,550 |
) |
|
| ||||
|
Net gains (losses) on derivatives and hedging activities |
|
$ |
589,017 |
|
$ |
(588,900 |
) |
$ |
117 |
|
|
| |
(a) Derivative gains and losses from interest rate swaps that did not qualify as hedges under accounting rules were designated as economic hedges. Gains and losses include interest expenses and income associated with the interest rate swap.
Cash Flow Hedges
The effect of interest rate swaps in cash flow hedging relationships was as follows (in thousands):
|
|
|
December 31, 2016 |
| |||||||||
|
|
|
AOCI |
| |||||||||
|
|
|
Gains/(Losses) |
| |||||||||
|
|
|
Recognized in |
|
Location: |
|
Amount |
|
Ineffectiveness |
| |||
|
Consolidated obligation bonds (a) |
|
$ |
5,982 |
|
Interest Expense |
|
$ |
(2,127 |
) |
$ |
58 |
|
|
Consolidated obligation discount notes (b) |
|
35,910 |
|
Interest Expense |
|
— |
|
— |
| |||
|
|
|
$ |
41,892 |
|
|
|
$ |
(2,127 |
) |
$ |
58 |
|
|
|
|
December 31, 2015 |
| |||||||||
|
|
|
AOCI |
| |||||||||
|
|
|
Gains/(Losses) |
| |||||||||
|
|
|
Recognized in |
|
Location: |
|
Amount |
|
Ineffectiveness |
| |||
|
Consolidated obligation bonds (a) |
|
$ |
(2,699 |
) |
Interest Expense |
|
$ |
(2,773 |
) |
$ |
(284 |
) |
|
Consolidated obligation discount notes (b) |
|
(4,444 |
) |
Interest Expense |
|
— |
|
— |
| |||
|
|
|
$ |
(7,143 |
) |
|
|
$ |
(2,773 |
) |
$ |
(284 |
) |
|
|
|
December 31, 2014 |
| |||||||||
|
|
|
AOCI |
| |||||||||
|
|
|
Gains/(Losses) |
| |||||||||
|
|
|
Recognized in |
|
Location: |
|
Amount |
|
Ineffectiveness |
| |||
|
Consolidated obligation bonds (a) |
|
$ |
(104 |
) |
Interest Expense |
|
$ |
(2,902 |
) |
$ |
51 |
|
|
Consolidated obligation discount notes (b) |
|
(58,482 |
) |
Interest Expense |
|
— |
|
— |
| |||
|
|
|
$ |
(58,586 |
) |
|
|
$ |
(2,902 |
) |
$ |
51 |
|
(a) Cash flow hedges of anticipated issuance of consolidated obligation bonds.
Changes in period recognized in AOCI— Cash flow hedges executed and closed in 2016 resulted in a net unrecognized gains of $6.0 million, compared to net unrecognized losses of $2.7 million and $0.1 million in 2015 and 2014. Open swap contracts under this hedging strategy were notional amounts of $95.0 million and $35.0 million at December 31, 2016 and December 31, 2015. Unrecognized gains and losses in AOCI are amortized and reclassified to interest income and expense with an offset to the cumulative balance in AOCI. The fair values of open contracts recorded in AOCI were unrealized gains of $1.8 million at December 31, 2016, compared to unrealized losses of $0.1 million at December 31, 2015.
Federal Home Loan Bank of New York
Notes to Financial Statements
Cumulative unamortized balance in AOCI — The balance in AOCI of cumulative net unrecognized gains from hedges of anticipatory issuance strategy was $2.3 million at December 31, 2016 and net unrecognized losses of $5.8 million at December 31, 2015. For more information, see Rollforward table below.
Amount Reclassified to Earnings — Amounts represented amortization of unrecognized losses from previously closed contracts that were recorded as a yield adjustment in interest expense and as an offset to reduce the unamortized balance in AOCI.
Ineffectiveness Recognized in Earnings — Ineffectiveness if any was insignificant. Balances represented cash flow hedge ineffectiveness that were recorded in earnings in Other income as a fair value loss or gain from hedging activities (and not carried forward in AOCI).
(b) Hedges of discount notes in rolling issuances
Changes in period recognized in AOCI — Amounts represented period-over-period change in the fair values of open swap contracts in the cash flow hedging strategy. Open swap contracts under this strategy were notional amounts of $1.8 billion and $1.6 billion at December 31, 2016 and December 31, 2015. The fair values changes recorded in AOCI were net unrealized gains of $35.9 million at December 31, 2016, compared to net unrealized losses of $4.4 million and $58.5 million at December 31, 2015 and 2014. The cash flow hedges mitigated exposure to the variability in future cash flows over a maximum period of 15 years.
Cumulative unamortized balance in AOCI — The balance in AOCI of cumulative net unrecognized losses from hedges of discount notes in rolling issuances was $49.3 million at December 31, 2016 and $85.2 million at December 31, 2015. For more information, see Rollforward table below.
(c) Ineffectiveness recognized in earnings — The effective portion of the fair values of open contracts is recorded in AOCI. Ineffectiveness is recorded in Other income as a component of derivatives and hedging gains and losses.
Cash Flow Hedges — Fair Value Changes in AOCI Rollforward Analysis (in thousands):
|
|
|
December 31, 2016 |
|
December 31, 2015 |
| ||||||||
|
|
|
Rollover Hedge |
|
Anticipatory Hedge |
|
Rollover Hedge |
|
Anticipatory Hedge |
| ||||
|
Beginning balance |
|
$ |
(85,222 |
) |
$ |
(5,815 |
) |
$ |
(80,778 |
) |
$ |
(5,889 |
) |
|
Changes in fair values |
|
35,910 |
|
— |
|
(4,444 |
) |
— |
| ||||
|
Amount reclassified |
|
|
|
2,127 |
|
|
|
2,773 |
| ||||
|
Fair Value - closed contract |
|
— |
|
4,202 |
|
— |
|
(2,678 |
) | ||||
|
Fair Value - open contract |
|
— |
|
1,780 |
|
— |
|
(21 |
) | ||||
|
Ending balance |
|
$ |
(49,312 |
) |
$ |
2,294 |
|
$ |
(85,222 |
) |
$ |
(5,815 |
) |
|
|
|
|
|
|
|
|
|
|
| ||||
|
Notional amount of swaps outstanding |
|
$ |
1,839,000 |
|
$ |
95,000 |
|
$ |
1,589,000 |
|
$ |
35,000 |
|
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.
It is expected that over the next 12 months, $1.3 million of the unrecognized loss in AOCI will be recognized as a yield adjustment (expense) to debt interest expense.
Federal Home Loan Bank of New York
Notes to Financial Statements
Note 17. Fair Values of Financial Instruments.
The fair value amounts recorded on the Statements 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.
Estimated Fair Values — Summary Tables
The carrying values, estimated fair values and the levels within the fair value hierarchy were as follows (in thousands):
|
|
|
December 31, 2016 |
| ||||||||||||||||
|
|
|
|
|
Estimated Fair Value |
|
|
| ||||||||||||
|
Financial Instruments |
|
Carrying Value |
|
Total |
|
Level 1 |
|
Level 2 |
|
Level 3 (a) |
|
Netting |
| ||||||
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Cash and due from banks |
|
$ |
151,769 |
|
$ |
151,769 |
|
$ |
151,769 |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
|
Securities purchased under agreements to resell |
|
7,150,000 |
|
7,149,882 |
|
— |
|
7,149,882 |
|
— |
|
— |
| ||||||
|
Federal funds sold |
|
6,683,000 |
|
6,682,915 |
|
— |
|
6,682,915 |
|
— |
|
— |
| ||||||
|
Trading securities |
|
131,151 |
|
131,151 |
|
— |
|
131,151 |
|
— |
|
— |
| ||||||
|
Available-for-sale securities |
|
697,812 |
|
697,812 |
|
41,718 |
|
656,094 |
|
— |
|
— |
| ||||||
|
Held-to-maturity securities |
|
16,022,293 |
|
16,146,971 |
|
— |
|
14,831,668 |
|
1,315,303 |
|
— |
| ||||||
|
Advances |
|
109,256,625 |
|
109,285,876 |
|
— |
|
109,285,876 |
|
— |
|
— |
| ||||||
|
Mortgage loans held-for-portfolio, net |
|
2,746,559 |
|
2,730,328 |
|
— |
|
2,730,328 |
|
— |
|
— |
| ||||||
|
Loans to other FHLBanks |
|
255,000 |
|
254,998 |
|
— |
|
254,998 |
|
— |
|
— |
| ||||||
|
Accrued interest receivable |
|
163,379 |
|
163,379 |
|
— |
|
163,379 |
|
— |
|
— |
| ||||||
|
Derivative assets |
|
328,875 |
|
328,875 |
|
— |
|
726,484 |
|
— |
|
(397,609 |
) | ||||||
|
Other financial assets |
|
1,653 |
|
1,653 |
|
— |
|
— |
|
1,653 |
|
— |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Deposits |
|
1,240,749 |
|
1,240,719 |
|
— |
|
1,240,719 |
|
— |
|
— |
| ||||||
|
Consolidated obligations |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Bonds |
|
84,784,664 |
|
84,702,084 |
|
— |
|
84,702,084 |
|
— |
|
— |
| ||||||
|
Discount notes |
|
49,357,894 |
|
49,355,575 |
|
— |
|
49,355,575 |
|
— |
|
— |
| ||||||
|
Mandatorily redeemable capital stock |
|
31,435 |
|
31,435 |
|
31,435 |
|
— |
|
— |
|
— |
| ||||||
|
Accrued interest payable |
|
130,178 |
|
130,178 |
|
— |
|
130,178 |
|
— |
|
— |
| ||||||
|
Derivative liabilities |
|
144,985 |
|
144,985 |
|
— |
|
443,903 |
|
— |
|
(298,918 |
) | ||||||
|
Other financial liabilities |
|
67,670 |
|
67,670 |
|
67,670 |
|
— |
|
— |
|
— |
| ||||||
|
|
|
December 31, 2015 |
| ||||||||||||||||
|
|
|
|
|
Estimated Fair Value |
|
|
| ||||||||||||
|
Financial Instruments |
|
Carrying Value |
|
Total |
|
Level 1 |
|
Level 2 |
|
Level 3 (a) |
|
Netting |
| ||||||
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Cash and due from banks |
|
$ |
327,482 |
|
$ |
327,482 |
|
$ |
327,482 |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
|
Securities purchased under agreements to resell |
|
4,000,000 |
|
3,999,933 |
|
— |
|
3,999,933 |
|
— |
|
— |
| ||||||
|
Federal funds sold |
|
7,245,000 |
|
7,244,805 |
|
— |
|
7,244,805 |
|
— |
|
— |
| ||||||
|
Available-for-sale securities |
|
990,129 |
|
990,129 |
|
32,873 |
|
957,256 |
|
— |
|
— |
| ||||||
|
Held-to-maturity securities |
|
13,932,372 |
|
14,114,222 |
|
— |
|
12,985,121 |
|
1,129,101 |
|
— |
| ||||||
|
Advances |
|
93,874,211 |
|
93,681,217 |
|
— |
|
93,681,217 |
|
— |
|
— |
| ||||||
|
Mortgage loans held-for-portfolio, net |
|
2,524,285 |
|
2,546,492 |
|
— |
|
2,546,492 |
|
— |
|
— |
| ||||||
|
Accrued interest receivable |
|
145,913 |
|
145,913 |
|
— |
|
145,913 |
|
— |
|
— |
| ||||||
|
Derivative assets |
|
181,676 |
|
181,676 |
|
— |
|
593,642 |
|
— |
|
(411,966 |
) | ||||||
|
Other financial assets |
|
2,166 |
|
2,166 |
|
— |
|
— |
|
2,166 |
|
— |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Deposits |
|
1,350,416 |
|
1,350,382 |
|
— |
|
1,350,382 |
|
— |
|
— |
| ||||||
|
Consolidated obligations |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Bonds |
|
67,715,952 |
|
67,529,043 |
|
— |
|
67,529,043 |
|
— |
|
— |
| ||||||
|
Discount notes |
|
46,849,868 |
|
46,848,521 |
|
— |
|
46,848,521 |
|
— |
|
— |
| ||||||
|
Mandatorily redeemable capital stock |
|
19,499 |
|
19,499 |
|
19,499 |
|
— |
|
— |
|
— |
| ||||||
|
Accrued interest payable |
|
108,575 |
|
108,575 |
|
— |
|
108,575 |
|
— |
|
— |
| ||||||
|
Derivative liabilities |
|
210,113 |
|
210,113 |
|
— |
|
662,713 |
|
— |
|
(452,600 |
) | ||||||
|
Other financial liabilities |
|
47,528 |
|
47,528 |
|
47,528 |
|
— |
|
— |
|
— |
| ||||||
(a) Level 3 Instruments — The fair values of non-Agency private-label MBS and housing finance agency bonds were estimated by management based on pricing services. Valuations may have required pricing services to use significant inputs that were subjective because of the current lack of significant market activity so that the inputs may not be market based and observable.
Fair Value Hierarchy
The FHLBNY records available-for-sale securities, derivative assets, derivative liabilities, and consolidated obligations and advances elected under the FVO at fair value on a recurring basis. On a non-recurring basis, when held-to-maturity securities are determined to be OTTI, the securities are written down to their fair values; when mortgage loans held-for-portfolio are written down or are foreclosed as Other real estate owned (“REO”), they are recorded at the fair values of the real-estate collateral supporting the mortgage loans.
Federal Home Loan Bank of New York
Notes to Financial Statements
The accounting standards under Fair Value Measurement defines fair value, establishes a consistent framework for measuring fair value and requires disclosures about fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Among other things, the standard requires the FHLBNY to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard specifies a hierarchy of inputs based on whether the inputs are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the FHLBNY’s market assumptions.
These two types of inputs have created the following fair value hierarchy, and an entity must disclose the level within the fair value hierarchy in which the measurements are classified for all assets and liabilities measured on a recurring or non-recurring basis:
· Level 1 Inputs — Quoted prices (unadjusted) for identical assets or liabilities in an active market that the reporting entity can access on the measurement date.
· Level 2 Inputs — Inputs other than quoted prices within Level 1 that are observable inputs for the asset or liability, either directly or indirectly. If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for substantially the full term of the asset or liability. Level 2 inputs include the following: (1) quoted prices for similar assets or liabilities in active markets; (2) quoted prices for identical or similar assets or liabilities in markets that are not active; (3) inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates and yield curves that are observable at commonly quoted intervals, and volatilities).
· Level 3 Inputs — Inputs that are unobservable and significant to the valuation of the asset or liability.
The inputs are evaluated on an overall level for the fair value measurement to be determined. This overall level is an indication of market observability of the fair value measurement for the asset or liability. Changes in the observability of the valuation inputs may result in a reclassification of certain assets or liabilities. These reclassifications are reported as transfers in/out as of the beginning of the quarter in which the changes occur. There were no such transfers in any periods in this report.
The availability of observable inputs can vary from product to product and is affected by a wide variety of factors including, for example, the characteristics peculiar to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the FHLBNY in determining fair value is greatest for instruments categorized as Level 3. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes the level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety.
Summary of Valuation Techniques and Primary Inputs
The fair value of a financial instrument that is an asset is defined as the price the FHLBNY would receive to sell the asset in an orderly transaction with market participants. A financial liability’s fair value is defined as the amount that would be paid to transfer the liability to a new obligor, not the amount that would be paid to settle the liability with the creditor. Where available, fair values 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:
Cash and Due from Banks — The estimated fair values approximate the recorded book balances, and are considered to be within Level 1 of the fair value hierarchy.
Interest-Bearing Deposits, Federal Funds Sold and Securities Purchased under Agreements to Resell — The FHLBNY determines estimated fair values of short-term investments by calculating the present value of expected future cash flows of 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. Inputs into the cash flow models are the yields on the instruments, which are market based and observable and are considered to be within Level 2 of the fair value hierarchy.
Investment Securities — The fair value of investment securities is estimated by the FHLBNY using pricing primarily from pricing services. The pricing vendors typically use market multiples derived from a set of comparables, including matrix pricing, and other techniques.
Mortgage-backed securities — The FHLBNY’s valuation technique incorporates prices from up to four designated third-party pricing services, when 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
Federal Home Loan Bank of New York
Notes to Financial Statements
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. In its analysis, the FHLBNY employs the concept of cluster pricing and cluster tolerances. 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. The cluster tolerance guidelines shall be reviewed annually and may be revised as necessary. To be included among the cluster, at December 31, 2016, each price must fall within 7 points (7 points at December 31, 2015) of the median price for residential PLMBS and within 2 points (2 points at December 31, 2015) 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 the analysis confirms that an outlier is not 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 FHLBNY has also established that the pricing vendors use methods that generally employ, but are not limited to benchmark yields, recent trades, dealer estimates, valuation models, benchmarking of like securities, sector groupings, and/or matrix pricing. To validate vendor prices of PLMBS, the FHLBNY has also adopted a formal process to examine yields as an additional validation method. 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. The objective is to determine whether an adjustment to the fair value estimate is appropriate.
Based on the FHLBNY’s review processes, management has concluded that inputs into the pricing models employed by pricing services for the FHLBNY’s investments in GSE securities are market based and observable and are considered to be within Level 2 of the fair value hierarchy. The valuation of the 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. This determination was made based on management’s view that the private-label instruments may not have an active market because of the specific vintage of the securities as well as inherent conditions surrounding the trading of private-label MBS, so that the inputs may not be market based and observable. At December 31, 2016, no held-to-maturity private-label MBS was deemed OTTI, although de minimis amounts of credit re-impairments were recorded in the three quarters in 2016. At December 31, 2015, one held-to-maturity private-label MBS was deemed OTTI and was written down to its fair values, so that its carrying values recorded in the balance sheet equaled its fair values, which was classified on a nonrecurring basis as Level 3 financial instruments under the valuation hierarchy.
Housing finance agency bonds — The fair value of housing finance agency bonds is estimated by management using information primarily from pricing services. Because of the current lack of significant market activity, their fair values were categorized within Level 3 of the fair value hierarchy as inputs into vendor pricing models may not be market based and observable.
Grantor trust — The FHLBNY has a grantor trust, which invests in money market, equity and fixed income and bond funds. Investments in the trust are classified as AFS. Daily net asset values (“NAVs”) are readily available and investments are redeemable at short notice. NAVs are the fair values of the funds in the grantor trust. Because of the highly liquid nature of the investments at their NAVs, they are categorized as Level 1 financial instruments under the valuation hierarchy.
Advances — 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 (“CO Curve”), published by the Office of Finance and available to the public, and (2) LIBOR swap curves and volatilities. Both these inputs are considered to be market based and observable as they can be directly corroborated by market participants.
The 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 a FHLBank financially indifferent to the borrower’s decision to prepay the advance. Therefore, the fair value of an advance does not assume prepayment risk.
The inputs used to determine fair value of advances 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.
Federal Home Loan Bank of New York
Notes to Financial Statements
· Spread adjustment. Adjustments represent the FHLBNY’s mark-up based on its pricing strategy. The input is considered as unobservable, and is classified as a Level 3 input. The spread adjustment is not a significant input to the overall fair value of an advance.
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, inputs to which have been determined to be market observable and classified as Level 2. The spreads applied to the base advance pricing curve typically represent the FHLBNY’s mark-ups over the FHLBNY’s cost of funds, and are not market observable inputs, but are based on the FHLBNY’s advance pricing strategy. Such inputs have been classified as a Level 3 input, and were considered as 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 December 31, 2016 and December 31, 2015. 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 the significance factor has been established at 10%, with additional qualitative factors to be considered if the ratio exceeded the threshold.
The FHLBNY has elected the FVO designation for certain advances and recorded their fair values in the Statements of Condition for such advances. The CO Curve was the primary input, which is market based and observable. Inputs to apply spreads, which are FHLBNY specific, were not material. Fair values were classified within Level 2 of the valuation hierarchy.
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.
Mortgage Loans (MPF Loans)
A. Principal and/or Most Advantageous Market and Market Participants — MPF Loans
The FHLBNY may sell mortgage loans to another FHLBank or in the secondary mortgage market. Because transactions between FHLBanks occur infrequently, the FHLBNY has identified the secondary mortgage market as the principal market for mortgage loans under the MPF programs. Also, based on the nature of the supporting collateral to the MPF loans held by FHLBNY, the presentation of a single class for all products within the MPF product types is considered appropriate. As described below, the FHLBNY believes that the market participants within the secondary mortgage market for the MPF portfolio would differ primarily whether qualifying or non-qualifying loans are being sold.
Qualifying Loans (unimpaired mortgage loans) — The FHLBNY believes that a market participant is an entity that would buy qualifying mortgage loans for the purpose of securitization and subsequent resale as a security. Other government-sponsored enterprises (“GSEs”), specifically Federal National Mortgage Association (“Fannie Mae”) and Federal Home Loan Mortgage Corporation (“Freddie Mac”), conduct the majority of such activity in the United States, but there are other commercial banks and financial institutions that periodically conduct business in this market. Therefore, the FHLBNY has identified market participants for qualifying loans to include (1) all GSEs, and (2) other commercial banks and financial institutions that are independent of the FHLBank System.
Non-qualifying Loans (impaired mortgage loans) — For the FHLBNY, non-qualifying loans are primarily impaired loans. The FHLBNY believes that it is unlikely the GSE market participants would willingly buy loans that did not meet their normal criteria or underwriting standards. However, a market exists with commercial banks and financial institutions other than GSEs where such market participants buy non-qualifying loans in order to securitize them as they become current, resell them in the secondary market, or hold them in their portfolios. Therefore, the FHLBNY has identified the market participants for non-qualifying loans to include other commercial banks and financial institutions that are independent of the FHLBank System.
B. Fair Value at Initial Recognition — MPF Loans
The FHLBNY believes that the transaction price (entry price) may differ from the fair value (exit price) at initial recognition because it is determined using a different method than subsequent fair value measurements. However, because mortgage loans are not measured at fair value in the balance sheet, day one gains and losses would not be applicable. Additionally, all mortgage loans were performing at the time of origination by the PFI and acquisition by the FHLBNY.
The FHLBNY receives an entry price from the FHLBank of Chicago, the MPF Provider, at the time of acquisition. This entry price is based on the TBA rates, as well as exit prices received from market participants, such as Fannie Mae and Freddie Mac. The price is adjusted for specific MPF program characteristics and may be further adjusted by the FHLBNY to accommodate changing market conditions. Because of the adjustments, in many cases the entry price would not equal the exit price at the time of acquisition.
Federal Home Loan Bank of New York
Notes to Financial Statements
C. Valuation Technique, Inputs and Hierarchy
The FHLBNY calculates the fair value of the entire mortgage loan portfolio 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. The fair values are based on TBA rates (or agency commitment rates), as discussed above, adjusted primarily for seasonality. TBA and agency commitment rates are market observable and therefore classified as Level 2 in the fair value hierarchy. However, many of the credit and default risk related inputs involved with the valuation techniques described above may be considered unobservable due to a variety of reasons (e.g., lack of market activity for a particular loan, inherent judgment involved in property estimates). If unobservable inputs are considered significant, the loans would be classified as Level 3 in the fair value hierarchy. At December 31, 2016 and December 31, 2015, fair values were classified within Level 2 of the valuation hierarchy.
The fair values of impaired MPF are generally based on collateral values less estimated selling costs. Collateral values are generally based on broker price opinions, and any significant adjustments to apply a haircut value on the underlying collateral value would be considered to be an unobservable Level 3 input. The FHLBNY’s mortgage loan historical loss experience has been insignificant, and expected credit losses are insignificant. Level 3 inputs, if any, are generally insignificant to the total measurement, and therefore the measurement of most loans may be classified as Level 2 in the fair value hierarchy. At December 31, 2016 and December 31, 2015, fair values of credit impaired loans were classified within Level 2 of the valuation hierarchy as significant inputs to value collateral were also considered to be observable. During the twelve months ended December 31, 2016, certain loans that were delinquent for 180 days or more had been charged-off and loans were recorded at their fair values of $3.5 million on a non-recurring basis as a Level 2 financial instruments as significant inputs to value collateral were considered to be 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 comparable term debt.
The FHLBNY’s internal valuation models use standard valuation techniques and estimate fair values based on the following inputs:
· CO Curve and LIBOR Swap Curve. The Office of Finance constructs an internal curve, referred to as the CO Curve, using the U.S. Treasury Curve as a base curve that is then adjusted by adding indicative spreads obtained from market observable sources. These market indications are generally derived from pricing indications from dealers, historical pricing relationships, recent GSE trades and secondary market activity. The FHLBNY considers the inputs as Level 2 inputs as they are market observable.
· Volatility 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.
The FHLBNY has elected the FVO designation for certain consolidated obligation debt and recorded their fair values in the Statements of Condition. The CO Curve and volatility assumptions (for debt with call options) were primary inputs, which are market based and observable. Fair values were classified within Level 2 of the valuation hierarchy.
Derivative Assets and Liabilities — The FHLBNY’s derivatives (cleared derivatives and bilaterally executed derivatives) are executed in the over-the-counter market and are valued using internal valuation techniques as no quoted market prices exist for such instruments. Discounted cash flow analysis is the primary methodology employed by the FHLBNY’s valuation models to measure the fair values of interest rate swaps. The valuation technique is considered as an “Income approach”. Interest rate caps and floors are valued under the “Market approach”. Interest rate swaps and interest rate caps and floors, collectively “derivatives”, were valued in industry-standard option adjusted valuation models, which generated fair values. The valuation models employed multiple market inputs including interest rates, prices and indices to create continuous yield or pricing curves and volatility factors. These multiple market inputs were corroborated by management to independent market data, and to relevant benchmark indices. In addition, derivative valuations were compared by management to counterparty valuations received as part of the collateral exchange process. These derivative positions were classified within Level 2 of the valuation hierarchy at December 31, 2016 and December 31, 2015.
The FHLBNY’s valuation model utilizes a modified Black-Karasinski methodology. Significant market based and observable inputs into the valuation model include volatilities and interest rates. The Bank’s valuation model employs industry standard market-observable inputs (inputs that are actively quoted and can be validated to external sources). Inputs by class of derivative were as follows:
Interest-rate related:
· 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).
· Federal funds curve (OIS curve).
Federal Home Loan Bank of New York
Notes to Financial Statements
Mortgage delivery commitments (considered a derivative):
· TBA security prices are adjusted for differences in coupon, average loan rate and seasoning.
OIS — The FHLBNY incorporates the overnight indexed swap (“OIS”) curves as fair value measurement inputs for the valuation of its derivatives, as the OIS curves reflect the interest rates paid on cash collateral provided against the fair value of these derivatives. The FHLBNY believes using relevant OIS curves as inputs to determine fair value measurements provides a more representative reflection of the fair values of these collateralized interest-rate related derivatives. The OIS curve (federal funds rate curve) is an input to the valuation model. The input for the federal funds curve is obtained from industry standard pricing vendors and the input is available and observable over its entire term structure.
Management considers the federal funds curve to be a Level 2 input. The FHLBNY’s valuation model utilizes industry standard OIS methodology. The model generates forecasted cash flows using the OIS calibrated 3-month LIBOR curve. The model then discounts the cash flows by the OIS curve to generate fair values. Previously, the FHLBNY used the 3-month London Interbank Offered Rate (“LIBOR”) curve as the relevant benchmark curve for its derivatives and as the discounting rate for these collateralized interest-rate related derivatives.
Credit risk and credit valuation adjustments — The FHLBNY is subject to credit risk in derivatives transactions due to the potential non-performance of its derivatives counterparties or a DCO.
To mitigate this risk, the FHLBNY has entered into master netting agreements and credit support agreements with its derivative counterparties for its bilaterally executed derivative contracts that provide for the delivery of collateral at specified levels at least weekly. The computed fair values of the derivatives took into consideration the effects of legally enforceable master netting agreements that allow the FHLBNY to settle positive and negative positions and offset cash collateral with the same counterparty on a net basis.
For derivative transactions executed as a cleared derivative, the transactions are fully collateralized in cash and exchanged daily with the DCO. The FHLBNY has also established the enforceability of offsetting rights incorporated in the agreements for the cleared derivative transactions.
As a result of these practices and agreements and the FHLBNY’s assessment of any change in its own credit spread, the FHLBNY has concluded that the impact of the credit differential between the FHLBNY and its derivative counterparties and DCO was sufficiently mitigated to an immaterial level that no credit adjustments were deemed necessary to the recorded fair value of Derivative assets and Derivative liabilities in the Statements of Condition at December 31, 2016 and December 31, 2015.
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.
Control processes — 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 FHLBNY has concluded that valuation models are performing to industry standards and its valuation capabilities remain robust and dependable.
Fair Value Measurement
The tables below present the fair value of those assets and liabilities that are recorded at fair value on a recurring or non-recurring basis at December 31, 2016 and December 31, 2015, by level within the fair value hierarchy. The FHLBNY also measures certain held-to-maturity securities at fair value on a non-recurring basis when a credit loss is recognized and the carrying value of the asset is adjusted to fair value. Certain mortgage loans that were partially charged-off were recorded at their collateral values on a non-recurring basis. Other real estate owned (ORE) is measured at fair value when the asset’s fair value less costs to sell is lower than its carrying amount.
Federal Home Loan Bank of New York
Notes to Financial Statements
Items Measured at Fair Value on a Recurring Basis (in thousands):
|
|
|
December 31, 2016 |
| |||||||||||||
|
|
|
Total |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Netting |
| |||||
|
Assets |
|
|
|
|
|
|
|
|
|
|
| |||||
|
Trading securities |
|
|
|
|
|
|
|
|
|
|
| |||||
|
GSE securities |
|
$ |
30,969 |
|
$ |
— |
|
$ |
30,969 |
|
$ |
— |
|
$ |
— |
|
|
U.S. treasury securities |
|
100,182 |
|
— |
|
100,182 |
|
— |
|
— |
| |||||
|
Available-for-sale securities |
|
|
|
|
|
|
|
|
|
|
| |||||
|
GSE/U.S. agency issued MBS |
|
656,094 |
|
— |
|
656,094 |
|
— |
|
— |
| |||||
|
Equity and bond funds |
|
41,718 |
|
41,718 |
|
— |
|
— |
|
— |
| |||||
|
Advances (to the extent FVO is elected) |
|
9,873,157 |
|
— |
|
9,873,157 |
|
— |
|
— |
| |||||
|
Derivative assets (a) |
|
|
|
|
|
|
|
|
|
|
| |||||
|
Interest-rate derivatives |
|
328,815 |
|
— |
|
726,424 |
|
— |
|
(397,609 |
) | |||||
|
Mortgage delivery commitments |
|
60 |
|
— |
|
60 |
|
— |
|
— |
| |||||
|
Total recurring fair value measurement - assets |
|
$ |
11,030,995 |
|
$ |
41,718 |
|
$ |
11,386,886 |
|
$ |
— |
|
$ |
(397,609 |
) |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
| |||||
|
Consolidated obligations: |
|
|
|
|
|
|
|
|
|
|
| |||||
|
Discount notes (to the extent FVO is elected) |
|
$ |
(12,228,412 |
) |
$ |
— |
|
$ |
(12,228,412 |
) |
$ |
— |
|
$ |
— |
|
|
Bonds (to the extent FVO is elected) (b) |
|
(2,052,513 |
) |
— |
|
(2,052,513 |
) |
— |
|
— |
| |||||
|
Derivative liabilities (a) |
|
|
|
|
|
|
|
|
|
|
| |||||
|
Interest-rate derivatives |
|
(144,885 |
) |
— |
|
(443,803 |
) |
— |
|
298,918 |
| |||||
|
Mortgage delivery commitments |
|
(100 |
) |
— |
|
(100 |
) |
— |
|
— |
| |||||
|
Total recurring fair value measurement - liabilities |
|
$ |
(14,425,910 |
) |
$ |
— |
|
$ |
(14,724,828 |
) |
$ |
— |
|
$ |
298,918 |
|
|
|
|
December 31, 2015 |
| |||||||||||||
|
|
|
Total |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Netting |
| |||||
|
Assets |
|
|
|
|
|
|
|
|
|
|
| |||||
|
Available-for-sale securities |
|
|
|
|
|
|
|
|
|
|
| |||||
|
GSE/U.S. agency issued MBS |
|
$ |
957,256 |
|
$ |
— |
|
$ |
957,256 |
|
$ |
— |
|
$ |
— |
|
|
Equity and bond funds |
|
32,873 |
|
32,873 |
|
— |
|
— |
|
— |
| |||||
|
Advances (to the extent FVO is elected) |
|
9,532,553 |
|
— |
|
9,532,553 |
|
— |
|
— |
| |||||
|
Derivative assets (a) |
|
|
|
|
|
|
|
|
|
|
| |||||
|
Interest-rate derivatives |
|
181,659 |
|
— |
|
593,625 |
|
— |
|
(411,966 |
) | |||||
|
Mortgage delivery commitments |
|
17 |
|
— |
|
17 |
|
— |
|
— |
| |||||
|
Total recurring fair value measurement - assets |
|
$ |
10,704,358 |
|
$ |
32,873 |
|
$ |
11,083,451 |
|
$ |
— |
|
$ |
(411,966 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
| |||||
|
Consolidated obligations: |
|
|
|
|
|
|
|
|
|
|
| |||||
|
Discount notes (to the extent FVO is elected) |
|
$ |
(12,471,868 |
) |
$ |
— |
|
$ |
(12,471,868 |
) |
$ |
— |
|
$ |
— |
|
|
Bonds (to the extent FVO is elected) (b) |
|
(13,320,909 |
) |
— |
|
(13,320,909 |
) |
— |
|
— |
| |||||
|
Derivative liabilities (a) |
|
|
|
|
|
|
|
|
|
|
| |||||
|
Interest-rate derivatives |
|
(210,099 |
) |
— |
|
(662,699 |
) |
— |
|
452,600 |
| |||||
|
Mortgage delivery commitments |
|
(14 |
) |
— |
|
(14 |
) |
— |
|
— |
| |||||
|
Total recurring fair value measurement - liabilities |
|
$ |
(26,002,890 |
) |
$ |
— |
|
$ |
(26,455,490 |
) |
$ |
— |
|
$ |
452,600 |
|
(a) Based on analysis of the nature of the risk, the presentation of derivatives as a single class is appropriate.
(b) Based on analysis of the nature of risks of consolidated obligation bonds measured at fair value, the FHLBNY has determined that presenting the bonds as a single class is appropriate.
Items Measured at Fair Value on a Non-recurring Basis (in thousands):
|
|
|
December 31, 2016 |
| ||||||||||
|
|
|
Fair Value |
|
Level 1 |
|
Level 2 |
|
Level 3 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Mortgage loans held-for-portfolio |
|
$ |
3,496 |
|
$ |
— |
|
$ |
3,496 |
|
$ |
— |
|
|
Real estate owned |
|
1,089 |
|
— |
|
— |
|
1,089 |
| ||||
|
Total non-recurring assets at fair value |
|
$ |
4,585 |
|
$ |
— |
|
$ |
3,496 |
|
$ |
1,089 |
|
|
|
|
December 31, 2015 |
| ||||||||||
|
|
|
Fair Value |
|
Level 1 |
|
Level 2 |
|
Level 3 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Private-label residential mortgage-backed securities |
|
$ |
3,516 |
|
$ |
— |
|
$ |
— |
|
$ |
3,516 |
|
|
Mortgage loans held-for-portfolio |
|
10,683 |
|
— |
|
10,683 |
|
— |
| ||||
|
Real estate owned |
|
2,360 |
|
— |
|
— |
|
2,360 |
| ||||
|
Total non-recurring assets at fair value |
|
$ |
16,559 |
|
$ |
— |
|
$ |
10,683 |
|
$ |
5,876 |
|
Fair values of Held-to-Maturity Securities on a Nonrecurring Basis — No held-to-maturity PLMBS was determined to be OTTI at December 31, 2016, although immaterial amount of OTTI were recorded during the first three quarters of 2016. In accordance with the guidance on recognition and presentation of other-than-temporary impairment, held-to-maturity mortgage-backed securities that are determined to be credit impaired are required to be recorded at their fair values in the Statements of Condition. For more information, see Note 7. Held-to-Maturity Securities.
Mortgage loans and “Real estate owned” — Fair values recorded on a non-recurring basis during the period ended on the reporting dates. During the twelve months ended December 31, 2016, certain loans that were delinquent for 180 days or more were partially charged-off and the loans were recorded at their collateral values of $3.5 million on a non-recurring basis. Real estate owned (“Foreclosed”) properties, with fair values of $1.1 million were recorded on a non-recurring basis during the same period.
Federal Home Loan Bank of New York
Notes to Financial Statements
Fair Value Option Disclosures
The fair value option (“FVO”) provides an irrevocable option to elect fair value as an alternative measurement for selected financial assets, financial liabilities, unrecognized firm commitments, and written loan commitments not previously carried at fair value. It requires entities to display the fair value of those assets and liabilities for which the entity has chosen to use fair value on the face of the Statements of Condition. Fair value is used for both the initial and subsequent measurement of the designated assets, liabilities and commitments, with the changes in fair value recognized in net income. Interest income and interest expense on advances and consolidated obligations at fair value are recognized solely on the contractual amount of interest due or unpaid. Any transaction fees or costs are immediately recognized into non-interest income or non-interest expense.
The FHLBNY has elected the FVO for certain advances and certain consolidated obligations that either do not qualify for hedge accounting or may be at risk for not meeting hedge effectiveness requirements, primarily in an effort to mitigate the potential income statement volatility that can arise from economic hedging relationships in which the carrying value of the hedged item is not adjusted for changes in fair value. Advances have also been elected under the FVO when analysis indicated that changes in the fair values of the advance would be an offset to fair value volatility of debt elected under the FVO. The FVO election is made at inception of the contracts for advances and debt obligations.
For instruments for which the fair value option has been elected, the related contractual interest income, contractual interest expense and the discount amortization on fair value option discount notes are recorded as part of net interest income in the Statements of Income. The remaining changes in fair value for instruments for which the fair value option has been elected are recorded as net gains (losses) on financial instruments held under fair value option in the Statements of Income. The change in fair value does not include changes in instrument-specific credit risk. The FHLBNY has determined that no adjustments to the fair values of its instruments recorded under the fair value option for instrument-specific credit risk were necessary during the twelve months ended December 31, 2016 and December 31, 2015.
Advances elected under the FVO were short-term in nature, with tenors that were generally less than 24 months. As with all advances, the loans were fully collateralized through their terms to maturity. Consolidated obligation bonds and discount notes elected under the FVO are high credit quality, highly-rated instruments, and changes in fair values were generally related to changes in interest rates and investor preference, including investor asset allocation strategies. The FHLBNY believes the credit-quality of Consolidated obligation debt has remained stable, and changes in fair value attributable to instrument-specific credit risk, if any, were not material given that the debt elected under the FVO had been issued within the past 24 months, and no adverse changes have been observed in their credit characteristics.
Federal Home Loan Bank of New York
Notes to Financial Statements
The following tables summarize the activity related to financial instruments for which the FHLBNY elected the fair value option (in thousands):
|
|
|
Year ended December 31, 2016 |
| |||||||
|
|
|
Advances |
|
Bonds |
|
Discount Notes |
| |||
|
Balance, beginning of the period |
|
$ |
9,532,553 |
|
$ |
(13,320,909 |
) |
$ |
(12,471,868 |
) |
|
New transactions elected for fair value option |
|
8,304,504 |
|
(2,295,300 |
) |
(23,022,995 |
) | |||
|
Maturities and terminations |
|
(7,979,746 |
) |
13,568,410 |
|
23,277,806 |
| |||
|
Net gains (losses) on financial instruments held under fair value option |
|
12,744 |
|
(10,234 |
) |
(4,364 |
) | |||
|
Change in accrued interest/unaccreted balance |
|
3,102 |
|
5,520 |
|
(6,991 |
) | |||
|
|
|
|
|
|
|
|
| |||
|
Balance, end of the period |
|
$ |
9,873,157 |
|
$ |
(2,052,513 |
) |
$ |
(12,228,412 |
) |
|
|
|
Year ended December 31, 2015 |
| |||||||
|
|
|
Advances |
|
Bonds |
|
Discount Notes |
| |||
|
Balance, beginning of the period |
|
$ |
15,655,403 |
|
$ |
(19,523,202 |
) |
$ |
(7,890,027 |
) |
|
New transactions elected for fair value option |
|
9,282,240 |
|
(18,462,660 |
) |
(19,085,181 |
) | |||
|
Maturities and terminations |
|
(15,400,780 |
) |
24,655,080 |
|
14,512,436 |
| |||
|
Net (losses) gains on financial instruments held under fair value option |
|
(2,325 |
) |
8,494 |
|
3,703 |
| |||
|
Change in accrued interest/unaccreted balance |
|
(1,985 |
) |
1,379 |
|
(12,799 |
) | |||
|
|
|
|
|
|
|
|
| |||
|
Balance, end of the period |
|
$ |
9,532,553 |
|
$ |
(13,320,909 |
) |
$ |
(12,471,868 |
) |
|
|
|
Year ended December 31, 2014 |
| |||||||
|
|
|
Advances |
|
Bonds |
|
Discount Notes |
| |||
|
Balance, beginning of the period |
|
$ |
19,205,399 |
|
$ |
(22,868,401 |
) |
$ |
(4,260,635 |
) |
|
New transactions elected for fair value option |
|
15,900,000 |
|
(21,865,080 |
) |
(12,384,875 |
) | |||
|
Maturities and terminations |
|
(19,450,000 |
) |
25,210,000 |
|
8,756,808 |
| |||
|
Net (losses) gains on financial instruments held under fair value option |
|
(555 |
) |
2,212 |
|
935 |
| |||
|
Change in accrued interest/unaccreted balance |
|
559 |
|
(1,933 |
) |
(2,260 |
) | |||
|
|
|
|
|
|
|
|
| |||
|
Balance, end of the period |
|
$ |
15,655,403 |
|
$ |
(19,523,202 |
) |
$ |
(7,890,027 |
) |
The following tables present the change in fair value included in the Statements of Income for financial instruments for which the fair value option has been elected (in thousands):
|
|
|
December 31, 2016 |
| |||||||
|
|
|
Interest Income |
|
Net Gains Due |
|
Total Change in Fair |
| |||
|
|
|
|
|
|
|
|
| |||
|
Advances |
|
$ |
78,787 |
|
$ |
12,744 |
|
$ |
91,531 |
|
|
|
|
December 31, 2015 |
| |||||||
|
|
|
Interest Income |
|
Net Losses Due |
|
Total Change in Fair |
| |||
|
|
|
|
|
|
|
|
| |||
|
Advances |
|
$ |
43,889 |
|
$ |
(2,325 |
) |
$ |
41,564 |
|
|
|
|
December 31, 2014 |
| |||||||
|
|
|
Interest Income |
|
Net Losses Due |
|
Total Change in Fair |
| |||
|
|
|
|
|
|
|
|
| |||
|
Advances |
|
$ |
80,776 |
|
$ |
(555 |
) |
$ |
80,221 |
|
Federal Home Loan Bank of New York
Notes to Financial Statements
|
|
|
December 31, 2016 |
| |||||||
|
|
|
Interest Expense |
|
Net Losses Due |
|
Total Change in Fair |
| |||
|
|
|
|
|
|
|
|
| |||
|
Consolidated obligation bonds |
|
$ |
(22,339 |
) |
$ |
(10,234 |
) |
$ |
(32,573 |
) |
|
Consolidated obligation discount notes |
|
(54,557 |
) |
(4,364 |
) |
(58,921 |
) | |||
|
|
|
|
|
|
|
|
| |||
|
|
|
$ |
(76,896 |
) |
$ |
(14,598 |
) |
$ |
(91,494 |
) |
|
|
|
December 31, 2015 |
| |||||||
|
|
|
Interest Expense |
|
Net Gains Due |
|
Total Change in Fair |
| |||
|
|
|
|
|
|
|
|
| |||
|
Consolidated obligation bonds |
|
$ |
(40,265 |
) |
$ |
8,494 |
|
$ |
(31,771 |
) |
|
Consolidated obligation discount notes |
|
(27,744 |
) |
3,703 |
|
(24,041 |
) | |||
|
|
|
|
|
|
|
|
| |||
|
|
|
$ |
(68,009 |
) |
$ |
12,197 |
|
$ |
(55,812 |
) |
|
|
|
December 31, 2014 |
| |||||||
|
|
|
Interest Expense |
|
Net Gains Due |
|
Total Change in Fair |
| |||
|
|
|
|
|
|
|
|
| |||
|
Consolidated obligation bonds |
|
$ |
(33,282 |
) |
$ |
2,212 |
|
$ |
(31,070 |
) |
|
Consolidated obligation discount notes |
|
(7,578 |
) |
935 |
|
(6,643 |
) | |||
|
|
|
|
|
|
|
|
| |||
|
|
|
$ |
(40,860 |
) |
$ |
3,147 |
|
$ |
(37,713 |
) |
Federal Home Loan Bank of New York
Notes to Financial Statements
The following tables compare the aggregate fair value and aggregate remaining contractual principal balance outstanding of financial instruments for which the fair value option has been elected (in thousands):
|
|
|
December 31, 2016 |
| |||||||
|
|
|
Aggregate |
|
Aggregate Fair |
|
Fair Value |
| |||
|
|
|
|
|
|
|
|
| |||
|
Advances (a) |
|
$ |
9,859,504 |
|
$ |
9,873,157 |
|
$ |
13,653 |
|
|
|
|
|
|
|
|
|
| |||
|
Consolidated obligation bonds (b) |
|
$ |
2,049,550 |
|
$ |
2,052,513 |
|
$ |
2,963 |
|
|
Consolidated obligation discount notes (c) |
|
12,204,898 |
|
12,228,412 |
|
23,514 |
| |||
|
|
|
$ |
14,254,448 |
|
$ |
14,280,925 |
|
$ |
26,477 |
|
|
|
|
December 31, 2015 |
| |||||||
|
|
|
Aggregate |
|
Aggregate Fair |
|
Fair Value |
| |||
|
|
|
|
|
|
|
|
| |||
|
Advances (a) |
|
$ |
9,532,240 |
|
$ |
9,532,553 |
|
$ |
313 |
|
|
|
|
|
|
|
|
|
| |||
|
Consolidated obligation bonds (b) |
|
$ |
13,322,660 |
|
$ |
13,320,909 |
|
$ |
(1,751 |
) |
|
Consolidated obligation discount notes (c) |
|
12,459,708 |
|
12,471,868 |
|
12,160 |
| |||
|
|
|
$ |
25,782,368 |
|
$ |
25,792,777 |
|
$ |
10,409 |
|
|
|
|
December 31, 2014 |
| |||||||
|
|
|
Aggregate |
|
Aggregate Fair |
|
Fair Value |
| |||
|
|
|
|
|
|
|
|
| |||
|
Advances (a) |
|
$ |
15,650,000 |
|
$ |
15,655,403 |
|
$ |
5,403 |
|
|
|
|
|
|
|
|
|
| |||
|
Consolidated obligation bonds (b) |
|
$ |
19,515,080 |
|
$ |
19,523,202 |
|
$ |
8,122 |
|
|
Consolidated obligation discount notes (c) |
|
7,886,963 |
|
7,890,027 |
|
3,064 |
| |||
|
|
|
$ |
27,402,043 |
|
$ |
27,413,229 |
|
$ |
11,186 |
|
(a) Advances — The FHLBNY has elected the FVO for certain advances, primarily short- and intermediate term floating-rate advances, and intermediate-term fixed-rate advances. The elections were made primarily as a natural fair value offset to debt elected under the FVO.
(b) The FHLBNY has elected the FVO for certain short-term callable and non-callable bonds because management was not able to assert with confidence that the debt would qualify for hedge accounting as such short-term debt, specifically with call options, may not remain highly effective hedges through the maturity of the bonds.
(c) Discount notes were elected under the FVO because management was not able to assert with confidence that the debt would qualify for hedge accounting as the short-term discount note debt may not remain highly effective hedges through maturity.
Note 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 FHLBNY would have been required to recognize the fair value of the FHLBNY’s joint and several liability for all the consolidated obligations, as discussed above. However, the FHLBNY considers the joint and several liabilities as similar to a related party guarantee, which meets the scope exception under the accounting standard for guarantees. Accordingly, the FHLBNY has not recognized the fair value of a liability for its joint and several obligations related to other FHLBanks’ consolidated obligations, which in aggregate were par amounts of $1.0 trillion and $0.9 trillion at December 31, 2016 and December 31, 2015.
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.
Federal Home Loan Bank of New York
Notes to Financial Statements
Outstanding standby letters of credit were approximately $12.8 billion and $12.5 billion as of December 31, 2016 and December 31, 2015, 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 $0.8 million and $1.1 million as of December 31, 2016 and December 31, 2015.
MPF Program — Under the MPF program, the FHLBNY was unconditionally obligated to purchase $28.4 million and $14.8 million of mortgage loans at December 31, 2016 and December 31, 2015. Commitments were generally for periods not to exceed 45 business days. Such commitments were recorded as derivatives at their fair values in compliance with the provisions of the accounting standards for derivatives and hedging. The FHLBNY also has executed conditional agreements with its members in the MPF program to purchase $1.0 billion and $1.2 billion of mortgage loans at December 31, 2016 and December 31, 2015.
Advances to members — No members had conditional agreements at either December 31, 2016 or December 31, 2015 to borrow through advances with the FHLBNY.
Derivative contracts — When the FHLBNY executes derivatives with major financial institutions that are not eligible to be cleared under the CFTC rules, the FHLBNY and the swap counterparties enter into bilateral collateral agreements. When the FHLBNY executes derivatives that are eligible to be cleared, the FHLBNY and the FCMs, acting as agents of Derivative Clearing Organizations or DCOs, would enter into margin agreements. When counterparties (including the DCOs) are exposed, the FHLBNY posts cash collateral to mitigate the counterparty’s credit exposure; the FHLBNY had posted $256.0 million and $370.5 million in cash with derivative counterparties as pledged collateral at December 31, 2016 and December 31, 2015, 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 $3.3 million, $3.2 million and $3.2 million for each of the years ended December 31, 2016, 2015 and 2014. Lease agreements for FHLBNY premises generally provide for inflationary increases in the basic rentals resulting from increases in property taxes and maintenance expenses. Additionally, the FHLBNY has a lease agreement for a shared offsite data backup site at an annual cost estimated to be $1.3 million. Components of the agreement are generally renewable up to five years.
Federal Home Loan Bank of New York
Notes to Financial Statements
The following table summarizes contractual obligations and contingencies as of December 31, 2016 (in thousands):
|
|
|
December 31, 2016 |
| |||||||||||||
|
|
|
Payments Due or Expiration Terms by Period |
| |||||||||||||
|
|
|
|
|
Greater Than |
|
Greater Than |
|
|
|
|
| |||||
|
|
|
Less Than |
|
One Year |
|
Three Years |
|
Greater Than |
|
|
| |||||
|
|
|
One Year |
|
to Three Years |
|
to Five Years |
|
Five Years |
|
Total |
| |||||
|
Contractual Obligations |
|
|
|
|
|
|
|
|
|
|
| |||||
|
Consolidated obligation bonds at par (a) |
|
$ |
55,251,690 |
|
$ |
22,980,060 |
|
$ |
2,285,495 |
|
$ |
3,810,300 |
|
$ |
84,327,545 |
|
|
Consolidated obligation discount notes at par |
|
49,392,445 |
|
— |
|
— |
|
— |
|
49,392,445 |
| |||||
|
Mandatorily redeemable capital stock (a) |
|
11,384 |
|
14,000 |
|
483 |
|
5,568 |
|
31,435 |
| |||||
|
Premises (lease obligations) (b) |
|
2,908 |
|
9,789 |
|
9,073 |
|
54,074 |
|
75,844 |
| |||||
|
Remote backup site |
|
1,301 |
|
2,564 |
|
133 |
|
— |
|
3,998 |
| |||||
|
Other liabilities (c) |
|
98,541 |
|
8,013 |
|
6,580 |
|
54,100 |
|
167,234 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Total contractual obligations |
|
104,758,269 |
|
23,014,426 |
|
2,301,764 |
|
3,924,042 |
|
133,998,501 |
| |||||
|
Other commitments |
|
|
|
|
|
|
|
|
|
|
| |||||
|
Standby letters of credit |
|
12,735,075 |
|
24,772 |
|
— |
|
— |
|
12,759,847 |
| |||||
|
Consolidated obligation bonds/discount notes traded not settled |
|
103,275 |
|
— |
|
— |
|
— |
|
103,275 |
| |||||
|
Commitments to fund pension |
|
7,500 |
|
— |
|
— |
|
— |
|
7,500 |
| |||||
|
Open delivery commitments (MPF) |
|
28,447 |
|
— |
|
— |
|
— |
|
28,447 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Total other commitments |
|
12,874,297 |
|
24,772 |
|
— |
|
— |
|
12,899,069 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Total obligations and commitments |
|
$ |
117,632,566 |
|
$ |
23,039,198 |
|
$ |
2,301,764 |
|
$ |
3,924,042 |
|
$ |
146,897,570 |
|
(a) Callable bonds contain an exercise date or a series of exercise dates that may result in a shorter redemption period. Redemption dates of mandatorily redeemable capital stock are assumed to correspond to maturity dates of member advances. Excess capital stock is redeemed at that time, and hence, these dates better represent the related commitments than the put dates associated with capital stock.
(b) In the second quarter of 2016, we signed a new lease for our New York City office that will be effective in September 2017. The Bank plans to adopt ASU 2016-02, Leases (Topic 842) in 2019, and upon adoption lease obligations will be recorded in the Statements of Condition.
(c) Includes accounts payable and accrued expenses, Pass-through reserves at the FRB on behalf of certain members of the FHLBNY recorded in Other liabilities. Also includes projected payment obligations for pension plans. For more information about these employee retirement plans, see Note 15. Employee Retirement Plans.
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
From time to time, the FHLBNY is involved in disputes or regulatory inquiries that arise in the ordinary course of business. At the present time, except as noted below, there are no pending claims against the FHLBNY that, if established, are reasonably likely to have a material effect on the FHLBNY’s financial condition, results of operations or cash flows.
On September 15, 2008, Lehman Brothers Holdings, Inc. (“LBHI”), the parent company of Lehman Brothers Special Financing Inc. (“LBSF”), 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 on October 3, 2008. A Chapter 11 plan became effective on March 6, 2012.
At the time of LBHI’s bankruptcy filing, the FHLBNY had 356 interest rate swap and other derivative transactions outstanding with LBSF, with a total notional amount of $16.5 billion. LBHI guaranteed LBSF’s contractual obligations to the FHLBNY. On September 18, 2008, the FHLBNY terminated these transactions as permitted in the wake of LBHI’s bankruptcy filing. The FHLBNY provided LBSF with a calculation showing that LBSF owed the FHLBNY approximately $65 million as a result of the termination, after giving effect to collateral posted by the FHLBNY with LBSF. The FHLBNY filed timely proofs of claim as a creditor of LBSF and LBHI in the bankruptcy proceedings. Given the dispute described below, the FHLBNY fully reserved the LBSF and LBHI receivables, as the timing and amount of any recovery is uncertain.
On July 23, 2010, the FHLBNY received a notice from LBSF claiming that the FHLBNY improperly calculated the termination payment, and that the FHLBNY owed LBSF a substantial amount. Pursuant to bankruptcy court procedures, the parties mediated their dispute commencing in late 2010 and again in early 2015. Both mediations concluded without a settlement.
On May 13, 2015, LBHI, on behalf of itself and LBSF, filed a complaint against the FHLBNY in the bankruptcy court, alleging, among other things, that the FHLBNY’s calculation of the termination payment breached its contract with LBSF and violated section 562 of the Bankruptcy Code. The complaint seeks damages in excess of $150 million, plus pre-judgment contractual interest. On August 3, 2015, the FHLBNY filed amended proofs of claim reducing the FHLBNY’s claims against LBSF and LBHI, as LBSF’s guarantor, to approximately $45 million. On September 24, 2015, the bankruptcy court denied the FHLBNY’s motion to dismiss certain of the claims alleged in LBHI’s complaint.
On September 21, 2016, LBHI served a disclosure calculating its damages to be $116 million, plus accrued contractual interest totaling $232 million. On September 23, 2016, the FHLBNY filed a partial summary judgment motion seeking dismissal of LBHI’s claim that the FHLBNY violated section 562 of the Bankruptcy Code in
Federal Home Loan Bank of New York
Notes to Financial Statements
calculating its claim, and also seeking dismissal of LBHI’s claim for contractual interest. The parties are engaged in pre-trial discovery proceedings, and trial is currently scheduled to commence in April of 2017.
The FHLBNY is pursuing its claims against LBSF and LBHI in the LBHI litigation. The FHLBNY intends to vigorously defend against LBHI’s complaint, which we believe to be without merit.
Note 19. Related Party Transactions.
The FHLBNY is a cooperative and the members own almost all of the stock of the FHLBNY. Stock issued and outstanding that is not owned by members is held by former members. The majority of the members of the Board of Directors of the FHLBNY are elected by and from the membership. The FHLBNY conducts its advances business almost exclusively with members, and considers its transactions with its members and non-member stockholders as related party transactions in addition to transactions with other FHLBanks, the Office of Finance, and the Finance Agency. The FHLBNY conducts all transactions with members and non-members in the ordinary course of business. All transactions with all members, including those whose officers may serve as directors of the FHLBNY, are at terms that are no more favorable than comparable transactions with other members. The FHLBNY may from time to time borrow or sell overnight and term federal funds at market rates to members.
Debt Assumptions and Transfers
Debt assumptions — No debt was assumed in the twelve months ended December 31, 2016 from another FHLBank. In the twelve months ended December 31, 2015, the FHLBNY assumed par amount of $35.0 million of Consolidated obligation bond from another FHLBank.
Debt transfers — No debt was transferred in the twelve months ended December 31, 2016. In the twelve months ended December 31, 2015, the FHLBNY transferred $80.0 million of consolidated obligation bonds by transferring the debt obligations to another FHLBank at negotiated market rates that exceeded carrying value by $7.8 million. Cash paid in excess of book cost is charged to earnings in the 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.
Debt transfers and assumptions were in the ordinary course of the FHLBNY’s business.
Advances Sold or Transferred
No advances were transferred or sold to the FHLBNY or from the FHLBNY to another FHLBank in any periods in this report.
MPF Program
In the MPF program, the FHLBNY may participate to the FHLBank of Chicago portions of its purchases of mortgage loans from its members. Transactions are participated at market rates. Since 2004, the FHLBNY has not shared its purchases with the FHLBank of Chicago. From the inception of the program through 2004, the cumulative share of participation in the FHLBNY’s MPF loans that has remained outstanding was $15.5 million and $20.8 million at December 31, 2016 and December 31, 2015.
Fees paid to the FHLBank of Chicago for providing MPF program services were approximately $2.1 million, $1.3 million and $1.0 million for the twelve months ended December 31, 2016, 2015 and 2014.
Federal Home Loan Bank of New York
Notes to Financial Statements
Mortgage-backed Securities
No mortgage-backed securities were acquired from other FHLBanks during the periods in this report.
We pay an annual fee of $6.0 thousand to the FHLBank of Chicago for the use of MBS cash flow models in connection with OTTI analysis performed by the FHLBNY for certain of our private-label MBS.
Intermediation
From time to time, the FHLBNY acts as an intermediary to purchase derivatives to accommodate its smaller members. At December 31, 2016 and December 31, 2015, outstanding notional amounts were $129.0 million and $31.0 million and represented derivative contracts in which the FHLBNY acted as an intermediary to execute derivative contracts with members. Separately, the contracts were offset with contracts purchased from unrelated derivatives dealers. Net fair value exposures of these transactions at December 31, 2016 and December 31, 2015 were not significant. The intermediated derivative transactions with members were fully collateralized.
Loans to Other Federal Home Loan Banks
In the twelve months ended December 31, 2016 and December 31, 2015, the FHLBNY extended overnight loans for a total of $1.5 billion and $3.2 billion to other FHLBanks. Generally, loans made to other FHLBanks are uncollateralized. Interest income from such loans was immaterial 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. In the twelve months ended December 31, 2016, there was no borrowings from other FHLBanks. In the twelve months ended December 31, 2015, the FHLBNY borrowed a total of $300.0 million in overnight loans from FHLBanks.
Cash and Due from Banks
Compensating cash balances were held at Citibank. For more information, see Note 3. Cash and Due from Banks.
Federal Home Loan Bank of New York
Notes to Financial Statements
The following tables summarize significant balances with related parties at December 31, 2016 and December 31, 2015, and transactions for each of the years ended December 31, 2016, 2015 and 2014 (in thousands):
Related Party: Assets, Liabilities and Capital
|
|
|
December 31, 2016 |
|
December 31, 2015 |
| ||||||||
|
|
|
Related |
|
Unrelated |
|
Related |
|
Unrelated |
| ||||
|
Assets |
|
|
|
|
|
|
|
|
| ||||
|
Securities purchased under agreements to resell |
|
$ |
— |
|
$ |
7,150,000 |
|
$ |
— |
|
$ |
4,000,000 |
|
|
Federal funds sold |
|
— |
|
6,683,000 |
|
— |
|
7,245,000 |
| ||||
|
Trading securities |
|
— |
|
131,151 |
|
— |
|
— |
| ||||
|
Available-for-sale securities |
|
— |
|
697,812 |
|
— |
|
990,129 |
| ||||
|
Held-to-maturity securities |
|
— |
|
16,022,293 |
|
— |
|
13,932,372 |
| ||||
|
Advances |
|
109,256,625 |
|
— |
|
93,874,211 |
|
— |
| ||||
|
Mortgage loans (a) |
|
— |
|
2,746,559 |
|
— |
|
2,524,285 |
| ||||
|
Loans to other FHLBanks |
|
255,000 |
|
— |
|
— |
|
— |
| ||||
|
Accrued interest receivable |
|
126,026 |
|
37,353 |
|
112,014 |
|
33,899 |
| ||||
|
Premises, software, and equipment |
|
— |
|
12,621 |
|
— |
|
9,466 |
| ||||
|
Derivative assets (b) |
|
— |
|
328,875 |
|
— |
|
181,676 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Liabilities and capital |
|
|
|
|
|
|
|
|
| ||||
|
Deposits |
|
$ |
1,240,749 |
|
$ |
— |
|
$ |
1,350,416 |
|
$ |
— |
|
|
Consolidated obligations |
|
— |
|
134,142,558 |
|
— |
|
114,565,820 |
| ||||
|
Mandatorily redeemable capital stock |
|
31,435 |
|
— |
|
19,499 |
|
— |
| ||||
|
Accrued interest payable |
|
68 |
|
130,110 |
|
18 |
|
108,557 |
| ||||
|
Affordable Housing Program (c) |
|
125,062 |
|
— |
|
113,352 |
|
— |
| ||||
|
Derivative liabilities (b) |
|
— |
|
144,985 |
|
— |
|
210,113 |
| ||||
|
Other liabilities (d) |
|
67,670 |
|
99,564 |
|
47,528 |
|
103,846 |
| ||||
|
Total capital |
|
7,624,081 |
|
— |
|
6,719,482 |
|
— |
| ||||
(a) May include 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 conducted in the ordinary course of the FHLBNY’s business — At December 31, 2016, notional amounts outstanding were $1.1 billion, and the fair value was a derivative liability of $3.3 million. There was no posting of cash collateral at December 31, 2016. At December 31, 2015, notional amounts outstanding were $2.6 billion, and the fair value was a derivative liability of $10.3 million. There was no posting of cash collateral at December 31, 2015. The swap interest rate exchanges with Citibank, N.A. resulted in interest expenses of $8.1 million in 2016, compared to $30.3 million and $32.0 million in 2015 and 2014. Also, includes insignificant fair values due to intermediation activities on behalf of other members with Citibank in the capacity of a derivative dealer.
Derivative transactions with Goldman Sachs Bank USA, a member that is a derivatives dealer counterparty, were conducted in the ordinary course of the FHLBNY’s business — At December 31, 2016, notional amounts outstanding were $1.8 billion, and the fair value was a derivative liability of $17.0 million. There was no posting of cash collateral at December 31, 2016. At December 31, 2015, notional amounts outstanding were $2.5 billion; the net fair value after posting $19.3 million cash collateral was a net derivative liability of $29.4 million. The swap interest rate exchanges with Goldman Sachs Bank USA resulted in interest expense of $33.0 million, compared to $102.9 million and $93.0 million in 2015 and 2014. Also, may include insignificant fair values due to intermediation activities on behalf of other members with Goldman Sachs in the capacity of a derivative dealer.
(c) Represents funds not yet allocated or disbursed to AHP programs.
(d) Related column includes member pass-through reserves at the Federal Reserve Bank of New York.
Federal Home Loan Bank of New York
Notes to Financial Statements
Related Party: Income and Expense transactions
|
|
|
Years ended December 31, |
| ||||||||||||||||
|
|
|
2016 |
|
2015 |
|
2014 |
| ||||||||||||
|
|
|
Related |
|
Unrelated |
|
Related |
|
Unrelated |
|
Related |
|
Unrelated |
| ||||||
|
Interest income |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Advances |
|
$ |
919,890 |
|
$ |
— |
|
$ |
627,866 |
|
$ |
— |
|
$ |
478,672 |
|
$ |
— |
|
|
Interest-bearing deposits (a) |
|
— |
|
1,655 |
|
— |
|
1,343 |
|
— |
|
1,019 |
| ||||||
|
Securities purchased under agreements to resell |
|
— |
|
6,940 |
|
— |
|
1,615 |
|
— |
|
481 |
| ||||||
|
Federal funds sold |
|
— |
|
46,383 |
|
— |
|
13,035 |
|
— |
|
9,326 |
| ||||||
|
Trading securities |
|
— |
|
56 |
|
— |
|
— |
|
— |
|
— |
| ||||||
|
Available-for-sale securities |
|
— |
|
8,662 |
|
— |
|
8,411 |
|
— |
|
10,733 |
| ||||||
|
Held-to-maturity securities |
|
— |
|
290,428 |
|
— |
|
264,286 |
|
— |
|
264,402 |
| ||||||
|
Mortgage loans held-for-portfolio (b) |
|
1 |
|
86,799 |
|
— |
|
81,103 |
|
— |
|
71,514 |
| ||||||
|
Loans to other FHLBanks |
|
33 |
|
— |
|
13 |
|
— |
|
7 |
|
— |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Total interest income |
|
$ |
919,924 |
|
$ |
440,923 |
|
$ |
627,879 |
|
$ |
369,793 |
|
$ |
478,679 |
|
$ |
357,475 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Consolidated obligations |
|
$ |
— |
|
$ |
798,445 |
|
$ |
— |
|
$ |
441,829 |
|
$ |
— |
|
$ |
390,131 |
|
|
Deposits |
|
3,091 |
|
— |
|
455 |
|
— |
|
579 |
|
— |
| ||||||
|
Mandatorily redeemable capital stock |
|
1,617 |
|
— |
|
820 |
|
— |
|
925 |
|
— |
| ||||||
|
Cash collateral held and other borrowings |
|
— |
|
1,284 |
|
3 |
|
408 |
|
— |
|
55 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Total interest expense |
|
$ |
4,708 |
|
$ |
799,729 |
|
$ |
1,278 |
|
$ |
442,237 |
|
$ |
1,504 |
|
$ |
390,186 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Service fees and other income/(expenses) |
|
$ |
10,984 |
|
$ |
2,840 |
|
$ |
10,353 |
|
$ |
1,743 |
|
$ |
9,503 |
|
$ |
13 |
|
(a) Includes insignificant amounts of interest income from MPF service provider.
(b) Includes immaterial 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 FHLBNY. Members might withdraw or reduce their business as a result of consolidating with an institution that was a member of another FHLBank, or for other reasons. The FHLBNY has considered the impact of losing one or more large members. In general, a withdrawing member would be required to repay all indebtedness prior to the redemption of its capital stock. Under current conditions, the FHLBNY does not expect the loss of a large member to impair its operations, since the FHLBank Act, as amended, does not allow the FHLBNY to redeem the capital of an existing member if the redemption would cause the FHLBNY to fall below its capital requirements. Consequently, the loss of a large member should not result in an inadequate capital position for the FHLBNY. However, such an event could reduce the amount of capital that the FHLBNY has available for continued growth. This could have various ramifications for the FHLBNY, including a possible reduction in net income and dividends, and a lower return on capital stock for remaining members.
Federal Home Loan Bank of New York
Notes to Financial Statements
The top ten advance holders at December 31, 2016, December 31, 2015 and December 31, 2014 and associated interest income for the periods then ended are summarized as follows (dollars in thousands):
|
|
|
December 31, 2016 |
| ||||||||||||
|
|
|
|
|
|
|
|
|
Percentage of |
|
|
|
|
| ||
|
|
|
|
|
|
|
Par |
|
Total Par Value |
|
Twelve Months |
| ||||
|
|
|
City |
|
State |
|
Advances |
|
of Advances |
|
Interest Income |
|
Percentage (a) |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
Citibank, N.A. |
|
New York |
|
NY |
|
$ |
33,551,388 |
|
30.71 |
% |
$ |
188,265 |
|
22.73 |
% |
|
Metropolitan Life Insurance Company |
|
New York |
|
NY |
|
14,445,000 |
|
13.22 |
|
202,428 |
|
24.44 |
| ||
|
New York Community Bancorp, Inc.: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
New York Community Bank |
|
Westbury |
|
NY |
|
11,380,600 |
|
10.42 |
|
166,832 |
|
20.15 |
| ||
|
New York Commercial Bank |
|
Westbury |
|
NY |
|
283,900 |
|
0.26 |
|
5,249 |
|
0.63 |
| ||
|
Subtotal New York Community Bancorp, Inc. |
|
|
|
|
|
11,664,500 |
|
10.68 |
|
172,081 |
|
20.78 |
| ||
|
HSBC Bank USA, National Association (c) |
|
McLean |
|
VA |
|
5,700,000 |
|
5.22 |
|
62,770 |
|
7.58 |
| ||
|
Investors Bank (b) |
|
Short Hills |
|
NJ |
|
4,409,420 |
|
4.04 |
|
69,571 |
|
8.40 |
| ||
|
Goldman Sachs Bank USA |
|
New York |
|
NY |
|
2,425,000 |
|
2.22 |
|
23,753 |
|
2.87 |
| ||
|
New York Life Insurance Company |
|
New York |
|
NY |
|
2,275,000 |
|
2.08 |
|
24,816 |
|
3.00 |
| ||
|
AXA Equitable Life Insurance Company |
|
New York |
|
NY |
|
2,238,498 |
|
2.05 |
|
18,879 |
|
2.28 |
| ||
|
Astoria Bank (b) |
|
Lake Success |
|
NY |
|
2,090,000 |
|
1.91 |
|
41,007 |
|
4.95 |
| ||
|
Signature Bank |
|
New York |
|
NY |
|
2,050,900 |
|
1.88 |
|
24,565 |
|
2.97 |
| ||
|
Total |
|
|
|
|
|
$ |
80,849,706 |
|
74.01 |
% |
$ |
828,135 |
|
100.00 |
% |
(a) Interest income percentage is the member’s interest income from advances as a percentage of the top 10 members.
(b) At December 31, 2016, officer of member bank also served on the Board of Directors of the FHLBNY.
(c) For Bank membership purposes, principal place of business is New York, NY.
|
|
|
December 31, 2015 |
| ||||||||||||
|
|
|
|
|
|
|
|
|
Percentage of |
|
|
|
|
| ||
|
|
|
|
|
|
|
Par |
|
Total Par Value |
|
Twelve Months |
| ||||
|
|
|
City |
|
State |
|
Advances |
|
of Advances |
|
Interest Income |
|
Percentage (a) |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
Citibank, N.A. |
|
New York |
|
NY |
|
$ |
14,750,000 |
|
15.77 |
% |
$ |
88,933 |
|
9.21 |
% |
|
New York Community Bancorp, Inc.: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
New York Community Bank |
|
Westbury |
|
NY |
|
12,699,600 |
|
13.58 |
|
221,991 |
|
22.99 |
| ||
|
New York Commercial Bank |
|
Westbury |
|
NY |
|
764,200 |
|
0.82 |
|
6,208 |
|
0.64 |
| ||
|
Subtotal New York Community Bancorp, Inc. |
|
|
|
|
|
13,463,800 |
|
14.40 |
|
228,199 |
|
23.63 |
| ||
|
Metropolitan Life Insurance Company |
|
New York |
|
NY |
|
12,570,000 |
|
13.44 |
|
192,749 |
|
19.96 |
| ||
|
HSBC Bank USA, National Association |
|
New York |
|
NY |
|
5,600,000 |
|
5.99 |
|
25,014 |
|
2.59 |
| ||
|
First Niagara Bank, National Association |
|
Buffalo |
|
NY |
|
5,525,000 |
|
5.91 |
|
26,638 |
|
2.76 |
| ||
|
Investors Bank (b) |
|
Short Hills |
|
NJ |
|
3,124,782 |
|
3.34 |
|
63,921 |
|
6.62 |
| ||
|
Manufacturers and Traders Trust Company |
|
Buffalo |
|
NY |
|
3,102,771 |
|
3.32 |
|
279,394 |
|
28.95 |
| ||
|
Goldman Sachs Bank USA |
|
New York |
|
NY |
|
2,925,000 |
|
3.13 |
|
6,889 |
|
0.71 |
| ||
|
Signature Bank |
|
New York |
|
NY |
|
2,720,163 |
|
2.91 |
|
13,062 |
|
1.35 |
| ||
|
Astoria Bank (b) |
|
Lake Success |
|
NY |
|
2,180,000 |
|
2.33 |
|
40,790 |
|
4.22 |
| ||
|
Total |
|
|
|
|
|
$ |
65,961,516 |
|
70.54 |
% |
$ |
965,589 |
|
100.00 |
% |
(a) Interest income percentage is the member’s interest income from advances as a percentage of the top 10 members.
(b) At December 31, 2015, officer of member bank also served on the Board of Directors of the FHLBNY.
|
|
|
December 31, 2014 |
| ||||||||||||
|
|
|
|
|
|
|
|
|
Percentage of |
|
|
|
|
| ||
|
|
|
|
|
|
|
Par |
|
Total Par Value |
|
Twelve Months |
| ||||
|
|
|
City |
|
State |
|
Advances |
|
of Advances |
|
Interest Income |
|
Percentage (a) |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
Citibank, N.A. |
|
New York |
|
NY |
|
$ |
28,000,000 |
|
28.80 |
% |
$ |
115,280 |
|
10.40 |
% |
|
Metropolitan Life Insurance Company |
|
New York |
|
NY |
|
12,570,000 |
|
12.93 |
|
211,354 |
|
19.08 |
| ||
|
New York Community Bancorp, Inc.: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
New York Community Bank (c) |
|
Westbury |
|
NY |
|
8,887,818 |
|
9.14 |
|
246,245 |
|
22.22 |
| ||
|
New York Commercial Bank (c) |
|
Westbury |
|
NY |
|
1,035,912 |
|
1.07 |
|
3,509 |
|
0.32 |
| ||
|
Subtotal New York Community Bancorp, Inc. |
|
|
|
|
|
9,923,730 |
|
10.21 |
|
249,754 |
|
22.54 |
| ||
|
Hudson City Savings Bank, FSB (b) |
|
Paramus |
|
NJ |
|
6,025,000 |
|
6.20 |
|
289,985 |
|
26.18 |
| ||
|
First Niagara Bank, National Association |
|
Buffalo |
|
NY |
|
5,049,400 |
|
5.19 |
|
19,191 |
|
1.73 |
| ||
|
Investors Bank (c) |
|
Short Hills |
|
NJ |
|
2,616,141 |
|
2.69 |
|
58,125 |
|
5.25 |
| ||
|
Astoria Bank (c) |
|
Lake Success |
|
NY |
|
2,384,000 |
|
2.45 |
|
41,912 |
|
3.78 |
| ||
|
The Prudential Insurance Co. of America |
|
Newark |
|
NJ |
|
2,225,000 |
|
2.29 |
|
33,738 |
|
3.04 |
| ||
|
Valley National Bank (c) |
|
Wayne |
|
NJ |
|
1,899,500 |
|
1.95 |
|
81,047 |
|
7.31 |
| ||
|
New York Life Insurance Company |
|
New York |
|
NY |
|
1,600,000 |
|
1.65 |
|
7,612 |
|
0.69 |
| ||
|
Total |
|
|
|
|
|
$ |
72,292,771 |
|
74.36 |
% |
$ |
1,107,998 |
|
100.00 |
% |
(a) Interest income percentage is the member’s interest income from advances as a percentage of the top 10 members.
(b) Hudson City Savings Bank, FSB was acquired by Manufacturers and Traders Trust Company in the fourth quarter of 2015.
(c) At December 31, 2014, officer of member bank also served on the Board of Directors of the FHLBNY.
Federal Home Loan Bank of New York
Notes to Financial Statements
The following tables summarize capital stock held by members who were beneficial owners of more than 5 percent of the FHLBNY’s outstanding capital stock as of February 28, 2017 and December 31, 2016 (shares in thousands):
|
|
|
|
|
Number |
|
Percent |
|
|
|
|
February 28, 2017 |
|
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 |
|
15,641 |
|
25.75 |
% |
|
Metropolitan Life Insurance Company |
|
200 Park Avenue, New York, NY 10166 |
|
7,481 |
|
12.32 |
|
|
New York Community Bancorp, Inc.: |
|
|
|
|
|
|
|
|
New York Community Bank |
|
615 Merrick Avenue, Westbury, NY 11590 |
|
5,656 |
|
9.31 |
|
|
New York Commercial Bank |
|
615 Merrick Avenue, Westbury, NY 11590 |
|
159 |
|
0.26 |
|
|
|
|
|
|
5,815 |
|
9.57 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,937 |
|
47.64 |
% |
|
|
|
|
|
Number |
|
Percent |
|
|
|
|
December 31, 2016 |
|
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 |
|
17,666 |
|
27.87 |
% |
|
Metropolitan Life Insurance Company |
|
200 Park Avenue, New York, NY 10166 |
|
7,481 |
|
11.80 |
|
|
New York Community Bancorp, Inc.: |
|
|
|
|
|
|
|
|
New York Community Bank |
|
615 Merrick Avenue, Westbury, NY 11590 |
|
5,745 |
|
9.06 |
|
|
New York Commercial Bank |
|
615 Merrick Avenue, Westbury, NY 11590 |
|
164 |
|
0.26 |
|
|
|
|
|
|
5,909 |
|
9.32 |
|
|
HSBC Bank USA, National Association |
|
1800 Tysons Boulevard, McLean, VA 22102 |
|
3,376 |
|
5.33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,432 |
|
54.32 |
% |
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures: An evaluation of the Bank’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Act”)) was carried out under the supervision and with the participation of the Bank’s President and Chief Executive Officer, José R. González, and Senior Vice President and Chief Financial Officer, Kevin M. Neylan, at December 31, 2016. Based on this evaluation, they concluded that as of December 31, 2016, the Bank’s disclosure controls and procedures were effective at a reasonable level of assurance in ensuring that the information required to be disclosed by the Bank in the reports it files or submits under the Act is (i) accumulated and communicated to the Bank’s management (including the President and Chief Executive Officer and Senior Vice President and Chief Financial Officer) in a timely manner, and (ii) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.
(b) Changes in Internal Control Over Financial Reporting: There were no changes in the Bank’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Act) during the Bank’s fourth quarter that have materially affected, or are reasonably likely to materially affect, the Bank’s internal control over financial reporting.
Management’s Report on Internal Control over Financial Reporting and the Report of Independent Registered Public Accounting Firm thereon are set forth in Part II, Item 8 of the Annual Report on Form 10-K and incorporated herein by reference.
PricewaterhouseCoopers LLP (PwC) serves as the independent registered public accounting firm for us and the other FHLBs. Rule 2-01(c)(1)(ii)(A) of Regulation S-X (the Loan Rule) prohibits an accounting firm, such as PwC, and any covered person in the firm, from having certain financial relationships with their audit clients and affiliated entities. Specifically, the Loan Rule provides, in the relevant part, that an accounting firm generally would not be independent if the accounting firm or any covered person in the firm receives a loan from a lender that is a “record or beneficial owner of more than ten percent of the audit client’s equity securities.”
PwC has advised the Bank that as of December 31, 2016, it has borrowing relationships with two Bank members (and certain covered persons in the firm have borrowing relationships with one such member) (referred to below as the “Lenders”) who each own more than ten percent of the Bank’s capital stock which could call into question PwC’s independence with respect to the Bank. The Bank is providing this disclosure to explain the facts and circumstances of PwC’s and its covered persons’ relationships with these Lenders as well as PwC’s and the Audit Committee’s conclusions concerning PwC’s objectivity and impartiality with respect to the audit of the Bank.
PwC advised the Audit Committee of the Bank that it believed that, in light of the facts of each borrowing relationship, its ability to exercise objective and impartial judgment on all matters encompassed within PwC’s audit engagement is not impaired and that a reasonable investor with knowledge of all relevant facts and circumstances would reach the same conclusion.
PwC advised the Audit Committee that this conclusion is based in part on the following considerations with respect to borrowing relationships between one of the Lenders and PwC:
· the borrowings are in good standing and the Lender does not have the right to take action against PwC, as borrower, in connection with the financings;
· the debt balances outstanding were immaterial to PwC and to the Lender;
· PwC has borrowing relationships with a diverse group of lenders, therefore PwC is not dependent on any single lender or group of lenders; and
· the PwC audit engagement team has no involvement in PwC’s treasury function and PwC’s treasury function has no oversight or ability to influence the PwC audit engagement team.
PwC advised the Audit Committee that with respect to borrowing relationships between one of the Lenders and an engagement team member, its conclusion is based on factors listed above and the following considerations:
· the Lender has not made any attempt to influence the conduct of the audits or objectivity and impartiality of this engagement team member;
· each loan was obtained under the Lender’s normal lending procedures, terms, and requirements; and
· each loan is current.
Additionally, PwC advised the Audit Committee that with respect to certain covered persons who do not play an active role in the Bank’s audit and that have borrowing relationships with the Lenders, its conclusion is based on such professionals being required to disclose immediately any relationships that may raise issues about objectivity, independence, conflicts of interest, or favoritism.
Moreover, the Audit Committee of the Bank assessed PwC’s ability to perform an objective and impartial audit, including consideration of the ownership and governance structure of the Bank, the limited voting rights of the Bank’s members and the composition of the board of directors. In addition to the above listed considerations, the Audit Committee considered the following:
· although each of the Lenders owned more than ten percent of the Bank’s capital stock, the voting power of each Lender’s capital stock is less than ten percent; and
· No officer or director of either Lender served on the board of directors of the Bank.
Based on the Audit Committee’s evaluation, the Audit Committee concluded that PwC’s ability to exercise objective and impartial judgment on all issues encompassed within PwC’s audit engagement has not been impaired.
If in the future, however, PwC is ultimately determined under the Loan Rule not to be independent with respect to the Bank, or permanent relief regarding this matter is not granted by the SEC, the Bank may need to take other actions and incur other costs in order for the Bank’s previously filed Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q to be deemed compliant with applicable securities laws. Such actions may include, among other things, obtaining a new audit and review of our historical financial statements by another independent registered public accounting firm. Any of the foregoing could have an adverse impact on the Bank.
For further discussion of Bank members owning more than ten percent of the Bank’s capital stock at December 31, 2016, please see Note 20 - Segment Information and Concentration to the financial statements in this Form 10-K. For a discussion of the voting rights of our members, please see Item 10 - Directors, Executive Officers, and Corporate Governance — 2016 and 2017 Board of Directors in this Form 10-K.
Item 10. Directors, Executive Officers and Corporate Governance.
2016 and 2017 Board of Directors
The FHLBank Act, as amended by the Housing and Economic Recovery Act of 2008 (“HERA”), provides that a FHLBank’s board of directors is to comprise thirteen Directors, or such other number as the Director of the Federal Housing Finance Agency (“Finance Agency” or “FHFA”) determines appropriate. For 2016 and 2017, the FHFA Director designated nineteen directorships for us, eleven of which were Member Directorships and eight of which were Independent Directorships.
All individuals serving as Bank Directors must be United States citizens. A majority of the directors serving on the Board must be Member Directors and at least two-fifths must be Independent Directors.
A Member Directorship may be held only by an officer or director of a member institution that is located within our district and that meets all minimum regulatory capital requirements. There are no other qualification requirements for Member Directors apart from the foregoing.
Member Directors are, generally speaking, elected by our stockholders in, respectively, New York, New Jersey, and Puerto Rico and the U.S. Virgin Islands. Our Board of Directors is ordinarily not permitted to nominate or elect Member Directors; however, the Board may appoint a director to fill a vacant Member Directorship in the event that no nominations are received from members in the course of the Member Director election process. In the event that only one nomination is received from members for an open Member Directorship, that nominee will automatically be declared elected by the Bank. (The Board may also take action to fill Member Directorship vacancies that arise for other reasons.) Each member institution that is required to hold stock as of the record date, which is December 31 of the year prior to the year in which the election is held, may nominate and/or vote for representatives from member institutions in its respective state to fill open Member Directorships. (The Finance Agency’s election regulation provides that none of our directors, officers, employees, attorneys or agents, other than in a personal capacity, may support the nomination or election of a particular individual for a Member Directorship.
Because of the process described above pertaining to how Member Directors are nominated and elected, we do not know what particular factors our member institutions may consider in nominating particular candidates for Member Directorships or in voting to elect Member Directors. However, if the Board takes action to fill a vacant Member Directorship, we can know what was considered in electing such Director. In general, such considerations may include satisfaction of the regulatory qualification requirements for the Directorship, the nature of the person’s experience in the financial industry and at a member institution, knowledge of the person by various members of the Board, and previous service on the Board, if any.
In contrast to the requirements pertaining to Member Directorships, an Independent Directorship may, per FHFA regulations, be held, generally speaking, only by an individual who is a bona fide resident of our district, who is not a director, officer, or employee of a member institution or of any person that receives advances from us, and who is not an officer of any FHLBank. At least two Independent Directors must be “public interest” directors. Public interest directors, as defined by Finance Agency regulations, are Independent Directors who have at least four years of experience representing consumer or community interests in banking services, credit needs, housing or consumer financial protection. Pursuant to Finance Agency regulations, each Independent Director must either satisfy the aforementioned requirements to be a public interest director, or have knowledge or experience in one or more of the following areas: auditing and accounting, derivatives, financial management, organizational management, project development, risk management practices, and the law.
Any individual may submit an Independent Director application form and request to be considered by us for inclusion on the Independent Director nominee slate. Our Board of Directors is then required by Finance Agency regulations to consult with our Affordable Housing Advisory Council (“Advisory Council”) in establishing the nominee slate. (The Advisory Council is an advisory body consisting of fifteen persons residing in our district appointed by our Board, the members of which are drawn from community and not-for-profit organizations that are actively involved in providing or promoting low and moderate income housing or community lending. The Advisory Council provides advice on ways in which we can better carry out our housing finance and community lending mission.) After the nominee slate is approved by the Board, the slate is then presented to our membership for a district-wide vote. The election regulation permits our directors, officers, attorneys, employees, agents, and Advisory Council to support the candidacy of the board of director’s nominees for Independent Directorships. (As is the case with Member Directorships, the Board may also take action to fill a vacancy of an Independent Directorship.)
The Bank encourages diversity on its Board of Directors and encourages minorities and women to consider service as Bank Directors.
Voting rights and processes with regard to the election of Member and Independent Directors are set forth in the FHLBank Act and FHFA regulations. For the election of both Member Directors and Independent Directors, each eligible member institution is entitled to cast one vote for each share of capital stock that it was required to hold as of the record date (which is December 31st). However, the number of votes that each institution may cast for each Directorship cannot exceed the average number of shares of capital stock that were required to be held by all member institutions located in the voting member’s state on the record date. The Board does not solicit proxies, nor are member institutions permitted to solicit or use proxies in order to cast their votes in an election.
The following table sets forth information regarding each of the directors who served on our Board during the period from January 1, 2016 through the date of this annual report on Form 10-K. Footnotes are used to specifically identify (i) those Directors whose terms expired at the end of 2016 and who were also elected to serve for new terms on the Board commencing on January 1, 2017; (ii) a Director who did not serve on the Board in 2016 but who was elected to serve for a term on the Board commencing on January 1, 2017; (iii) a Director whose term expired at the end of 2016 and, although eligible to serve for another term, decided to not run again for election; and (iv) a Director who passed away in early 2017.
Following the table is biographical information for each Director.
No Director has any family relationship with any other FHLBNY Directors or executive officers. In addition, no Director or executive officer has an involvement in any legal proceeding required to be disclosed pursuant to Item 401(f) of Regulation S-K.
|
Director Name |
|
Age as of |
|
Bank |
|
Start of |
|
Expiration |
|
Represents |
|
Director |
|
Michael M. Horn (Chair) |
|
77 |
|
4/2007 |
|
1/1/14 |
|
12/31/17 |
|
Districtwide |
|
Independent |
|
James W. Fulmer (Vice Chair) |
|
65 |
|
1/2007 |
|
1/1/14 |
|
12/31/17 |
|
NY |
|
Member |
|
John R. Buran |
|
67 |
|
12/2010 |
|
1/1/16 |
|
12/31/19 |
|
NY |
|
Member |
|
Kevin Cummings |
|
62 |
|
1/2014 |
|
1/1/15 |
|
12/31/18 |
|
NJ |
|
Member |
|
Anne Evans Estabrook |
|
72 |
|
2/2004 |
|
1/1/15 |
|
12/31/18 |
|
Districtwide |
|
Independent |
|
Jay M. Ford(a) |
|
67 |
|
6/2008 |
|
1/1/17 |
|
12/31/20 |
|
NJ |
|
Member |
|
Caren S. Franzini(b) |
|
— |
|
1/2016 |
|
1/1/16 |
|
12/31/19 |
|
Districtwide |
|
Independent |
|
Thomas L. Hoy |
|
68 |
|
1/2012 |
|
1/1/16 |
|
12/31/19 |
|
NY |
|
Member |
|
Gerald H. Lipkin |
|
76 |
|
1/2014 |
|
1/1/14 |
|
12/31/17 |
|
NJ |
|
Member |
|
Christopher P. Martin |
|
60 |
|
1/2015 |
|
1/1/15 |
|
12/31/18 |
|
NJ |
|
Member |
|
Kenneth J. Mahon(c) |
|
65 |
|
1/2017 |
|
1/1/17 |
|
12/31/20 |
|
NY |
|
Member |
|
Richard S. Mroz |
|
55 |
|
3/2002 |
|
1/1/15 |
|
12/31/18 |
|
Districtwide |
|
Independent |
|
David J. Nasca |
|
59 |
|
1/2015 |
|
1/1/15 |
|
12/31/18 |
|
NY |
|
Member |
|
Vincent F. Palagiano(d) |
|
76 |
|
1/2012 |
|
1/1/13 |
|
12/31/16 |
|
NY |
|
Member |
|
C. Cathleen Raffaeli(e) |
|
60 |
|
4/2007 |
|
1/1/17 |
|
12/31/20 |
|
Districtwide |
|
Independent |
|
Monte N. Redman(f) |
|
66 |
|
1/2014 |
|
1/1/17 |
|
12/31/20 |
|
NY |
|
Member |
|
Edwin C. Reed(e) |
|
63 |
|
4/2007 |
|
1/1/17 |
|
12/31/20 |
|
Districtwide |
|
Independent |
|
DeForest B. Soaries, Jr. |
|
65 |
|
1/2009 |
|
1/1/16 |
|
12/31/19 |
|
Districtwide |
|
Independent |
|
Larry E. Thompson |
|
66 |
|
1/2014 |
|
1/1/14 |
|
12/31/17 |
|
Districtwide |
|
Independent |
|
Carlos J. Vázquez |
|
58 |
|
11/2013 |
|
1/1/14 |
|
12/31/17 |
|
PR & USVI |
|
Member |
(a) Director Ford served on the Board as a New Jersey Member Director throughout 2016, and his term expired on December 31, 2016. On August 30, 2016, he was declared elected by the Bank to serve as a New Jersey Member Director for a new four year term commencing on January 1, 2017.
(b) Director Franzini, whose four year term as an Independent Director commenced on January 1, 2016, passed away on January 25, 2017.
(c) Director Mahon was elected on November 1, 2016 by the Bank’s New York membership to serve as a New York Member Director for a four year term commencing on January 1, 2017.
(d) Director Palagiano served on the Board as a New York Member Director throughout 2016, and his term expired on December 31, 2016. Although he was eligible to serve for another term, he decided to not run again for election; this decision was announced in a Current Report on Form 8-K filed on July 19, 2016.
(e) Directors Raffaeli and Reed both served on the Board as Independent Directors throughout 2016, and their terms expired on December 31, 2016. They were both elected on November 1, 2016 by the Bank’s membership to serve as Independent Directors for new four year terms commencing on January 1, 2017.
(f) Director Redman served on the Board as a New York Member Director throughout 2016, and his term expired on December 31, 2016. On November 1, 2016, he was elected by the Bank’s New York membership to serve as a New York Member Director for a new four year term commencing on January 1, 2017.
Mr. Horn (Chair) has been a partner in the law firm of McCarter & English, LLP since 1990. He has served as the Commissioner of Banking for the State of New Jersey and as the New Jersey State Treasurer. He was also a member of the New Jersey State Assembly and served as a member of the Assembly Banking Committee. In addition, Mr. Horn served on New Jersey’s Executive Commission on Ethical Standards as both its Vice Chair and Chairman, was appointed as a State Advisory Member of the Federal Financial Institutions Examination Council, and was a member of the Municipal Securities Rulemaking Board. Mr. Horn is counsel to the New Jersey Bankers Association, was chairman of the Bank Regulatory Committee of the Banking Law Section of the New Jersey State Bar Association, and is a Fellow of the American Bar Foundation. Mr. Horn’s legal and regulatory experience, as indicated by his background described above, supports his qualifications to serve on our Board as an Independent Director.
Mr. Fulmer (Vice Chair) has been a director of FHLBNY member The Bank of Castile since 1988 and the chairman since 1992. He also served as chief executive officer of The Bank of Castile from 1996 through 2014 and president from 2002 through 2014. Mr. Fulmer has also served as vice chairman of Tompkins Financial Corporation (“Tompkins Financial”), the parent company of The Bank of Castile, since 2007, and has served as a director of Tompkins Financial since 2000. Since 2001, he has served as chairman of the board of Tompkins Insurance Agencies, Inc., a subsidiary of Tompkins Financial. In addition, since 1999, Mr. Fulmer has served as a member of the board of directors of Bank member Mahopac Bank, a subsidiary of Tompkins Financial. Since 2012, he has served as a member of the board of directors for VIST Bank, a subsidiary of Tompkins Financial. He is an active community leader, serving as a member of the board of directors of the Erie and Niagara Insurance Association, and Cherry Valley Cooperative Insurance Company, Williamsville, NY. Mr. Fulmer is also Chairman of WXXI Public Broadcasting Council in Rochester, NY. He is a former member of the board of directors of the Catholic Health System of Western New York. He is also former president of the Independent Bankers Association of New York State and former member of the board of directors of the New York Bankers Association.
Mr. Buran is Director, President and Chief Executive Officer of Flushing Financial Corporation, the holding company for FHLBNY member Flushing Bank (formerly Flushing Savings Bank). He joined the holding company and the bank in 2001 as Chief Operating Officer and he became a Director of these entities in 2003. In 2005, he was named President and Chief Executive Officer of both entities. Mr. Buran’s career in the banking industry began with Citibank in 1977. There, he held a variety of management positions including Business Manager of its retail distribution in Westchester, Long Island and Manhattan and Vice President in charge of its Investment Sales Division. Mr. Buran left Citibank to become Senior Vice President, Division Head for Retail Services of NatWest Bank and later Executive Vice President of Fleet Bank’s (now Bank of America) retail branch system in New York City, Long Island, Westchester and Southern Connecticut. He also spent time as a consultant and Assistant to the President of Carver Bank. Mr. Buran is past Chairman and current Board member of the New York Bankers Association. In 2011, he was appointed to and currently serves on the Community Depository Institutions Advisory Council of The Federal Reserve Bank of New York. Since 2012 he has been a member of the Nassau County Interim Finance Authority. Mr. Buran has devoted his time to a variety of charitable and not-for-profit organizations. He has been a Board member of the Long Island Association, both the Nassau and Suffolk County Boy Scouts, EAC, Long Island University, the Long Island Philharmonic and Channel 21. He was the fundraising Chairman for the Suffolk County Vietnam Veteran’s War Memorial in Farmingville, New York and has been recipient of the Boy Scouts’ Chief Scout Citizen Award. His work in the community has been recognized by Family and Children’s Association, and Gurwin Jewish Geriatric Center. He was also a recipient of the Long Island Association’s SBA Small Business Advocate Award. Mr. Buran was honored twice with St. Joseph’s College’s Distinguished Service Award. Mr. Buran also serves on the Advisory Board and is a former Board President of Neighborhood Housing Services of New York City. He is a Board member of The Korean American Youth Foundation. Mr. Buran also serves on the Board of the Long Island Conservatory. He holds a B.S. in Management and an M.B.A., both from New York University.
Mr. Cummings was appointed President and Chief Executive Officer of FHLBNY member Investors Bank and holding company Investors Bancorp effective January 1, 2008 and was also appointed to serve on the Board of Directors of Investors Bank at that time. He previously served as Executive Vice President and Chief Operating Officer of Investors Bank since July 2003. Prior to joining Investors Bank, Mr. Cummings had a 26-year career with the independent accounting firm of KPMG LLP, where he had been partner for 14 years. Immediately prior to joining Investors Bank, he was an audit partner in KPMG’s Financial Services practice in their New York City office and lead partner on a major commercial banking client. Mr. Cummings also worked in the New Jersey community bank practice for over 20 years. Mr. Cummings has a Bachelor’s degree in Economics from Middlebury College and a Master’s degree in Business Administration from Rutgers University. Mr. Cummings has served as a Commissioner on the Summit Board of Recreation. He is a Trustee of The Scholarship Fund for Inner-City Children, a Trustee of the Liberty Science Center, and the former Chairman of the Board of the New Jersey Bankers Association. He is also a board member of the Independent College Fund of New Jersey, the All Stars Project of New Jersey and The Community Foundation of New Jersey. He also serves as a member of the Development Leadership Council of Morris Habitat for Humanity. Mr. Cummings is a certified public accountant.
Ms. Estabrook is Chairman of Elberon Development Group in Elizabeth, New Jersey and was the chief executive officer from 1984 through 2014. It, together with its affiliated companies, owns and manages approximately 2.1 million square feet of rental property. Most of the property is industrial with the remainder serving commercial tenants. Elberon Development Group also engages in redevelopment projects. Ms. Estabrook was appointed by Governor Christine Todd Whitman to the NJ Economic Development Authority Board in 1995 until 2000. Ms. Estabrook also served as a director on the board of New Brunswick Savings Bank, Constellation Bancorp and Summit Bank, all in New Jersey. Since 2005 and currently Ms. Estabrook serves as a Director of New Jersey American Water Company. Ms. Estabrook is a past chairman of the New Jersey Chamber of Commerce, served on its executive committee, and chaired its nominating committee. In 2003-2004, she was the first woman to serve in that capacity in the Chamber’s 90 plus years of existence. She also served as a member of the Lay Board of Trustees of the Delbarton School in Morristown for 15 years including five years as chair. Until December 2012, Ms. Estabrook was a member and Secretary of the Board of Trustees of Catholic Charities, served on its Executive Committee and its Audit Committee, and chaired its Finance Committee and Building and Facilities Committees. She is presently on the Board of Overseers of the Weill Cornell Medical School. She is a Trustee of RWJBarnabas Health and serves on its Nominating/Governance, Compensation and Strategic Planning/Academic Affairs Committees. She previously served on its Audit Committee for six years. She serves on the Board of Trustees at Monmouth Medical Center where she is on its Executive and Nominating Committees. She also serves on the Strategic Planning Committee with regard to the hospital’s real estate needs. Ms. Estabrook serves on the Board of Trustees of the New Jersey Performing Arts Center (NJPAC) and serves on its Operations and Finance Committee and its Business Partners Committee. In September 2011, she became a member of the Board of Managers of the Theatre Square Development Company LLC in Newark, NJ, a proposed 245 rental unit housing project currently under construction which will include retail space and affordable housing units. In 2015 she was named as a Director of Y Homes, Inc., an affiliate of the Gateway family YMCA. Ms. Estabrook’s experience in, among other areas, representing community interests in housing as
indicated by her background described above, supports her qualifications to serve on our Board as a public interest director and Independent Director.
Mr. Ford has been President and Chief Executive Officer of FHLBNY member Crest Savings Bank, headquartered in Wildwood, New Jersey, since 1993, and also serves as a director. He has worked in the financial services industry in southern New Jersey for over forty-five years. Mr. Ford served as the 2003-2004 Chairman of the New Jersey League of Community Bankers. Mr. Ford served as Chairman of the Community Bank Council of the Federal Reserve Bank of Philadelphia in 1998-1999. He also served on the board of directors of America’s Community Bankers (“ACB”) and on ACB’s Audit and Finance & Investment Committees. Mr. Ford served on the board of the Cape Regional Medical Center Foundation and has previously served as a director and treasurer of Habitat for Humanity, Cape May County, as Divisional Chairman of the March of Dimes for Atlantic and Cape May Counties, and as a Director of the Atlantic Cape Community College Foundation. In December 2000, he was appointed by Governor Christine Todd Whitman to the New Jersey Department of Banking & Insurance Study Commission. Mr. Ford is a graduate of Marquette University with a degree in accounting and is a member of the American Institute of Certified Public Accountants and the New Jersey Society of CPAs.
Ms. Franzini, who passed away on January 25, 2017, was President of Franzini Consulting, LLC providing strategic assistance with real estate development projects; identifying local, state and federal incentives to fill funding gaps; and creating and enhancing lending and incentive programs for economic development organizations. Previously she served as Chief Executive Officer of the New Jersey Economic Development Authority (NJEDA) from January 1994 until October 2012. As the CEO, Ms. Franzini oversaw the organization’s activities including providing financing to small and mid-sized businesses; administering tax incentives to retain and grow jobs; revitalizing communities through redevelopment initiatives; and supporting entrepreneurial development. Ms. Franzini managed an organization with over $500 million in assets and a $28 million operating budget. Annually NJEDA provided between $600-$800 million in financial assistance to businesses, not for profits and public organizations throughout New Jersey to leverage additional private sector investment and the retention and growth of jobs. Prior to joining the NJEDA, Ms. Franzini was an Assistant State Treasurer with the New Jersey Department of the Treasury responsible for analyzing state leases and public debt. Before that, she was employed at the Port Authority of New York and New Jersey and with Public Financial Management. Ms. Franzini has been recognized for her contributions to business growth and economic development in the state. She had been recently inducted into the NJBiz Hall of Fame and the NJ Women’s Hall of Fame and was the recipient of numerous awards including the New Jersey Business & Industry Association’s Paul L. Troast Award for her commitment to improving the state’s economy; the Wharton Club of New York’s Joseph Wharton Award for Social Impact; the Pinnacle Business Advocate Award from the Chamber of Commerce Southern New Jersey; the EDANJ’s Franklin-Maddocks Award for Excellence in Economic Development; Plan Smart NJ’s Outstanding Leadership & Economic Development Achievement Awards and Monmouth University’s Kislak Real Estate Institute’s Service to the Industry Award. Ms. Franzini served on the Board of Directors of NJM Insurance Group, where she served on the Audit, Investment and Executive Committees; the NJ Business and Industry Association, where she was a member of the Executive and Finance Committees; Horizon Blue Cross NJ Foundation Board; NJ Future; and was the Co-Chair of Greater Trenton. She also served as a Visiting Associate at Rutgers University’s Eagleton Institute of Politics. Ms. Franzini held a Bachelor of Arts degree in Urban Studies from the University of Pennsylvania and a Master of Business Administration degree in Finance and Public Management from the Wharton School of the University of Pennsylvania. Ms. Franzini’s financial management, organizational management, project development, and risk management practices experience, as indicated by her background described above, supported her qualifications to serve on our Board as an Independent Director.
Mr. Hoy serves as Chairman of FHLBNY member Glens Falls National Bank and Trust Company; he also served as CEO of the company through December 31, 2012. He is also Chairman of Arrow Financial Corporation, the holding company for Glens Falls National Bank and Trust Company and FHLBNY member Saratoga National Bank and Trust Company; he served as President of the company through June 30, 2012 and CEO of the company through December 31, 2012. He also became a director of North Country Mutual Funds in 2016. Mr. Hoy joined Glens Falls National Bank in 1974 as a Management Trainee and became President of the Bank on January 1, 1995. He became President of Arrow in 1996 and CEO in 1997. Mr. Hoy is a graduate of Cornell University and has been active in various banking organizations, including serving as past President of the Independent Bankers Association of New York, past Chairman of the New York Bankers Association, and past member of the American Bankers Association Board of Directors. Mr. Hoy served four years on active duty in the Navy as a Surface Warfare Officer on various destroyers, and retired after twenty years as a Commander in the U.S. Naval Reserve. He has been extremely active in his community, serving on numerous Boards and leading several community fundraising efforts. He has been recognized for his community service with the J. Walter Juckett Award from the Adirondack Regional Chambers of Commerce, the Twin Rivers Council’s Good Scout Award, the C.R. Wood Theater’s Charles R. Wood Award, the Warren County Bar Association Liberty Bell Award, and the Henry Crandall Award from the Crandall Public Library.
Mr. Lipkin is the Chairman and Chief Executive Officer of FHLBNY member Valley National Bank as well as holding company Valley National Bancorp. He joined Valley in 1975 as a Senior Vice President and was elected a Director in 1986. He was promoted to Executive Vice President in 1987 and elected Chairman and Chief Executive Officer in 1989. The title of President was added in 1996; he held this title through January of 2017. In 2013, he was elected as a Class A director to the Federal Reserve Bank of New York. Mr. Lipkin’s career in the banking industry spans 50 years. He began his career in banking with the Comptroller of the Currency in New York/New Jersey in 1963 and was appointed Deputy Regional Administrator in 1970. Beyond his business accomplishments, Mr. Lipkin’s philanthropic contributions are widely acknowledged. He helped raise funds for basic cancer research at the Lautenberg Center for Tumor Immunology in Jerusalem for over 15 years and was honored for his contributions in 1988 with the prestigious “Torch of Learning Award.” Mr. Lipkin served as a Board Trustee at Beth Israel Hospital in Passaic for over 25 years. He has been honored to receive the Corporate Achievement Award from B’nai Brith International, the Community Service Award from NJ Citizens Action, the Emily Bissell Honor Award from the American Lung Association, the Corporate Recognition Award from the Metro Chapter of the American Red Cross, the Corporate Award from the Sunrise House Foundation and the Community Achievement Award from the Urban
League of Bergen County. Mr. Lipkin received the Corporate Excellence Award from The University of Medicine & Dentistry for his contributions to Musical Moments for MS. He has been honored by the American Heart Association and has served as a member of the Foundation Board at William Paterson University which earned him the “Legacy Award” in 1994. Mr. Lipkin has been a staunch supporter of Rutgers through the years as well. He is past Chairman of the Rutgers Business School Board of Advisors, a member of the Dean’s Advisory Council, and a member of the University’s Board of Overseers. Rutgers recognized Mr. Lipkin’s contributions with the distinguished Alumni Award from the Newark College of Arts and Sciences in 2001 and in 2006 he was elected to the Rutgers University Hall of Distinguished Alumni. Mr. Lipkin earned a B.A. in Economics from Rutgers University and an M.B.A. in Banking & Finance from New York University. He is a graduate of the Stonier Graduate School of Banking as well.
Mr. Mahon is President and Chief Executive Officer, and a Director, of Dime Community Bancshares, Inc., and its subsidiary, FHLBNY member Dime Community Bank, Brooklyn, New York. Prior to serving as Chief Executive Officer, Mr. Mahon served as Senior Executive Vice President and Chief Operating Officer, and before that as the company’s Chief Financial Officer. Mr. Mahon serves as a board member of Brooklyn Legal Services Corporation A, a nonprofit which provides legal services for low income families in Brooklyn, and of Southside United /Los Sures, which mission is maintaining and improving housing in the Williamsburg community for those of low and moderate income. Mr. Mahon is a member of the Financial Managers Society, the National Investor Relations Institute and the National Association of Corporate Directors. Prior to joining the Bank in 1980, Mr. Mahon served in similar capacity at two New York metropolitan area savings banks. He is a graduate of Saint Peter’s University, and has an M.B.A. in finance from Rutgers University.
Mr. Martin is chairman, president and chief executive officer of Provident Financial Services, Inc. and FHLBNY member The Provident Bank, New Jersey’s oldest state-chartered bank. He has been in the banking industry for over 34 years. Mr. Martin previously served as president and chief executive officer of First Sentinel Bancorp, Inc., which was acquired by Provident Financial Services, Inc. in July 2004. Beginning with First Sentinel in 1984 as controller, Mr. Martin advanced and was appointed president of First Sentinel Bancorp and its subsidiary, First Savings Bank, in 2003. Prior to his banking career, Mr. Martin worked for Johnson & Johnson in inventory control and as a financial analyst. As one of New Jersey’s most prominent banking executives, Mr. Martin serves on the board of directors for the Federal Home Loan Bank of New York, and the New Jersey Bankers Association. He serves on the Federal Reserve Community Depository Institutions Advisory Council. He also dedicates much of his spare time helping to improve the community. Mr. Martin is a vice president of The 200 Club of Middlesex County, which provides financial assistance and scholarships to families of law enforcement, fire and public safety officials. He serves on the board of trustees of Elon University, and is a past president of the alumni board. Mr. Martin volunteers at local food pantries and Habitat for Humanity build sites. He also spends time teaching financial literacy to high school students at inner city schools. He was formerly a member of the board of trustees of Big Brothers/Big Sisters of Monmouth and Middlesex Counties. Mr. Martin is president of The Provident Bank Foundation, which, since it’s founding in 2003, has provided more than $21 million in grants for programs focusing on community enrichment, education, and health, youth and families in New Jersey and Pennsylvania. Mr. Martin has been honored for his philanthropic endeavors as a recipient of the New Jersey State Governor’s Jefferson Awards for Public Service, has been honored by the National MS Society, the American Jewish Committee, The Scholarship Fund for Inner-City Children, Habitat for Humanity, Boys and Girls Club of America, Project Live and Felician College. Mr. Martin received a bachelor’s degree in accounting and business from Elon University and holds a MBA from Monmouth University.
Mr. Mroz of Haddonfield, New Jersey, was nominated by New Jersey Governor Chris Christie on September 18, 2014 and confirmed by the New Jersey State Senate on September 22, 2014 to serve on New Jersey’s Board of Public Utilities (“BPU”) as that Board’s President. His service commenced on October 6, 2014. The BPU is the state agency that oversees utilities that provide natural gas, electricity, water, telecommunications and cable television services. In this position, Mr. Mroz serves as a member of Governor Christie’s cabinet. Before his appointment, he was a government and public affairs consultant and lawyer. Most recently, he was, from October 1, 2013 through October 3, 2014, Managing Director of Archer Public Affairs LLC, a governmental and external relations firm which is an affiliate of the law firm of Archer & Greiner. Prior to this, he was, since July 1, 2000, the sole proprietor of a government and public affairs consulting business. From January 1, 2007 until December 2009, he also served as President of Salmon Ventures, Ltd, a non-legal government, regulatory and public affairs consulting firm. Mr. Mroz represented clients in New Jersey and nationally in connection with legislative, regulatory and business development affairs. Mr. Mroz, as a governmental affairs agent, was an advocate for clients in the utility, real estate, insurance and banking industries for federal, state, and local regulatory, administrative, and legislative matters. In his law practice, he concentrated on real estate, corporate and regulatory issues. In this regard, Mr. Mroz was, from March 1, 2011 to October 3, 2014, Of Counsel to the law firm of Archer & Greiner. From April 1, 2007 through the end of February 2011, he was Of Counsel to the law firm of Gruccio, Pepper, DeSanto & Ruth. Mr. Mroz has a distinguished record of community and public service. He is the former Chief Counsel to New Jersey Governor Christine Todd Whitman, serving in that position in 1999 and 2000. Prior to that, he served in various capacities in the Whitman Administration, including Special Counsel, Director of the Authorities, and member of the Governor’s Transition Team. He served as County Counsel for Camden County, New Jersey, from 1991 to 1994. In 2012, Mr. Mroz was appointed by New Jersey Governor Christie to serve as commissioner on the Delaware River & Bay Authority, the bi-state agency which owns and operates the Delaware Memorial Bridge, Cape May-Lewes Ferry and several airports in the New Jersey — Delaware region. Mr. Mroz also has been active in community affairs, serving in the past on the board of directors for the New Jersey Alliance for Action and as a board member and past chairman of the Volunteers for America, Delaware Valley. Mr. Mroz also served as former counsel to the New Jersey Conference of Mayors, the Delaware River Bay Authority and the Atlantic City Hotel and Lodging Association. Mr. Mroz’s legal and regulatory experience, as indicated by his background described above, support his qualifications to serve on our Board as an Independent Director.
Mr. Nasca is President and Chief Executive Officer of Evans Bancorp, Inc. and FHLBNY member Evans Bank, N.A., a nationally chartered bank and wholly-owned subsidiary of Evans Bancorp. He joined the management team as President in December 2006, and CEO in April 2007, bringing over 30 years of experience in the Western New York banking and financial services industry. Prior to joining Evans, Mr. Nasca spent 11 years at First Niagara Financial Group serving as Executive Vice President of Strategic Initiatives, where he was integrally involved in the development of strategic plans for the organization, implementation of First Niagara’s merger and acquisition efforts and management of its enterprise-wide risk management program. While at First Niagara, Mr. Nasca also served as President and CEO of its subsidiary, Cayuga Bank, shortly after it was acquired by First Niagara, as well as Regional President in Central New York. Previous to that role, he served as First Niagara’s Senior Vice President and Treasurer. Mr. Nasca has interacted with the Federal Home Loan Bank of New York for over 30 years in his various roles pertaining to treasury management. He earned his MBA in Finance from the State University of New York at Buffalo and a BS in Management/Marketing from Canisius College. Mr. Nasca is a member of the Board of Directors of the Independent Bankers Association of New York State and served as President (2012 - 2013), is a member of the New York Bankers Association, and served as the Chair (2011 - 2012) and Vice-Chair (2010 - 2011) of the New York Bankers Association Service Corporation. Mr. Nasca was a member of the Board of Directors of the New York Business Development Corporation from 2012 to January 2015. Mr. Nasca has extensive community involvement as a board member of the Buffalo Niagara Partnership; Lifetime Healthcare Companies Board of Directors; Univera Healthcare Advisory Board; Catholic Charities Board of Trustees, and served as Chair of Catholic Charities’ Annual Diocesan Appeal in 2011 and Corporate Campaign Chair 2008-2010. He is also active at Canisius College on the Richard J. Wehle School of Business Advisory Board.
Mr. Palagiano, who left the Board at the end of 2016, has served as Chairman of the Board and CEO of FHLBNY member The Dime Savings Bank of Williamsburgh (“Dime Savings”) since 1989 and of the holding company for the Bank, Dime Community Bancshares, Inc. (“Dime Community”), since its formation in 1995. He has served as a Trustee or Director of the Dime Savings since 1978. In addition, Mr. Palagiano has served on the Board of Directors of the Boy Scouts of America, Brooklyn Division since 1999, and served on the Boards of Directors of the Institutional Investors Capital Appreciation Fund from 1996 to 2006, and The Community Bankers Association of New York from 2001 to 2005. Mr. Palagiano joined Dime Savings in 1970 as an appraiser and has also served as President of both Dime Community and Dime Savings, and as Executive Vice President, Chief Operating Officer and Chief Lending Officer of Dime Savings. Prior to 1970, Mr. Palagiano served in the real estate and mortgage departments at other financial institutions and title companies.
Ms. Raffaeli serves as CEO and Managing Director of the Hamilton White Group, LLC, an investment and advisory firm with New York State and Arizona affiliates dedicated to assisting companies to grow their businesses, pursue new markets and acquire capital. Focusing on the financial, education and technology services marketplaces, Ms. Raffaeli brings over 30 years of experience in financial management, strategic planning, marketing, revenue-enhancement and asset redeployment to global businesses. In addition she has substantial experience assisting businesses with operations, technology, human resources and risk management challenges. She has worked with a variety of firms from start-ups to billion-dollar businesses, leading or assisting in maximizing the opportunities of their marketplace. While at Hamilton White, from 2004 to 2006, she was also the President and Chief Executive Officer of UNext and the Cardean Learning Group. From 1998 to 2002 she served as the President and Chief Executive Officer of Proact Technologies, Inc. and its predecessor Consumer Financial Network. During the first half of her career, Ms. Raffaeli served in a variety of traditional, large-corporate positions including the Executive Director of the Commercial Card Division of Citicorp a global, fully integrated business serving business customers with innovative payment products. She also held key executive positions in Citicorp’s Global Transaction Services and was a Senior Vice President in the Mortgage Banking Division. Ms. Raffaeli was a former Senior Vice President of Chemical Bank, now JPMorgan Chase, where she was responsible for New York retail mortgage and national telemarketing lending. Prior to that she was with Merrill Lynch, Emery Worldwide and Continental Group. Ms. Raffaeli served on the Board of Directors of E*Trade holding the leadership positions of Lead Director and Chairman of the Compensation Committee. She also served on the Board of American Home Financial Corporation from 1998 through 2010. She currently serves on two university and college boards and is Chairman of the Education Foundation. Ms. Raffaeli graduated, with honors, from NYU with an MBA. Ms. Raffaeli’s financial and other management experience, as indicated by her background described above, support her qualifications to serve on our Board as an Independent Director.
Mr. Redman has been President and Chief Executive Officer and a Director of FHLBNY member Astoria Bank (formerly Astoria Federal Savings and Loan Association) and the holding company for the Bank, Astoria Financial Corporation, since July 2011. Mr. Redman joined Astoria Federal Savings in 1977 and during his tenure served in various accounting, investment and treasury positions including Executive Vice President and Chief Financial Officer and Chief Operating Officer. A Magna Cum Laude graduate of New York Institute of Technology (NYIT) with a degree in accounting, Mr. Redman also serves as a member of NYIT’s Board of Trustees. Mr. Redman has provided leadership to several professional banking organizations. In addition to previously serving as the President of the Nassau/Suffolk Chapter of the Financial Managers Society, he is a former instructor and chapter officer of the Institute of Financial Education and a prior member of the Accounting and Tax Committee of the Community Bankers Association of New York State. Mr. Redman is currently a Director of the Federal Home Loan Bank of New York and of the New York State Bankers Association. He is also a Director and former Chairman of the Board of the Tourette Association of America which under his leadership has helped influence legislation, furthered education and supported cutting-edge research. His work in the community has been recognized by such organizations as St. Francis College, Variety Child Learning Center, Quality Services for the Autism Community, Queens Botanical Garden, Queens Council Boy Scouts of America, Queens Theatre in the Park, Queens Chamber of Commerce, The Safe Center LI, SCO Family of Services and the American Heart Association.
Rev. Reed is the founder and CEO of GGT Development LLC, a company which started in May of 2009. The strategic plan of the corporation focuses on the successful implementation of housing and community development projects, including affordable housing projects, schools, and multi-purpose facilities. Additionally, he pastors a church which has a feeding program of more than ten thousand monthly. He has been involved in development projects totaling more than $125 million. He also is co-owner of Safonique, a natural laundry detergent, that is sold on the east coast in Wal-Mart, Shoprite and on Amazon.com. As a community developer, he is engaged primarily in uplifting communities by serving the elderly, community revitalization and accessing programs that will provide a foundation for growth. He formerly served as Chief Executive Officer of the Greater Allen Development Corporation from July 2007 through March 2009, and previously was the Chief Financial Officer of Greater Allen AME Cathedral, located in Jamaica, Queens, New York, from 1996 to July 2007. From 1996 to 2009, Rev. Reed was responsible for building and securing financing for over $60 million of affordable, senior, and commercial development projects. At GGT Development LLC, Rev. Reed continues a focus on broad based neighborhood revitalization affordable housing projects, mixed use commercial/residential projects, and other development opportunities. In 1986, Rev. Reed served as the campaign manager for Rev. Floyd H. Flake. From 1987 to 1996, Rev. Reed served as the Congressional Chief of Staff for Congressman Flake and was involved in the legislative process and debate during the formation of FIRREA. Prior to becoming involved in public policy, Rev. Reed managed the $6 billion liquid asset portfolio for General Motors and was a financial analyst for Chevrolet, Oldsmobile, Pontiac, Cadillac, Buick and GM of Canada. Rev. Reed gained his initial financial experience as a banker at First Tennessee Bank in Memphis, Tennessee. Rev. Reed earned a Masters of Business Administration from Harvard Business School, a Bachelor of Business Administration from Memphis State University and a Masters of Divinity at Virginia Union University. He currently serves on the following organizations in the following positions: Board of Trustees, Hofstra University; Secretary/Treasurer, Outreach Project; and Board Member, Wheelchair Charities. Rev. Reed pastors Morris Brown AME Church in Queens New York. Rev. Reed’s experience in representing community interests in housing, as indicated by his background described above, supports his qualifications to serve on our Board as a public interest director and Independent Director.
Dr. Soaries has served as the Senior Pastor of First Baptist Church of Lincoln Gardens (“FBCLG”) in Somerset, New Jersey since November 1990. His pastoral ministry focuses on spiritual growth, educational excellence, economic empowerment, and faith-based community development. As a pioneer of faith-based community development, Dr. Soaries’ impact on FBCLG and the community has been tremendous. In 1992, he founded the Central Jersey Community Development Corporation (“CJCDC”), a 501(c)(3) non-profit organization that specializes in helping vulnerable neighborhoods. In 1996, the CJCDC launched Harvest of Hope Family Services Network, Inc. This organization seeks to develop permanent solutions for foster children and parents. From 1999 to 2002, Dr. Soaries served as New Jersey’s Secretary of State, making him the first African-American male to do so. He also served as the former chairman of the United States Election Assistance Commission, which was established by Congress to implement the “Help America Vote Act” of 2002. In 2005, Dr. Soaries launched the dfree® Financial Freedom Movement. The dfree® strategy teaches people how to break free from debt. In 2011, Dr. Soaries wrote his first book: “dfree®: Breaking Free from Financial Slavery” (Zondervan), which highlights his top 12 keys to debt-free living. Dr. Soaries currently serves as an Independent Director at Independence Realty Trust, a position he has held since February 2011. In January 2015, he became a Director of Ocwen Financial Corporation. Dr. Soaries earned a Bachelor of Arts Degree from Fordham University, a Master of Divinity Degree from Princeton Theological Seminary, and a Doctor of Ministry Degree from United Theological Seminary. Dr. Soaries resides in Monmouth Junction, New Jersey with his wife, Donna, and twin sons. Dr. Soaries’ project development experience, as indicated by his background described above, supports his qualifications to serve on our Board as an Independent Director.
Mr. Thompson is Vice Chairman of The Depository Trust & Clearing Corporation. In addition, he also serves as General Counsel, a position he has held since 2005. In this capacity, Mr. Thompson serves as a senior advisor to DTCC and is responsible for all legal and regulatory activities of the company and its subsidiaries. He regularly interfaces with government and regulatory agencies on issues impacting the company. Mr. Thompson is Chairman of the Board of DTCC Deriv/SERV LLC and Chairman of the DTCC Operating Committee. He is a member of the DTCC Management Committee, which is comprised of the company’s executive leadership. In addition, Mr. Thompson is a member of the DTCC Management Risk Committee, where he helps oversee and assess a broad range of issues related to market, capital and operational risks facing the corporation. Mr. Thompson previously served as Chair of a DTCC Board subcommittee charged with reviewing the potential risk impacts of high frequency trading and algorithmic trading as a result of the Knight Capital market event of 2012. Mr. Thompson is the former Co-Chair of the DTCC Internal Risk Management Committee and former Chairman of the DTC Internal Risk Management Committee. Mr. Thompson began his legal career with DTC as Associate Counsel in 1981 and was elected Vice President and Deputy General Counsel in 1991, Senior Vice President in 1993, General Counsel of DTC in 1999 and Managing Director and First Deputy General Counsel of DTCC in 2004. Previously, he was a partner in the New York law firm of Lake, Bogan, Lenoir, Jones & Thompson. Mr. Thompson began his legal career at Davis Polk & Wardwell. Mr. Thompson previously served on the Board of Directors of New York Portfolio Clearing (NYPC), a former joint venture derivatives clearinghouse owned by NYSE Euronext and DTCC. In addition, he also served as former Chairman of the Securities Clearing Group and former Co-Chairman of the Unified Clearing Group. His memberships include the New York State Bar Association; the New York County Lawyers’ Association; Association of the Bar of the City of New York; Business Executives for National Security; and the Global Association of Risk Professionals. He is a former director of the Legal Aid Society of New York and a former director of The Studio Museum of Harlem. Mr. Thompson has also testified before the U.S. Congress on issues related to the Dodd-Frank Act and financial reform. Mr. Thompson’s legal and regulatory and risk management experience, as indicated by his background, supports his qualifications to serve on our Board as an Independent Director.
Mr. Vázquez has served since April 2004 as Senior Executive Vice President of FHLBNY member Banco Popular de Puerto Rico, and also served as President of Banco Popular North America (also known as Popular Community Bank) from September 2010 to September 2014. Further, he has served as a Director of both these institutions since October, 2010. He has also served since March, 2013 as Chief Financial Officer and since February, 2010 (and formerly between March, 1997 and April, 2004) as Executive Vice President of Popular Inc., the holding company of these entities. Mr. Vázquez joined Popular, Inc. as Executive Vice President in March 1997 to spearhead the establishment of Popular’s Risk Management Group. From 2004 through 2010 he headed Banco Popular de Puerto Rico’s Consumer Lending Group, responsible for all retail credit products, including personal loans, credit cards, overdraft lines-of-credit, and residential mortgage origination and servicing as well as the auto, marine and equipment financing business. Before joining Popular, Inc., Mr. Vázquez spent fifteen years with JP Morgan & Co. Inc. in New York and London where he held various management positions. During the two years prior to joining Popular, Inc., he was Senior Banker and Region Manager for JP Morgan’s business in Colombia, Venezuela, Central America and the Caribbean. Mr. Vázquez is a member of the National Board of Directors of Operation Hope, as well as a member of the Advisory Council of the Dean of the School of Engineering of the Rensselaer Polytechnic Institute. Mr. Vázquez also served as a member of the board of directors of the Puerto Rico Community Foundation, the largest community foundation in the Caribbean. He holds a Bachelor of Science in Civil Engineering, with an economics minor, from the Rensselaer Polytechnic Institute, Troy, New York. He also holds a Masters in Business Administration from Harvard University’s Graduate School of Business, Boston, Massachusetts.
Executive Officers
The following sets forth the executive officers of the FHLBNY who served during 2016 and as of the date of this annual report. We have determined that our executive officers are those officers who are members of our internal Management Committee. All officers are “at will” employees and do not serve for a fixed term.
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|
|
|
|
|
|
|
|
Management |
|
|
|
|
|
Age as of |
|
Employee of |
|
Committee |
|
Executive Officer |
|
Position held as of 3/20/17 |
|
3/20/17 |
|
Bank Since |
|
Member Since |
|
José R. González |
|
President & Chief Executive Officer |
|
62 |
|
10/15/13 |
|
10/15/13 |
|
Eric P. Amig |
|
Senior Vice President & Head of Bank Relations |
|
58 |
|
02/01/93 |
|
01/01/09 |
|
Edwin Artuz |
|
Senior Vice President & Head of Corporate Services and Director of OMWI |
|
55 |
|
03/01/89 |
|
01/01/13 |
|
John F. Edelen * |
|
Former Senior Vice President & Chief Risk Officer |
|
54 |
|
05/27/97 |
|
01/01/11 |
|
Melody J. Feinberg |
|
Senior Vice President & Chief Risk Officer |
|
54 |
|
10/17/11 |
|
01/01/15 |
|
G. Robert Fusco ** |
|
Senior Vice President, CIO & Head of Enterprise Services |
|
58 |
|
03/02/87 |
|
05/01/09 |
|
Stephen C. Angelo |
|
Senior Vice President, Chief Audit Officer |
|
49 |
|
09/22/08 |
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07/12/16 |
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Adam Goldstein |
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Senior Vice President & Chief Business Officer |
|
43 |
|
07/14/97 |
|
03/20/08 |
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Paul B. Héroux |
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Senior Vice President & Chief Banking Operations Officer |
|
58 |
|
02/27/84 |
|
03/31/04 |
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Kevin M. Neylan |
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Senior Vice President & Chief Financial Officer |
|
59 |
|
04/30/01 |
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03/31/04 |
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Philip A. Scott |
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Senior Vice President & Chief Capital Markets Officer |
|
58 |
|
08/28/06 |
|
9/3/2014 |
|
Jonathan R. West |
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Senior Vice President & Chief Legal Officer |
|
60 |
|
05/01/15 |
|
05/01/15 |
*Left employment 7/8/2016.
**Left employment 1/8/93; rehired 5/10/93.
Mr. González was appointed President and CEO of the Federal Home Loan Bank of New York on April 2, 2014. Mr. González joined the FHLBNY on October 15, 2013, as Executive Vice President. Mr. González served as Vice Chairman of the Board of Directors of the FHLBNY from 2008 through 2013, and as an elected industry director from 2004 through 2013. Prior to joining the FHLBNY, he served as Senior Executive Vice President, Banking & Corporate Development for OFG Bancorp (formerly Oriental Financial Group, Inc.). Mr. González has also been a member of the Board of Directors of the Pentegra Defined Benefit Plan for Financial Institutions since July 2014. On August 31, 2016, Mr. González was appointed by President Barack Obama to serve as one of the eight directors of the Oversight Board created by the Puerto Rico Oversight, Management, and Economic Stability Act (“PROMESA”) of 2016. Mr. González was a member of the Board of Directors of Santander BanCorp (“Santander”), a bank holding company, from 2000 to 2010. From 2002 to 2008, he was Vice Chairman of the Board, President and CEO of Santander. After joining Santander in 1996 as President and CEO of its securities broker dealer, Mr. González was named Senior Executive Vice President and Chief Financial Officer of the holding company in 2001. Mr. González began his career in banking in the early 1980s as Vice President, Investment Banking, for Credit Suisse First Boston (“CSFB”) and, from 1989 through 1995, served as President and CEO of CSFB’s Puerto Rico operations. He served as President and CEO of the Government Development Bank for Puerto Rico, a government instrumentality that acts as the Commonwealth’s fiscal agent, from 1986 to 1989. He is a past President of both the Puerto Rico Bankers Association and the Securities Industry Association of Puerto Rico. Mr. González holds a B.A. in Economics from Yale University and M.B.A. and Juris Doctor degrees from Harvard University.
Mr. Amig joined us as Director of Bank Relations in February 1993. In January of 2009 he was named Senior Vice President and Head of Bank Relations. From January 1985 through January 1993, he was a senior officer at the U.S. Department of Housing and Urban Development; during this time he served as Special Assistant to the Deputy Secretary from 1990 to 1993. Mr. Amig has also served as a legislative aide to the President Pro Tempore of the Pennsylvania Senate and was the Executive Director of the Federal/State Relations Committee of the Pennsylvania House of Representatives. Mr. Amig received his undergraduate degree in Political Science from Albright College (Reading, PA).
Mr. Angelo joined the Bank as Chief Audit Officer in September 2008. In this role, he oversees the activities of the Internal Audit Department, which provides independent, objective assurance and consulting services designed to add value and improve the Bank’s operations, and he is responsible for providing support to the Audit Committee of the Bank’s Board of Directors, in connection with matters related to internal controls. Mr. Angelo was appointed to the Management Committee in July 2016. Mr. Angelo holds an M.B.A. in Finance and a B.S. in Accounting, both from New York University’s Stern School of Business. He is a Certified Public Accountant and is a member of the AICPA and NYSSCPA as well as the Institute of Internal Auditors. Mr. Angelo began his career as an associate auditor with Coopers & Lybrand, and then held positions of increasing responsibilities in internal audit roles at Bankers Trust Company and Bear, Stearns & Co.
Mr. Artuz has served as Head of Corporate Services and Director of OMWI since July 1, 2014. In August 1, 2000, he was named Director of Human Resources; he was named as a Senior Vice President on January 1, 2013. Mr. Artuz directs the management of the Bank’s Office of Minority and Women Inclusion in the areas of Human Resources, Purchasing and Procurement and Marketing and Outreach to ensure that regulatory requirements are met and exceeded. Mr. Artuz also provides overall leadership, strategic direction, and oversight for all of the Bank’s human resources activities and operations. These activities and operations include the areas of employment, compensation, benefits, employee relations, employee and organizational training and development, performance management, employee communications, and external and internal Human Resources information systems services. Mr. Artuz has the significant responsibility of providing support to the Compensation & Human Resources Committee of the Bank’s Board of Directors in connection with matters related to executive compensation and benefits. Mr. Artuz also provides strategic direction and leadership to the organization’s Facilities Services operations to ensure efficient and effective management of the firm’s physical resources. From January 1996 through December 1996, Mr. Artuz served as Assistant Vice President, Administrative Services and from January 1997 through July 2000, Mr. Artuz served as Vice President, Administrative Services. In this capacity, Mr. Artuz managed the Human Resources function as well as each of the following: Purchasing; Telecommunications; Facilities; Mailroom Services; Security; Reception; Insurance; and Record Retention. Mr. Artuz is currently the Chair of the Compensation Special Interest Group of the Human Resources Association of New York, an affiliate of the Society for Human Resource Management. Edwin holds a graduate degree from New York University in Human Resources Management and an undergraduate degree in History from the College of Staten Island. Prior to joining the Bank in 1989, Mr. Artuz held positions at Skadden, Arps, Slate, Meagher & Flom; Dillon, Read & Co.; and the Dime Savings Bank of New York.
Mr. Edelen, who served as the Bank’s Senior Vice President and Chief Risk Officer, left the Bank on July 8, 2016 after 19 years of service. He had served in this position since January 2011. As Chief Risk Officer, Mr. Edelen oversaw the Bank’s Enterprise-wide Risk Management practice as well as the Bank’s Risk Management and Compliance functions. Prior to that, Mr. Edelen served in various positions of increasing responsibility within our capital markets and risk management functions, including Director of ALM Risk Strategy and Development, Director of Funding and Investments, and Vice President of Capital Markets. He joined the Bank in 1997 from Oppenheimer and Co. as a derivative products trader/analyst. A combat veteran, Mr. Edelen served in the U.S. Army as a Ranger and Paratrooper, commanding a unit in the 82nd Airborne Division. Mr. Edelen earned a Bachelor of Science degree from the United States Military Academy and a Master of Business Administration from Columbia Business School.
Ms. Feinberg has served as Senior Vice President and Chief Risk Officer since March 1, 2017. Ms. Feinberg previously served as Senior Vice President and Acting Chief Risk Officer from July 8, 2016 through February 28, 2017, and Senior Vice President and Deputy Chief Risk Officer from January 1, 2015 through July 7, 2016. In her current role, Ms. Feinberg oversees the Bank’s Enterprise-wide Risk Management practice. This role encompasses Financial Risk Management; Credit Policy and Review; Credit and Collateral Risk Analytics; Operational Risk Management; Model Risk Management; and Compliance. Ms. Feinberg joined the Bank in October 2011 as the Director of Finance. In that capacity, she was responsible for all aspects of the Bank’s finance functions, including advisory on business initiatives, funding and investment decisions, capital planning, tax and regulatory issues, etc. Ms. Feinberg began her career as a CPA with Ernst & Young, and then held positions of increasing responsibilities in accounting and finance roles at three investment banks, namely, JP Morgan Chase, HSBC and Goldman Sachs. She earned an M.B.A. in Finance from Drexel University and a B.S. in Accounting from The College of New Jersey, both Magna Cum Laude. She is a member of the NYSCPA and AICPA. She also holds a PRMIA Market, Liquidity, and Asset Liability Management Certification.
Mr. Fusco was named Chief Information Officer (“CIO”) in 2008 and took on the additional role of Head of Enterprise Services in 2009. Mr. Fusco directs and oversees all of the Bank’s technology functions and Bank programs for information security, project management, records management, vendor management and business continuity. He is also Chairman of the Bank’s Operational Risk Committee. Mr. Fusco has been with the Bank since March 1987. During his 29-year tenure, he has held various management positions in Information Technology, including IT Director starting in 2000 and Chief Technology Officer starting in 2006. Mr. Fusco received an undergraduate degree from the State University of New York at Stony Brook. He has earned numerous post-graduate technical and management certifications throughout his career, and is a graduate of the American Bankers Association National Graduate School of Banking. Prior to joining the Bank, Mr. Fusco held positions at Citicorp and the Federal Reserve Bank of New York.
Mr. Goldstein was named Chief Business Officer in December of 2015. In this role, he leads the sales, marketing and research activities for all business lines. In addition, he manages the Bank’s Mortgage Partnership Finance® Program and newly formed Member Service Desk. Mr. Goldstein previously served as the Head of Sales, Business Development and Marketing. Mr. Goldstein joined us in June 1997 and has held a number of key positions in our Sales and Marketing areas. He has been a member of the Bank’s Management Committee since 2008. In addition to an undergraduate degree from the SUNY College at Oneonta and an M.B.A. in Financial Marketing from SUNY Binghamton University, Mr. Goldstein has received post-graduate program certifications in Business Excellence from Columbia University, in Management Development from Cornell University, in Management Practices from New York University, and in Finance from The New York Institute of Finance.
Mr. Héroux was named Chief Bank Operations Officer and Community Investment Officer in December 2015. In this role, he oversees several functions, including Credit and Correspondent Services, Collateral Services and Community Investment/Affordable Housing Operations. Prior to this, he was Head of Member Services from 2004 to 2015. Mr. Héroux joined the Bank in 1984 as a Human Resources Generalist and served as the Director of Human Resources from 1988 to 1990. During his tenure, he has held other key positions including Chief Credit Officer and Director of Financial Operations. He received an undergraduate degree from St. Bonaventure University and is a graduate of the Columbia Senior Executive Program as well as the ABA Stonier National Graduate School of Banking. Prior to joining us, Mr. Héroux held positions at Merrill Lynch & Co. and E.F. Hutton & Co.
Mr. Neylan became Chief Financial Officer on March 30, 2012. Mr. Neylan is responsible for overseeing the Bank’s Accounting, Strategic Planning, and Asset Liability Modeling and Strategy functions. He has held several positions with strategic planning, finance and administrative responsibilities since joining us in April 2001. Immediately prior to becoming the CFO, Mr. Neylan was the Head of Strategy and Finance, and served as the Head of Strategy and Business Development from January 2009 through December 2011. Mr. Neylan had approximately twenty years of experience in the financial services industry prior to joining the Bank, and was previously a partner in the financial services consulting group of one of the Big Four accounting firms. He holds an M.S. in corporate strategy from the MIT Sloan School of Management and a B.S. in management from St. John’s University (NY).
Mr. Scott was named Chief Capital Markets Officer in September 2014, after serving as Director of Trading in the Capital Markets department, managing debt issuance and advance positions. He is responsible for all facets of balance sheet management including the Bank’s investments portfolio, advances position, funding, and debt issuance. Mr. Scott joined the Bank’s Capital Markets department in August of 2006, following 23 years of experience in the markets and on Wall Street where he was a trader and desk manager for interest rate products at Citibank, Deutsche Bank, and Credit Lyonnais. He received a Bachelor’s Degree in Economics from Tufts University and holds a Master’s degree in Finance and Economics from the Kellogg School of Management at Northwestern University.
Mr. West assumed the role of Senior Vice President, Chief Legal Officer for the Bank on May 1, 2015. Mr. West left the Federal Home Loan Bank of Indianapolis (FHLBI) on December 31, 2014 having served as its Executive Vice President - Chief Operating Officer - Business Operations since July 30, 2010. He was appointed by the FHLBI’s Board to serve as Acting Co-President - CEO from April through July 2013. From 1994 to 2010, Mr. West served as Senior Vice President - Administration, General Counsel, Corporate Secretary & Ethics Officer, having started with the FHLBI in July 1985 as Associate Legal Counsel. From 1983 to 1985, Mr. West was an Associate with the Indianapolis, Indiana law firm of White & Raub and practiced in the areas of insurance and corporate law. Mr. West is a Phi Beta Kappa, B.A. with Distinction graduate in political science and psychology from Indiana University’s College of Arts and Sciences, and earned an M.B.A from Indiana University Kelley School of Business and a J.D. from Indiana University School of Law — Indianapolis. Mr. West is licensed to practice law in the state of Indiana and is registered to serve as In-House Counsel in the state of New York. Mr. West is a Member of the American Bar Association, and serves on its business law committee and its derivatives, futures and securitizations section.
Section 16 (a) Beneficial Ownership Reporting Compliance
In accordance with correspondence from the Office of Chief Counsel of the Division of Corporation Finance of the U.S. Securities and Exchange Commission dated August 26, 2005, Directors, officers and 10% stockholders of the Bank are exempted from Section 16 of the Securities Exchange Act of 1934 with respect to transactions in or ownership of Bank capital stock.
Audit Committee
The Audit Committee of our Board of Directors is primarily responsible for overseeing the services performed by our independent registered public accounting firm and internal audit department, evaluating our accounting policies and its system of internal controls and reviewing significant financial transactions. For the period from January 1, 2016 through the date of the filing of this annual report on Form 10-K, the members of the Audit Committee included: Jay M. Ford (Chair), Thomas L. Hoy (Vice Chair through December 31, 2016), Kevin Cummings (Vice Chair commencing January 1, 2017), Caren Franzini, James W. Fulmer, Monte N. Redman, and Larry E. Thompson.
Audit Committee Financial Expert
Our Board of Directors has determined that Kevin Cummings of the FHLBNY’s Audit Committee qualifies as an “audit committee financial expert” under Item 407 (d) of Regulation S-K but was not considered “independent” as the term is defined by the rules of the New York Stock Exchange.
Code of Ethics
It is the duty of the Board of Directors to oversee the Chief Executive Officer and other senior management in the competent and ethical operation of the FHLBNY on a day-to-day basis and to assure that the long-term interests of the shareholders are being served. To satisfy this duty, the directors take a proactive, focused approach to their position, and set standards to ensure that we are committed to business success through maintenance of the highest standards of responsibility and ethics. In this regard, the Board has adopted a Code of Business Conduct and Ethics (“Code”) that applies to all employees as well as the Board. The Code is posted on the Corporate Governance Section of the FHLBNY’s website at http://www.fhlbny.com. We intend to disclose changes to or waivers from the Code by filing a Form 8-K and/or by posting such information on our website.
Item 11. Executive Compensation.
Compensation Discussion and Analysis
Introduction
About the Bank’s Mission
The mission of the Federal Home Loan Bank of New York (“Bank”, or “we”, “us” or “our”) is to advance housing opportunity and local community development by maximizing the capacity of its community-based member-lenders to serve their markets.
We meet our mission by providing our members with access to economical wholesale credit and technical assistance through our credit products, mortgage finance programs, housing and community lending programs and correspondent services to increase the availability of home financing to families of all income levels.
Achieving the Bank’s Mission
We operate in a very competitive market for talent. Without the capability to attract, motivate and retain talented employees, the ability to fulfill our mission would be in jeopardy. All employees, and particularly senior and middle management, are frequently required to perform multiple tasks requiring a variety of skills. Our employees not only have the appropriate talent and experience to execute our mission, but they also possess skill sets that are difficult to find in the marketplace. In this regard, as of December 31, 2016, we employed 280 employees, a relatively small workforce for a New York City-based financial institution that had, as of that date, $143.6 billion in assets. Exempt employees constituted 93% of all employees as of year-end 2016.
Compensation & Human Resources Committee Oversight of Compensation
Compensation is a key element in attracting, motivating and retaining talent. In this regard, it is the role of the Compensation & Human Resources Committee (“C&HR Committee”) of the Board of Directors (“Board”) to:
1. Review and recommend to the Board changes regarding our compensation and benefits programs for employees and retirees;
2. Review and approve individual performance ratings and related merit increases for our Chief Executive Officer and for the other Management Committee members;
3. Review salary adjustments for Chief Executive Officer and for the other Management Committee members (in which Committee includes all Named Executive Officers of the Bank (the “NEOs”));
4. Review and approve annually the Bank’s Incentive Compensation Plan (“Incentive Plan”), year-end Incentive Plan results and Incentive Plan award payouts;
5. Advise the Board on compensation, benefits and human resources matters affecting Bank employees;
6. Review and discuss with Bank management the Compensation Discussion and Analysis (“CD&A”) to be included in our Form 10-K and determine whether to recommend to the Board that the CD&A be included in the Form 10-K; and
7. Review and monitor compensation arrangements for our executives so that we continue to retain, attract, motivate and align quality management consistent with the investment rationale and performance objectives contained in our annual business plan and budget, subject to the direction of the Board.
The Board has delegated to the C&HR Committee the authority to approve fees and other retention terms for: i) any compensation and benefits consultant to be used to assist in the evaluation of the Chief Executive Officer’s compensation; and ii) any other advisors that it shall deem necessary to assist it in fulfilling its duties. The Charter of the C&HR Committee is available in the Corporate Governance section of our web site located at www.fhlbny.com. The role of Bank management (including Executive Officers) with respect to compensation is limited to administering Board-approved programs and providing proposals for the consideration of the C&HR Committee. No member of management serves on the Board or any Board committee.
Regulatory Oversight of Executive Compensation
The Federal Housing Finance Agency (“Finance Agency”) has oversight authority over FHLBank executive officer compensation. Section 1113 of the Housing and Economic Recovery Act of 2008 requires that the Director of the Finance Agency prohibit a FHLBank from paying compensation to its executive officers that is not reasonable and comparable to that paid for employment in similar businesses involving similar duties and responsibilities. In connection with this statutory responsibility, the Finance Agency issued, effective February 27, 2014, final rules on executive compensation and golden parachute payments relating to the regulator’s oversight of such compensation and payments.
In addition to these rules, the Finance Agency previously issued Advisory Bulletin 2009-AB-02 regarding principles for FHLBank executive compensation as to which the FHLBanks are expected to adhere in setting executive
compensation policies and practices. The Finance Agency also previously issued certain protocols for the review of proposed FHLBank compensation actions pertaining to Named Executive Officers (“NEOs”).
The Bank is exempt from SEC proxy rules and as such does not provide shareholder advisory “say on pay” votes regarding executive compensation.
How We Stay Competitive in the Labor Market
The September 2015 Board-approved Compensation Policy acknowledges and takes into account our business environment and factors to remain competitive in the labor market. The major components of the Compensation Policy, which is currently in effect, include the following:
· The Bank will focus on Regional/Commercial Banks $20B+ in assets within the Metro New York Market (where available) as the “Primary Peer Group” for benchmarking at the 50th percentile of the market total compensation (base pay + incentive compensation) for establishing competitive pay levels.
· The Bank will use other Federal Home Loan Banks as a “Secondary Peer Group” for benchmarking at the 75th percentile of the market total compensation for establishing competitive pay levels.
· Use publicly available data from Regional/Commercial Banks $5-20B in assets for the five NEOs at the 50th percentile of market total compensation (base pay + incentive compensation) for establishing competitive pay levels.
· For jobs within Risk Management and Capital Markets and other specialty areas not in ready supply within the Regional Banks, the Bank will use a customized peer group of Banks with $50B+ in assets including Bulge Bracket banks (i.e. investment banks) at the 25th and 50th percentile to reflect realistic recruiting pressures in the Metro New York market.
· Bank Management Committee members will be matched one position level down versus Commercial/Regional Banks, and Officers and below will be matched against ‘like-for-like’ jobs versus other Federal Home Loan Banks and the publically available proxy data.
· A commitment to conduct detailed cash compensation benchmarking for approximately one-third of officer positions each year.
· A commitment to evaluate the value of total compensation delivered to employees including base pay, incentive compensation, retirement and health and welfare benefits (“Total Rewards Study”) in determining market competitiveness every third year.
Additional factors that we take into account to remain competitive in our labor market include, but are not limited to:
· Geographical area — The New York metropolitan area is a highly-competitive market for talent in the financial disciplines;
· Cost of living — The New York metropolitan area has a high cost of living that may require compensation premiums for some positions, particularly at more junior levels; and
· Availability of/demand for talent — Recruiting critical positions with high market demand typically requires a recruiting premium to entice an individual to change firms.
The Total Compensation Program
In response to the challenging economic environment in which we operate, compensation and benefits consist of the following components: (a) cash compensation (i.e., base salary, and, for exempt employees, “variable” or “at risk” short-term incentive compensation opportunities available under the Bank’s Incentive Compensation Plan, hereinafter referred as the “IC Plan”)); (b) retirement-related benefits (i.e., the Qualified Defined Benefit Plan (“DB Plan”); the Qualified Defined Contribution Plan (“DC Plan”); the Nonqualified Defined Benefit Component of the Amended and Restated Supplemental Executive Retirement Defined Benefit and Defined Contribution Benefit Equalization Plan (“DB BEP”), the Nonqualified Defined Contribution Component of the Amended and Restated Supplemental Executive Retirement Defined Benefit and Defined Contribution Benefit Equalization Plan (“DC BEP”), and the Nonqualified Deferred Incentive Compensation Plan (“NDICP”); and (c) health and welfare programs and other benefits which are listed in Section IV C below. These components, along with certain benefits described in the next paragraph, comprised the elements of our total compensation program in effect during 2016 or approved in 2016 to go into effect on January 1, 2017, and are discussed in detail in Section IV below.
This CD&A provides information related to the total compensation program provided to our NEOs for 2016 — that is, our Principal Executive Officer (“PEO”), Principal Financial Officer (“PFO”) and the three most highly-compensated executive officers other than the PEO and PFO. The information includes, among other things, the objectives of the total compensation program and the elements of compensation provided to our NEOs. These compensation programs are not exclusive to the NEOs; they also apply to employees, as explained throughout the CD&A.
I. Objectives of the total compensation program
The objectives of the total compensation program (described above) are to help motivate employees to achieve consistent and superior results, taking into account prudent risk management, over a long period of time. We also provide a program that allows us to compete for and retain talent that otherwise might be lured away.
In accordance with the Board-approved Compensation Policy, we evaluate the value of total compensation delivered to employees including base pay, incentive compensation, retirement and health and welfare benefits in determining market competitiveness every third year after the date we complete the final implementation of Board-approved total compensation program design changes.
2012 Total Rewards Study Results
In November 2012, the C&HR Committee engaged Aon Consulting, Inc. (“Aon”) to perform a Total Rewards Study and present recommendations to the C&HR Committee. The result of the Total Rewards Study was submitted to the C&HR Committee and the Board in September 2013 and indicated the following:
· When compared to the Bank’s peer group, total compensation for NEOs was aligned with regional commercial banks;
· Employees not identified as NEOs were not aligned with peers in regional commercial banks, however, aligned with other Home Loan Banks; and
· When compared to the Bank’s peer group, the Bank’s employee health and welfare benefits were deemed “Significantly Above Market”.
As a result, the Board approved an initial set of changes to the Bank’s healthcare plans effective January 1, 2014 for all employees. Changes included increasing employee-paid premiums, co-insurance payments and deductibles to help align with the market benchmarks.
In February 2014, upon further recommendation by Aon, the Board also approved additional changes to the Bank’s retirement plans implemented beginning July 1, 2014. Changes to the Bank’s benefits plans include:
· The Qualified Defined Benefit Plan formula for Non-Grandfathered employees hired on or after July 1, 2014 was reduced from 2.0% to 1.5% of the employee’s highest 5-consecutive-year average earnings for new employees (please refer to the “(i) Qualified Defined Benefit Plan” section under the heading “Retirement Benefits” below for further information);
· “Earnings” under the Qualified Defined Benefit Plan is defined as base salary only; short-term incentives and overtime are excluded (please refer to the “(i) Qualified Defined Benefit Plan” section under the heading “Retirement Benefits” below for further information);
· Required employee contribution to generate full Qualified Defined Contribution Plan employer match increased from 3% to 4% (please refer to the “(iii) Qualified Defined Contribution Plan” sections under the heading “Retirement Benefits” below for further information); and
· Elimination of the current waiting period of five years of service to receive the Qualified Defined Contribution Plan employer match; permitting all employees with less than five years of service to receive the maximum employer match, as outlined above (please refer to the “(iii) Qualified Defined Contribution Plan” sections under the heading “Retirement Benefits” below for further information).
The Board also approved further changes to the Bank’s current healthcare plan and retiree medical plan effective January 1, 2015 for all employees as described below:
· Retiree Medical benefits were eliminated for employees who are not age 55 and have 10 years of employment service as of January 1, 2015 (please refer to the “Retiree Medical” section under the heading “Health and Welfare Programs and Other Benefits” below for further information);
· The current Defined Dollar Plan subsidy was reduced by 50% for all service earned after December 31, 2014 for employees eligible to remain in the plan (please refer to the “Retiree Medical” section under the heading “Health and Welfare Programs and Other Benefits” below for further information);
· The annual Cost of Living Adjustment was eliminated (please refer to the “Retiree Medical” section under the heading “Health and Welfare Programs and Other Benefits” below for further information);
· Employees at the First Level Officer and Assistant Vice President rank contributing more to the cost of the plan than Non-Officers; and employees at the Vice President and above level contributing more to the cost of the plan than employees at the First Level Officers and Assistant Vice President rank (please refer to the “Medical and Dental” section under the heading “Health and Welfare Programs and Other Benefits” below for further information);
· Establishment of a new High Deductible Health Plan (“HDHP”) (please refer to the “Medical and Dental” section under the heading “Health and Welfare Programs and Other Benefits” below for further information); and
· Adding a Health Saving Account (“HSA”) which replaced the Bank’s previous Healthcare Flexible Spending Account (please refer to the “Flexible Spending Accounts” section under the heading “Health and Welfare Programs and Other Benefits” below for further information).
A representative list of the peer group that was used in the Aon healthcare and welfare benefits study in 2013 is set forth in the table below. Please see Section IV.A.1 below for a list of the peer group used for compensation other than with respect to healthcare and welfare benefits. For the firms listed below that had multiple lines of business, the Bank benchmarked total compensation against the wholesale banking functions at those companies.
|
Ally Financial Inc |
|
JP Morgan |
|
Federal Home Loan Bank of Boston |
|
Fifth Third Processing Solutions |
|
PNC Financial |
|
Federal Home Loan Bank of Dallas |
|
G.E. Capital |
|
Standard Bank |
|
Federal Home Loan Bank of Des Moines |
|
BMO Financial Group ING |
|
Federal Home Loan Bank of Atlanta |
|
Federal Home Loan Bank of Indianapolis |
II. The total compensation program is designed to reward for performance and employee longevity, to balance risk and returns, and to compete with compensation programs offered by our competitors
The total compensation program is designed to attract, retain and motivate employees and to reward employees based on overall performance achievement as compared to the goals and individual employee performance. We also strive to ensure that our employees are compensated fairly and consistent with employees in our peer group.
All of the elements of the total compensation program are available to all employees, including NEOs, except with respect to: 1) the IC Plan; 2) the DB BEP; 3) the DC BEP; and 4) the NDICP.
All exempt (non-hourly) employees are eligible to receive annual incentive awards through participation in the Incentive Plan. These awards are based on a combination of performance results and individual performance results. The better the Bank and/or the employee perform, the higher the employee’s potential award is likely to be, up to a predetermined limit. In addition, the better the employee’s performance, the greater the employee’s annual salary increase is likely to be, up to a predetermined limit. Participation in the Deferred Incentive Compensation Plan is mandatory for members of the Bank’s Management Committee which include NEOs.
We are prohibited by law from offering equity-based compensation, and we do not currently offer long-term incentives. However, many of the firms in our peer groups do offer these types of compensation. Our total compensation program takes into account the existence of this other types of compensation by offering a defined benefit and defined contribution plan to help effectively compete for talent. Senior and mid-level employees are generally long-tenured and would not want to endanger their pension benefits to achieve a short-term financial gain.
We do not structure any of our compensation plans in a way that inappropriately encourages risk taking. As described in Section IV.A.2. below, the rationale for having the equally-weighted Bank wide goals of Return and Risk within the Incentive Plan is to motivate management to take a balanced approach to managing risks and returns in the course of managing the business, while at the same time ensuring that we fulfill our mission. In addition, Incentive Plan participants employed in the Risk Management Group have a higher weighting on the “Risk” component of the Business Effectiveness goal category than Incentive Plan participants that are not employed in the Risk Management Group. Risk Management Group participants have a 40% weighting on the “Return” Goal portion and the remaining at 30% for a total Business Effectiveness weighting of 70%.
In addition, the DB and DC Plans are designed to reward employees for continued strong performance over their careers — that is, the longer an employee works at the Bank, the greater the benefit the employee is likely to accumulate. This combined with the compensation philosophy and the structure of the compensation programs helps to ensure that the compensation paid to employees at termination of employment is aligned with the interest of our shareholders.
III. The elements of total compensation
Please refer to the introduction section under the heading “The Total Compensation Program” for an explanation of the components that make up our total compensation program.
IV. Explanation of why we provide each element of total compensation
Our Compensation Policy
The Compensation Policy was established to help identify the Bank’s peer group that it competes against for talent; to benchmark jobs; and serve as the basis for analyzing the competitiveness of compensation and benefit programs to help ensure alignment with the marketplace.
In September 2011, the Committee approved the use of a multi-level approach to compensation benchmarking that was proposed by compensation consultant McLagan for use during the review of the Bank’s total compensation program that was initiated in 2012. The Committee approved the use of (1) Commercial Banks (former “bulge bracket” investment banks were specifically excluded and data for the Metro New York area was used where available); (2) Federal Home Loan Banks; and (3) Publicly-available proxy data for banks with assets between $5B and $20B.
McLagan also used salary rank from the proxies from publicly-traded banks. Salary rank compares a firm’s top paid incumbents against the market’s top paid incumbents regardless of position. Per the Bank’s Compensation Policy,
McLagan used median data as the initial benchmark statistic for commercial banks and proxy benchmarks and the high quartile (75th percentile) is used for the Federal Home Loan Bank system benchmarks.
Beginning in 2014, the Bank began to experience the impact of the improvement in the economy and financial markets with an increase in turnover for certain positions in risk management, information technology and other areas. The Bank continues to be challenged in attracting replacements who meet our job requirements and that would accept a position within the Bank’s compensation structure. The Bank’s compensation structure is based on its history as a Government Sponsored Enterprise even though some Bank positions require skill sets similar to those required in Wall Street firms. In addition, as a wholesale bank the Bank manages large and complex risks with a small employee population within one of the most expensive geographic locations in the United States.
In certain cases, the Bank discovered that our current pay scales for a position were not allowing us to recruit the talent that we needed. As a result, McLagan was engaged to explore options that would help with the retention and recruitment of employees in high demand areas and to help ensure that our compensation structure is not negatively affected by these atypical hiring pay packages.
In alignment with McLagan’s recommendations, the Board approved changes to our Compensation Policy in September 2015. The Board-approved Compensation Policy is outlined above. Please refer to the Introduction section under the heading “How We Stay Competitive in the Labor Market” for an explanation of the Bank’s Board-approved Compensation Policy.
It should be noted that, due to the fact that we conduct detailed cash compensation benchmarking for only one-third of the officer positions on an annual basis with respect to cash compensation, the effectiveness of the benchmarking program can be demonstrated only once every three years. However, NEOs are benchmarked every year.
Compensation Benchmarking
Compensation consultant McLagan began reporting directly to the C&HR Committee in 2011. In September 2011, the Bank’s benchmarking methodology was refined and approved by the C&HR Committee for future use during the Total Rewards Studies. Since 2012, McLagan has benchmarked NEO cash compensation for the purpose of supporting annual merit salary increases and incentive compensation payments, as required by the Finance Agency. As a result, the C&HR Committee has utilized such information to calculate NEO compensation.
Please refer to the introduction section under the heading “Finance Agency Oversight of Executive Compensation” for an explanation of how the Finance Agency provides oversight of executive compensation.
The following is an explanation of why we provide each element of compensation.
A. Cash Compensation
1. Base Pay
The goal of offering competitive base pay is to make the Bank successful in attracting, motivating and retaining the talent needed to execute the business strategies.
In addition to the benchmarking process provided for in the Compensation Policy as described above, a performance-based merit increase program exists for all employees, including NEOs, that have a direct impact on base pay. Generally, employees receive merit increases on an annual basis. Such merit increases are based upon the achievement of a performance rating of “Outstanding,” “Exceeds Requirements,” or “Meets Requirements” on individual performance evaluations. Merit guidelines are determined each year and distributed to managers. These guidelines establish the maximum merit increase percentage permissible for employee performance during that year. In November of 2016, the C&HR Committee determined that merit-related officer base pay increases for 2017 would be 2.50% for officers rated “Meets Requirements”; 3.25% for officers rated “Exceeds Requirements”; and 4.25% for officers rated “Outstanding” for their performance in 2016.
To comply with the Finance Agency requirement that the FHLBanks submit all compensation actions involving a NEO to the Finance Agency for review at least four weeks in advance of any planned board of directors’ decision with respect to those actions, we submitted the proposed merit increase percentages for 2016 performance for the NEOs in November of 2015. In addition, to help support the proposed merit increases, the Finance Agency required that a compensation benchmarking analysis be submitted. The analysis was performed by McLagan and indicated that the salary increases for the NEOs were consistent with the factors included within the Board-approved Compensation Policy described above in the “Introduction” section under the heading “How We Stay Competitive in the Labor Market”.
The peer groups in establishing competitive market pay were: 1) Commercial Banks including former “bulge bracket” investment banks (global investment banks were specifically excluded); 2) Federal Home Loan Banks; and 3) Publicly-available proxy data for banks with assets between $10B and $20B. Please refer to the Introduction Section under the heading “How We Stay Competitive in the Labor Market” for an explanation of the components that make up our Compensation Policy.
McLagan also used salary rank from the proxies from publicly-traded banks. Salary rank compares a firm’s top paid incumbents against the market’s top paid incumbents regardless of position.
Per the Bank’s Compensation Policy, McLagan used median data as the initial benchmark statistic for commercial banks and proxy benchmarks and the high quartile is used for the Federal Home Loan Bank system benchmarks. Higher/lower benchmark statistics were used to account for larger/smaller responsibilities. The value of retirement plans and other benefits, including the defined benefit pension plans were not represented in this analysis and will be
addressed in the total compensation review, as discussed in the Introduction Section under the heading “How We Stay Competitive in the Labor Market”.
For the year 2016, McLagan used for compensation benchmarking analysis purposes the Compensation Policy that was approved by the Board in September 2015 (details of which are provided above). Please refer to the introduction section under the heading “The Total Compensation Program” for an explanation of the components that make up our total compensation program.
We received a “non-objection” letter from the Finance Agency with respect to the payment of merit increases (effective January 1, 2016) for the NEOs, which letter was based upon the results of compensation benchmarking analysis of McLagan.
A representative list of the peer group that was used in the compensation benchmarking analysis, excluding all healthcare and welfare benefits analysis, is set forth in the table below. Please refer to Section I above for a list of the peer groups used for the healthcare and welfare benefits study in 2013.
Market Data Participants — Commercial Banks and FHLBanks used for 2016 market pay analysis:
|
ABN AMRO Securities (USA) LLC |
|
Espirito Santo Investment |
|
MUFG Securities |
|
AIB Capital Markets |
|
Fannie Mae |
|
MUFG Union Bank |
|
Ally Financial Inc. |
|
Federal Home Loan Bank of Atlanta |
|
National Australia Bank |
|
Associated Bank |
|
Federal Home Loan Bank of Boston |
|
Natixis |
|
Australia & New Zealand Banking Group |
|
Federal Home Loan Bank of Chicago |
|
Nomura Securities |
|
Banco Bilbao Vizcaya Argentaria |
|
Federal Home Loan Bank of Cincinnati |
|
Nord/LB |
|
Bank Hapoalim |
|
Federal Home Loan Bank of Dallas |
|
Nordea Bank |
|
Bank of America |
|
Federal Home Loan Bank of Des Moines |
|
OCBC Bank |
|
Bank of Ireland Corporate Banking |
|
Federal Home Loan Bank of Indianapolis |
|
People’s United Bank, N.A. |
|
Bank of the West |
|
Federal Home Loan Bank of Pittsburgh |
|
PNC Bank |
|
Bayerische Landesbank |
|
Federal Home Loan Bank of San Francisco |
|
Rabobank Nederland |
|
BBVA Compass |
|
Federal Home Loan Bank of Topeka |
|
Regions Financial Corporation |
|
BMO Financial Group |
|
Federal Reserve Bank of New York |
|
Royal Bank of Canada |
|
BNP Paribas |
|
Fifth Third Bank |
|
Royal Bank of Scotland |
|
BOK Financial Corporation |
|
First Citizens Bank |
|
Santander Bank, N.A. |
|
Branch Banking & Trust Co. |
|
First Niagara |
|
Siemens Financial Services |
|
Capital One |
|
Freddie Mac |
|
Societe Generale |
|
CIBC World Markets |
|
Haitong |
|
Standard Chartered Bank |
|
Citigroup |
|
Hancock Bank |
|
State Street Bank |
|
Citizens Financial Group |
|
HSBC |
|
SunTrust Banks |
|
City National Bank |
|
Huntington Bancshares |
|
SVB Financial Group |
|
Comerica |
|
ING |
|
Synovus |
|
Commerce Bank |
|
Investors Bancorp, Inc. |
|
TD Ameritrade |
|
Commerzbank |
|
JP Morgan |
|
TD Securities |
|
Commonwealth Bank of Australia |
|
KBC Bank |
|
Bank of New York Mellon |
|
Crédit Agricole CIB |
|
KeyCorp |
|
The Bank of Nova Scotia |
|
Credit Industriel et Commercial |
|
Landesbank Baden-Wuerttemberg |
|
The CIT Group |
|
Cullen Frost Bankers |
|
Zions Bancorporation |
|
The Northern Trust Corp. |
|
DBS Bank |
|
Lloyds Banking Group |
|
U.S. Bancorp |
|
DnB Bank |
|
M&T Bank Corporation |
|
Umpqua Holding Corporation |
|
DnB NOR Markets, Inc. |
|
Macquarie Bank |
|
UniCredit |
|
DVB Bank |
|
Mizuho Corporate Bank, Ltd. |
|
Webster Bank |
|
DZ Bank |
|
Mizuho Capital Markets |
|
Wells Fargo Bank |
|
East West Bancorp |
|
Mizuho Trust & Banking Co. |
|
Westpac Banking Corporation |
|
|
|
|
|
Zions Bancorporation |
2. IC Plan
a) Overview of the 2016 IC Plan
The objective of the Bank’s 2016 IC Plan is to motivate employees to take actions that support the Bank’s strategies and lead to the attainment of the Bank’s business plan and fulfillment of its mission. The 2016 IC Plan is also intended to help retain employees by affording them the opportunity to share in the Bank’s performance results. The 2016 IC Plan seeks to accomplish these objectives by linking annual cash payout award opportunities to Bank performance and to individual performance. All salaried exempt employees are eligible to participate in the 2016 IC Plan. Awards under the 2016 IC Plan were calculated based upon performance during 2016 and paid to participants on March 13, 2017. We received a “non-objection” from the Finance Agency to pay the Plan awards to NEOs, subject to the deferral feature for Management Committee participants discussed below. The 2016 IC Plan was developed in accordance with regulations issued by and other guidance received from the Finance Agency.
When employees are individually evaluated, they receive one of five performance ratings: “Outstanding”; “Exceeds Requirements”; “Meets Requirements”; “Needs Improvement”; or “Unsatisfactory”. Incentive Compensation Plan awards are only paid to participants who have attained at least a specified threshold rating within the “Meets Requirements” category on their individual performance evaluations and do not have any unresolved disciplinary matters. Also, Incentive Plan participants that were rated as “Exceeds Requirements” or “Outstanding” on their 2016 individual performance evaluations receive an additional 3% or 6%, respectively, of their base salary in the form of a separate cash award. In September 2015, the C&HR Committee approved the elimination of the additional 3% or 6% separate cash award, beginning with the 2016 IC Plan year. At the same time, the C&HR Committee approved increases in the incentive compensation opportunity levels for participants of the Bank’s IC Plan up to the rank of Assistant Vice President.
b) Bankwide Performance Goals
Bankwide performance goals, which are approved by the Board of Directors, are established to address the Bank’s business operations, mission and to help management focus on what it needs to succeed. Actual results of each goal are compared against the three benchmarks (threshold, target and maximum) that were established for the Incentive Plan year. The Incentive Compensation Plan participant receives a payout based on the benchmark level that is met for each goal.
We believe that employees at higher ranks have a greater impact on the achievement of Bankwide goals than employees at lower ranks. Therefore, employees at higher ranks have a greater weighting placed on the Bankwide performance component of their Incentive Plan award opportunities as opposed to the individual performance component. For the Chief Executive Officer and the other Management Committee members (a group that includes all of the NEOs), the overall incentive compensation opportunity is weighted 90% on Bankwide performance goals and 10% on individual performance goals. There are differences among the NEOs with regard to their individual performance goals; however, these differences do not have a material impact on the amount of incentive compensation payout.
The actual results for each goal may fall between two benchmark levels. When this happens, the payout figures are interpolated for results that fall between the two applicable ranges; either threshold and target, or target and maximum. For example, if the actual results fall between target and maximum, the Incentive Plan participant will receive the payout for achieving target plus an additional amount for the excess over target. This calculation is performed for each Bankwide goal. For each goal, there is no payout if the actual result does not reach the threshold, and the payout is capped at maximum.
The 2016 Bankwide goals are organized into three broad categories and are presented in the charts below. These charts contain:
· a description of each of the goals and their respective weightings as a percentage of the Bankwide goals;
· an explanation of each Bankwide goal measure and how each goal meets its stated purpose; and
· actual results of each goal along with the Bankwide goal benchmarks (threshold, target and maximum) that were established.
(i) Business Effectiveness Goal
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Bankwide Goals |
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How Goal |
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Weighting |
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Threshold |
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Target |
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Maximum |
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Results |
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BUSINESS EFFECTIVENESS (1) |
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70% of Bankwide Goal |
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Return Component- Dividend Capacity as forecasted in the 2016 business plan. Dividend Capacity is calculated as net income, divided by average capital stock. The Bank’s goal is to reward management for financial results that are generally controllable by management. Therefore, we adjust net income to eliminate the impact of items such as unrealized fair value changes on derivatives and associated hedged instruments. In addition, the target is adjusted due to changes in market interest rates during the year. |
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Earnings provide value for shareholders through the ability to add to retained earnings and to pay a dividend. |
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35.00 |
% |
3.46 |
% |
4.07 |
% |
4.88 |
% |
5.24 |
% |
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Risk Component -The 2016 Bankwide Risk goal consists of two components, each with five complementary factors or metrics. Each metric will be evaluated on PASS/FAIL basis. Each component must have at a minimum three PASS rated metrics to qualify for incentive compensation. The more measures that receive PASS ratings, the higher the potential award. |
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Lowering the Bank’s risk profile provides a level of assurance that unexpected losses will not impair members’ investment in the Bank and serves to preserve the par value of membership stock. |
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Risk Component —Market, Capital and Earnings (“MCE”) Risk Exposure. The five metrics for the MCE Component are: 1) Conditional Value at Risk (CVaR); 2) Equity Sensitivity (Downside); 3) Dividend Sensitivity; 4) Capital Stock Protection; and 5) Retained Earnings Sufficiency. Each metric will be evaluated on PASS/FAIL basis. Each component must have at a minimum three PASS rated metrics to qualify for incentive compensation. The more measures that receive PASS ratings, the higher the potential award. |
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Attempts to broadly cover financial risks within the Bank’s book of business. |
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24.50 |
% |
3 |
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4 |
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5 |
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5 |
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Risk Component—Operations and Controls (“BOC”) Exposure. The BOC Component attempts to focus on the effectiveness of controls used to manage the risks associated with business activities and operational processes. The five metrics for BOC measure are: 1) Operational Exceptions; 2) Controls over Financial |
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Attempts to focus on the effectiveness of controls used to manage the risks associated with business activities and operational processes. |
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10.50 |
% |
3 |
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4 |
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5 |
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5 |
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Bankwide Goals |
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How Goal |
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Weighting |
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Threshold |
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Target |
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Maximum |
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Results |
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Reporting; 3) Control Awareness and Sustainment Training; 4) Protection of Information Assets; and 5) Information Technology General Controls. Each metric will be evaluated on PASS/FAIL basis. Each component must have at a minimum three PASS rated metrics to qualify for incentive compensation. The more measures that receive PASS ratings, the higher the potential award. |
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(ii) Growth Effectiveness Goal
The Risk Goals are intended to encourage management to balance those actions taken to enhance earnings (i.e., Dividend Capacity) with actions that are needed to appropriately manage risk levels in the business. Preserving the value of member paid-in capital and providing a predictable dividend are important ways that the Bank helps to provide value to stockholders.
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Bankwide Goals |
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How Goal Meets |
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Weighting |
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Threshold |
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Target |
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Maximum |
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Results |
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GROWTH EFFECTIVENESS (2) |
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15% of Bankwide Goal |
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Number of New Member Institutions |
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Positions the Bank for future growth and aligns with philosophy of being an “advances bank”. |
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3.75 |
% |
4 |
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8 |
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12 |
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8 |
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Number of New/Return Borrowers |
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Positions the Bank for future growth and aligns with philosophy of being an “advances bank”. |
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3.75 |
% |
8 |
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13 |
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26 |
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22 |
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Advance Volume-Average Balance Advances |
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Aligns with philosophy of being an “advances bank”. |
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3.75 |
% |
$ |
75.28 |
B |
$ |
88.57 |
B |
$ |
106.28 |
B |
$ |
95.6 |
B |
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Market Share — Calculated by comparing members’ outstanding advances against a pool of alternative wholesale funding sources |
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Helps the Bank gauge its competitive position against a variety of wholesale funding alternatives used by members. Strengthens the franchise as an “advances bank”. |
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3.75 |
% |
44.00 |
% |
48.00 |
% |
50.00 |
% |
50.67 |
% | ||||
(2) The Bank’s Growth Effectiveness goal is intended to “plant the seeds” for future growth. Our district has historically been subject to a high level of merger and acquisition activity, and we consistently have had the least, or second least, number of members of all the FHLBs. Increasing the number of new members and
increasing the number of new and returning borrowing members is a method employed to help manage the risk of the Bank having fewer members and borrowers in the future.
(iii) Community Investment Effectiveness Goal
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Bankwide Goals |
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How Goal Meets |
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Weighting |
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Threshold |
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Target |
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Maximum |
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Results |
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COMMUNITY INVESTMENT EFFECTIVENESS (3) |
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15% of Bankwide Goal |
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Dollar Amount of Approved Community Lending Program Applications |
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Supports the provision of liquidity to members for housing and community development activities |
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3.75 |
% |
$ |
1.90 |
B |
$ |
2.10 |
B |
$ |
2.40 |
B |
$ |
2.53 |
B |
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Percent of Community Investment Related Transactions to Community Lending Program Advances |
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Supports the provision of liquidity for housing and community development activities. Includes investments in Housing Finance Agency bonds. |
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3.00 |
% |
74.0 |
% |
82.0 |
% |
94.0 |
% |
87.15 |
% | ||||
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Quarterly Average Balance of Outstanding Letters of Credit |
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Supports the provision of liquidity for housing and community development activities |
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3.00 |
% |
$ |
9.5 |
B |
$ |
10.5 |
B |
$ |
12.1 |
B |
$ |
11.36 |
B |
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Community Investment and Affordable Housing Related Outreach and Technical Assistance Activities |
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Supports the promotion, understanding and use of the Bank’s affordable housing and community lending programs |
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5.25 |
% |
50 |
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55 |
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63 |
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79 |
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(3) The Community Effectiveness Goal was implemented as a composite of several programs and activities as all of these components contribute to how the Bank achieves its mission-related housing and community development activities.
Overall, the weighted average result for Bankwide goals was 89.8% above target. The weighted average result for the Risk Management Group was 89.8% above target. Payments are interpolated between the target and maximum amounts.
c) Clawback Provision of the Incentive Compensation Plan
Beginning with the 2010 IC Plan, we added a clawback provision to the Incentive Plan that currently reads as follows:
If, within 3 years after an incentive has been paid or calculated as owed to a Participant who is a member of the Bank’s Management Committee, it is discovered that such amount was based on the achievement of financial or operational goals within this Plan that subsequently are deemed by the Bank to be inaccurate, misstated or misleading, the Board shall review such incentive amounts paid or owed. Inaccurate, misstated and/or misleading achievement of financial or operational goals shall include, but not be limited to, overstatements of revenue, income, capital, return measures and/or understatements of credit risk, market risk, operational risk or expenses.
If the Board determines that an incentive amount paid or considered owed to the Participant (the “Awarded Amount”) would have been a lower amount when calculated barring the inaccurate, misstated and/or misleading achievement of financial or operational goals (the “Adjusted Amount”), the Board shall, except as provided below, seek to recover to the fullest extent possible the difference between the Awarded Amount and the Adjusted Amount (the “Undue Incentive Amount”).
The Board may decide to not seek recovery of the Undue Incentive Amount if the Board determines that to do so would be unreasonable or contrary to the interests of the Bank. In making such determination, the Board may take into account such considerations as it deems appropriate including, but not limited to: (a) whether the Undue Incentive Amount is immaterial in impact to the Bank; (b) whether the Participant engaged in any intentional or unlawful misconduct that contributed to the inaccurate, misstated and/or misleading information;
(c) whether the change in the applicable achievement level was a result of circumstances beyond the control of management; (d) the likelihood of success to recover the claimed Undue Incentive Amount under governing law versus the cost and effort involved; and (e) whether seeking recovery could prejudice the interests of the Bank. The decision by the Board to seek recovery of an Undue Incentive Amount need not be uniform amongst Participants. Authority of the Board under this Article XI may be delegated to the Committee, but may not be delegated to the President.
If the Board determines to seek recovery of any or all of the Undue Incentive Amount (the “Recovery Amount”) pursuant to this Article XI, it will make a written demand from the Participant for the repayment of the Recovery Amount. Subject to the provisions of Schedule B regarding the forfeiture of unpaid amounts, if the Participant does not within a reasonable period, after receiving the written demand, provide repayment of the Recovery Amount, and the Board determines that he or she is unlikely to do so, the Board may seek a court order against the Participant for repayment of the Recovery Amount.
d) Required Deferral of IC Plan Awards for MC Members
A required deferral portion of the IC Plan (“DICP”) was implemented beginning on January 1, 2012 for members of the Bank’s Management Committee. Such deferred compensation plan provides that the payments made to Management Committee members under the IC Plan are deferred and will be made as described below.
The DICP provides that 50% of the Total Communicated Award (as defined below), if any, under the Plan year communicated to Management Committee participants (which includes the NEOs) will ordinarily be paid by the middle of March following the Plan year.
The remaining 50% will be deferred (the “Deferred Incentive Award”), subject to certain additional conditions specified in the Plan, such that 33 1/3% of the Deferred Incentive Award will ordinarily be paid by the middle of March of the following three years.
For the Plan years 2012-2014, each deferred payment could be increased or decreased by 25% based on the Bank’s performance on Market Value of Equity to Par Value of Capital Stock performance scorecard (“MVE”) and other performance measures as outlined in the table below.
Beginning with the 2015 Plan year, the C&HR Committee approved changes to the payment of the deferral amount as follows:
· If the MVE ratio is equal to or greater than 100%, eligible participants will become qualified to receive the deferral payment. If MVE is less than 100%, then a participant would receive no payment for that year.
· The Bank will pay an interest rate on the deferred amount equal to the Bank’s return on equity over the deferral period, subject to a floor of zero.
The first deferred payment affected by this change was under the 2015 IC Plan and the first deferred installment in 2016.
An executive who terminates employment with the Bank other than for “good reason” or who is terminated by the Bank for “cause” will forfeit any portion of the Deferred Incentive Award that has not yet been paid. In addition, the Deferred Incentive Award will be paid, if otherwise earned, in full in the event of the executive’s death or disability, or a “change in control” (as defined in the DICP).
In the chart below, the following terms have the following definitions:
“Total Communicated Award” means the total amount of the incentive award (if any) under the Plan communicated to Management Committee Participants;
“Current Communicated Incentive Award” means 50 percent of the Total Communicated Award; and
“Deferred Incentive Award” means the remaining 50 percent of the Total Communicated Award.
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Payment |
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Description |
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Payment Year |
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Current Communicated Incentive Award |
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50% of the Total Communicated Award |
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Base year* |
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Deferred Incentive Award installment |
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Up to 33 1/3% of the Deferred Incentive Award |
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Year 1** |
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Deferred Incentive Award installment |
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Up to 33 1/3% of the Deferred Incentive Award |
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Year 2** |
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Deferred Incentive Award installment |
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Up to 33 1/3% of the Deferred Incentive Award |
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Year 3** |
*Payment shall ordinarily be made within the first two and a half weeks of March.
**Payment shall ordinarily be made within the first two and a half weeks of March in the year indicated.
The Current Communicated Incentive Award at maximum shall not exceed 100 percent of the participant’s base salary.
B. Retirement Benefits
Introduction
There were elements of the Bank’s total compensation program in 2016 intended to help encourage the accumulation of wealth by consistent and superior results from qualified employees, including NEOs, over a long period of time.
These benefits (in addition to the Health and Welfare Programs and Other Benefits noted in Section IV C below) were part of our strategy to compete for and retain talent that might otherwise be lured away from the Bank by competing financial enterprises who offer their employees long-term incentives and equity-sharing opportunities- forms of compensation that we do not offer.
Thrift Restoration Plan
Starting in 2010, the Board approved the establishment of a Thrift Restoration Plan for certain members of former nonqualified plans. Former participants of a terminated Nonqualified Deferred Compensation Plan program, who would have been otherwise eligible for a match in the amount of 6% of base pay in excess of IRS limitations ($265,000 for 2015), will continue to receive an additional annual cash payment in an amount equal to 6% of the base pay in excess of the IRS limitation. The Thrift Restoration Plan ceased as of January 1, 2017 due to the approval of the DC BEP effective as of January 1, 2017 as described below.
Profit Sharing Plan
In 2010, the Board approved the establishment of a Profit Sharing Plan for certain members of former nonqualified plans. Former participants of a terminated nonqualified Profit Sharing Plan, a provision of an amount equal to 8% of the prior year’s base pay and short-term incentive payment to the extent the requirements under the Bank’s Short Term IC Plan have been achieved. The 8% payment will not be included as income for calculating the benefits for the Qualified Defined Benefit Plan.
1. DB Plan
The DB Plan is an IRS-qualified defined benefit plan which covers all employees who have achieved four months of service. The DB Plan is part of a multiple-employer defined benefit program administered by Pentegra Retirement Services.
Participants who, as of July 1, 2008, had five years of DB Plan service and were age 50 years or older, are provided with a benefit of 2.50% of a participant’s highest consecutive 3-year average earnings, multiplied by the participant’s years of benefit service, not to exceed 30 years. Earnings are defined as base salary plus short-term incentives, and overtime, subject to the annual Internal Revenue Code limit; short-term incentives for participants of the deferred incentive compensation plan is defined as the Total Communicated Award. These participants are identified herein as “Grandfathered”.
For participants identified herein as “Non-Grandfathered”, the DB Plan provides a benefit of 2.0% of a participant’s highest consecutive 5-year average earnings (as opposed to consecutive 3-year average earnings as provided to Grandfathered participants), multiplied by the participant’s years of benefit service, not to exceed 30 years. Earnings are defined as base salary plus short-term incentives, and overtime, subject to the annual Internal Revenue Code limit. The Normal Form of Payment is a life annuity (i.e., an annuity paid until the death of the participant), as opposed to a guaranteed twelve-year payout as previously provided to Grandfathered participants. In addition, for the Non-Grandfathered participants, the cost of living adjustments (“COLAs”) are no longer provided on future accruals (as opposed to a 1% simple interest COLA beginning at age 66 as previously provided).
For participants who were hired on or after July 1, 2014, the DB Plan provides a benefit of 1.50% of a participant’s highest consecutive 5-year average earnings, multiplied by the participant’s years of benefit service, not to exceed 30 years. Earnings are defined as base salary only, subject to the annual Internal Revenue Code limit.
The table below summarizes the DB Plan changes affecting the Non-Grandfathered employees that went into effect on July 1, 2008 and July 1, 2014:
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DEFINED BENEFIT PLAN |
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GRANDFATHERED |
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NON- |
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PARTICIPANTS |
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Benefit Multiplier |
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2.5% |
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2.0% |
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1.5% |
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Final Average Pay Period |
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High 3-Year |
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High 5-Year |
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High 5-Year |
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Normal Form of Payment |
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Guaranteed 12 Year Payout |
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Life Annuity |
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Life Annuity |
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Cost of Living Adjustments |
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1% Per Year Cumulative Commencing at Age 66 |
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None |
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None |
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Early Retirement Subsidy<65: |
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a) Rule of 70 |
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1.5% Per Year |
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3% Per Year |
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3% Per Year |
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b) Rule of 70 Not Met |
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3% Per Year |
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Actuarial Equivalent |
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Actuarial Equivalent |
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*Vesting |
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20% Per Year Commencing Second Year of Employment |
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5-Year Cliff |
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5-Year Cliff |
* Greater of DB Plan Vesting or New Plan Vesting applied to employees participating in the DB Plan prior to July 1, 2008.
For purposes of the above table, please note the following definitions:
Benefit Multiplier — The annuity paid from the DB Plan is calculated on an employee’s years of service, up to a maximum of 30 years, multiplied by the appropriate Benefit Multiplier for each participant, as described above.
Final Average Pay Period —The period of time that an employee’s salary is used in the calculation of that employee’s benefit. For Grandfathered Employees, the Benefit Multiplier, 2.5%, is multiplied by the average of the employee’s three highest consecutive years of salary multiplied by that employee’s years of service, not to exceed thirty years at the date of termination. For Non-Grandfathered Employees, any accrued benefits prior to July 1, 2008, the accrued Benefit Multiplier mirrors the Grandfathered Employees at 2.5%. For non-grandfathered employees benefits accrued after July 1, 2008, a Benefits Multiplier of 2% is multiplied by the employee’s years of service (total service not to exceed thirty years) multiplied by the average of the employee’s five highest consecutive years of salary. For non-grandfathered employees, benefits accrued after July 1, 2014, a Benefits Multiplier of 1.50% is multiplied by the employee’s years of service (total service not to exceed thirty years) multiplied by the average of the employee’s five highest consecutive years of salary.
Normal Form of Payment — The DB Plan must state the form of the annuity to be paid to the retiring employee. For unmarried Grandfathered retirees, the Normal Form of Payment is a life annuity with a 12-year guaranteed payment (“Guaranteed 12-Year Payout”) which means that if the unmarried Grandfathered retiree dies prior to receiving 12 years of annuity payments, the retiree’s beneficiary will receive a lump sum equal to the remaining unpaid payments in the 12-year period. For married Grandfathered retirees, the Normal Form of Payment is a 50% joint and survivor annuity, which provides a continuation of half of the monthly annuity to the surviving beneficiary. The initial 50% Joint and Survivor Annuity monthly payment is actuarially equivalent to the 12-year guaranteed payment provided to single retirees under the formula. Effective July 1, 2008, the DB Plan provides single Non-Grandfathered retirees and retirees hired on or after July 1, 2014 with a straight “Life Annuity” as the Normal Form of Payment, which means that, once a retiree dies, the annuity terminates. For married Non-Grandfathered retirees, the Normal Form of Payment will be a 50% Joint and Survivor Annuity that is actuarially equivalent to the straight Life Annuity.
Cost of Living Adjustments (or “COLAs”) — Once a Grandfathered Employee retiree reaches age 65, in each succeeding year he/she will receive an extra payment annually equal to one percent of the original benefit amount multiplied by the number of years in pay status after age 65. As of July 1, 2008, this adjustment is no longer offered to Non-Grandfathered Employees on benefits accruing after that date.
Early Retirement Subsidy — Early retirement under the plan is available after age 45.
Vesting — Grandfathered Employees are entitled, starting with the second year of employment service, to 20% of his/her accumulated benefit per year. As a result, after the sixth year of employment service, an employee will be entitled to 100% of his/her accumulated benefit. Non-Grandfathered Employees who entered the DB Plan on or after July 1, 2008 will not receive such benefit until such employee has completed five years of employment service. At that point, the employee will be entitled to 100% of his/her accumulated benefit. The term “5-Year Cliff” is a reference to the foregoing provision. Grandfathered and Non-Grandfathered Employees already participating in the DB Plan prior to July 1, 2008 will vest at 20% per year starting with the second year through the fourth year of employment service and will be accelerated to 100% vesting after the fifth year.
Earnings under the DB Plan for Grandfathered and Non-Grandfathered Employees continue to be defined as base salary plus short-term incentives, and overtime, subject to the annual Internal Revenue Code (“IRC”) limit. The IRC limit on earnings for calculation of the DB Plan benefit for 2016 was $265,000.
The DB Plan pays monthly annuities, or a lump sum amount available at or after age 59-1/2, calculated on an actuarial basis, to vested participants or the beneficiaries of deceased vested participants. Annual benefits provided under the DB Plan also are subject to IRC limits, which vary by age and benefit payment option selected.
The Bank’s practice is to attempt to maintain “economic” funding levels for the DB Plan; therefore in the last two years we made contributions to the DB Plan in amounts greater than the minimum required contribution as determined actuarially under current pension rules as defined by Highway and Transportation Funding Act of 2014 (“HATFA”) and the 2012 Moving Ahead for Progress Act for the 21st Century (“MAP-21”).
2. DB BEP
Employees at the rank of Vice President and above who exceed income limitations established by the IRC for three out of five consecutive years and who are also approved for inclusion by the Bank’s Nonqualified Plan Committee are eligible to participate in the DB BEP, a non-qualified retirement plan that in many respects mirrors the DB Plan with the exception of the DB Plan changes implemented effective July 1, 2014.
The primary objective of the DB BEP is to ensure that participants receive the full benefit to which they would have been entitled under the DB Plan in the absence of limits on maximum benefit levels imposed by the IRC.
In the event that the benefits payable from the DB Plan have been reduced or otherwise limited by government regulations, the employee’s “lost” benefits are payable under the terms of the DB BEP.
The DB BEP is an unfunded arrangement. However, the Bank has established a grantor trust to assist in financing the payment of benefits under this plan as well as the DC BEP and the NDICP. The Bank’s practice is to maintain assets in the grantor trust at a level up to the Accumulated Benefit Obligation for the DB BEP, the DC BEP and the NDICP; the financing levels are reviewed annually.
The Nonqualified Plan Committee administers various oversight responsibilities pertaining to the DB BEP. These matters include, but are not limited to, approving employees as participants of the DB BEP and adopting any amendment or taking any other action which may be appropriate to facilitate the DB BEP. The Nonqualified Plan Committee is chaired by the Chair of the C&HR Committee; other members include a Board Director who is a member of the C&HR Committee, our Chief Financial Officer, and the Director of Human Resources. The Nonqualified Plan Committee reports its actions to the C&HR Committee by submitting its meeting minutes to the C&HR Committee on a regular basis.
3. DC Plan
Employees who have met certain eligibility requirements can choose to contribute to the DC Plan, a retirement savings plan qualified under the IRC. Employees are eligible for membership in the DC Plan on the first day of the month following three full calendar months of employment.
An employee may contribute 1% to 100% of base salary into the DC Plan, up to IRC limitations. The IRC limit for 2016 was $18,000 for employees under the age of 50. An additional “catch up” contribution of $6,000 is permitted under IRC rules for employees who attain age 50 before the end of the calendar year.
Effective July 1, 2014, there is no waiting period for new employees to receive the match of 6%. If an employee contributes at least 4% of base salary, the Bank provides the maximum employer match of 6% of elective contributions upon plan entry. If an employee contributes less than 4% of base salary, the Bank will match at a rate of 150% of elective contributions. Contributions of less than 2% of base salary receive a match of 2% of the employee’s base salary or $34.61 per pay period (whichever is less).
4. DC BEP
On November 17, 2016, the Board approved and authorized the implementation of the Amended and Restated Supplemental Executive Retirement Defined Benefit & Defined Contribution Benefit Equalization Plan, effective as of January 1, 2017 (the “Amended and Restated BEP”), and the separate NDICP, also effective as of January 1, 2017. On December 5, 2016 the Bank’s primary regulator, the Federal Housing Finance Agency, informed the Bank that it had no objection to the Bank’s adoption and implementation of the Amended and Restated BEP and the NDICP which is discussed immediately following.
Employees at the rank of Vice President and above who exceed income limitations established by the IRC for three out of five consecutive years, and who contribute to their qualified DC Plan up to the IRC Limits, are eligible to participate in the DC BEP. Effective January 1, 2017, qualified employees may elect to defer up to 19% of the employee’s base salary (less the amount of salary deferrals allowed under the DC Plan pursuant to the IRS Limits).
Similar to the qualified DC Plan, the Bank will make a matching contribution each plan year of 6% on the first 4% of elective deferrals made under the DC BEP. If an employee elects to defer less than 4% of base salary, the Bank will match at a rate of 150% of elective deferred contributions. All deferred monies will be the property of the Bank until distribution to the employee and thus subject to claims of Bank creditors until distribution.
Amounts deferred and contributed as matching contributions under the DC BEP shall be credited to the participant’s DC BEP account. Participants may choose to invest their DC BEP funds within a menu of investment options.
5. NDICP
The NDICP, which became effective on January 1, 2017, will allow employees serving at the rank of a Vice President or above to elect to defer all or a portion of the employee’s annual incentive compensation that is paid to the employee under the terms of any Board-approved IC Plan or deferred portion of such IC Plan. The Bank does not provide a match on these deferrals. All deferred monies will be the property of the Bank until distribution to the employee and thus subject to claims of Bank creditors until distribution.
Amounts deferred and contributed under the NDICP shall be credited to the participant’s NDICP account. Participants may choose to invest their NDICP funds within a menu of investment options.
C. Health and Welfare Programs and Other Benefits
In addition to the foregoing, we offer a comprehensive benefits package for all regular employees (including NEOs) which include the following significant benefits:
Medical and Dental
Employees can choose preferred provider, open access or managed care medical plans. All types of medical coverage include a prescription benefit. Dental plan choices include preferred provider or managed care. Employees contribute to cover a portion of the costs for these benefits. Effective January 1, 2015, the medical plans were replaced with a HDHP which includes a Health Savings Account HSA which are discussed in Section I above. In order for the healthcare plan to be eligible for an HSA account, the IRS requires that plan deductibles and maximum out-of-pocket limits be increased and pharmacy benefits be paid only after the deductible is met. The Bank established, and contributed to, employee HSA accounts on January 1, 2015 to offset costs associated with these changes.
Retiree Medical
We offer eligible employees medical coverage when they retire. Employees are eligible to participate in the Retiree Medical Benefits Plan if they are at least 55 years old with 10 years of service when they retire from active service.
Under the Plan as in effect from May 1, 1995 until December 31, 2007, retirees who retire before age 62 pay the full premium for the coverage they had as employees until they attain age 62. Thereafter, they contribute a percentage of the premium based on their total completed years of service (no adjustment is made for partial years of service) on a “Defined Benefit” basis, as defined below, as follows:
|
|
|
Percentage of Premium |
|
|
Completed Years of Service |
|
Paid by Retiree |
|
|
10 |
|
50.0 |
% |
|
11 |
|
47.5 |
% |
|
12 |
|
45.0 |
% |
|
13 |
|
42.5 |
% |
|
14 |
|
40.0 |
% |
|
15 |
|
37.5 |
% |
|
16 |
|
35.0 |
% |
|
17 |
|
32.5 |
% |
|
18 |
|
30.0 |
% |
|
19 |
|
27.5 |
% |
|
20 or more |
|
25.0 |
% |
The premium paid by retirees upon becoming Medicare-eligible (either at age 65 or prior thereto as a result of disability) is a premium reduced to take into account the status of Medicare as the primary payer of the medical benefits of Medicare-eligible retirees.
As a result of the Aon study described previously and the recommendations that resulted from such study, the Board directed that certain changes in the Plan be made, effective January 1, 2008. Employees who, on December 31, 2007, had 5 years of service and were age 60 or older were not affected by this change. These employees are identified herein as “Grandfathered.” However, for all other employees, identified herein as “Non-Grandfathered,” the Plan premium-payment requirements beginning at age 62 were changed. From age 62 until the retiree or a covered dependent of the retiree becomes Medicare-eligible (usually at age 65 or earlier, if disabled), we contribute $45 per month toward the premium of a Non-Grandfathered retiree multiplied by the number of years of service earned by the retiree after age 45 and by the number of individuals (including the retiree, the retiree’s spouse, and each other dependent of the retiree) covered under the Plan.
After the retiree or a covered dependent of the retiree becomes Medicare-eligible, our contribution toward the premium for the coverage of the Medicare-eligible individual will be reduced to $25 per month multiplied by the number of years of service earned by the retiree after age 45 and by the number of individuals (including the retiree, the retiree’s spouse, and each other dependent of the retiree) covered under the Plan. The $45 and $25 amounts were fixed for the 2008 calendar year. Each year thereafter, these amounts will increase by a cost-of-living adjustment (“COLA”) factor not to exceed 3%. The table below summarizes the Retiree Medical Benefits Plan changes that affect Non-Grandfathered employees who retire on or after January 1, 2008.
Effective January 1, 2015, for all other employees, the Plan premium-payment requirements beginning at age 62 were changed. From age 62 until the retiree or a covered dependent of the retiree becomes Medicare-eligible (usually at age 65 or earlier, if disabled), we contribute $26.87 per month toward the premium of a Non-
Grandfathered retiree multiplied by the number of years of service earned by the retiree after age 45 and by the number of individuals (including the retiree, the retiree’s spouse, and each other dependent of the retiree) covered under the Plan.
After the retiree or a covered dependent of the retiree becomes Medicare-eligible, our contribution toward the premium for the coverage of the Medicare-eligible individual will be reduced to $14.93 per month multiplied by the number of years of service earned by the retiree after age 45 and by the number of individuals (including the retiree, the retiree’s spouse, and each other dependent of the retiree) covered under the Plan. The $26.87 and $14.93 amounts were fixed for the 2015 calendar year. The COLA factor is eliminated. The table below summarizes the Retiree Medical Benefits Plan changes that affect employees who retire on or after January 1, 2015.
For purposes of the following table and the preceding discussion on the Retiree Medical Benefits Plan, the following definitions have been used:
Defined Benefit — A medical plan in which we provide medical coverage to a retired employee and collect from the retiree a monthly fixed dollar portion of the premium for the coverage elected by the employee.
Defined Dollar Plan — A medical plan in which we provide medical coverage to a retired employee up to a fixed cost for the coverage elected by the employee and the retiree assumes all costs above the stated contribution.
|
|
|
Provisions for |
|
Provisions for Non- |
|
Provisions | ||
|
|
|
Retirees |
|
Retirees |
|
January 1, 2015 and After | ||
|
Plan Type |
|
Defined Benefit |
|
Defined Dollar Plan |
|
Defined Dollar Plan | ||
|
|
|
|
|
|
|
| ||
|
Medical Plan Formula |
|
1) Same coverage offered to active employees prior to age 65 |
|
1) Retiree (and covered individual), is eligible for $45/month x years of service after age 45, and has attained the age of 62. There is a 3% Cost of Living Adjustment each year. |
|
1) Retire (and covered individual), is eligible for $26.87/month x years of service after age 45, and has attained the age of 62. The 3% Cost of Living Adjustment is eliminated. | ||
|
|
|
|
|
|
|
| ||
|
|
|
2) Supplement Medicare coverage for retirees age 65 and over |
|
2) Retiree (and covered individual) is eligible for $25/month x years of service after age 45 and after age 65. There is a 3% Cost of Living Adjustment each year. |
|
2) Retiree (and covered individual) is eligible for $14.93/month x years of service after age 45 and after age 65. The 3% Cost of Living Adjustment is eliminated. | ||
|
|
|
|
|
|
|
| ||
|
Employer |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
| ||
|
Cost Share Examples: |
|
0% for Pre-62 |
|
$ |
0 for Pre-62 Pre-65/Post-65 |
|
$ |
0 for Pre-62 Pre-65/Post-65 |
|
|
|
|
|
|
|
| ||
|
10 years of service after age 45 |
|
50% for Post-62 |
|
$ |
5,400/$3,000/Annually |
|
$ |
3,224/$1,792/Annually |
|
|
|
|
|
|
|
| ||
|
15 years of service after age 45 |
|
62.5% for Post-62 |
|
$ |
8,100/$4,500/Annually |
|
$ |
4,837/$2,687/Annually |
|
|
|
|
|
|
|
| ||
|
20 years of service after age 45 |
|
75% for Post-62 |
|
$ |
10,800/$6,000/Annually |
|
$ |
6,449/$3,583/Annually |
Vision Care
Employees can choose from two types of coverage offered. Basic vision care is offered at no charge to employees. Employees contribute to the cost for the enhanced coverage.
Life Insurance
The Group Term Life insurance provides a death benefit of twice an employee’s annual salary (including incentive compensation) at no cost to the employee other than taxation of the imputed value of coverage in excess of $50,000.
Additional Life Insurance
Additional Life Insurance is provided to one NEO (the Head of Member Services) who, in 2003, was a participant in the Split Dollar life insurance program, as consideration for his assigning to the Bank his portion of the Split Dollar life insurance policy. The Split Dollar life insurance program was terminated in 2003.
This Additional Term Life Insurance policy is paid by the Bank; however, each individual owns the policy. We purchased these policies in 2003 for 15 years and locked in the premiums for the duration of the policies. When the policies expire in 2018, there is an option to renew, though the rate will be subject to change.
Retiree Life Insurance
Retiree Life Insurance provides a death benefit in relation to the amount of coverage one chooses at the time of retirement. The continued benefit is calculated by the insurance broker and is paid for by the retiree. Coverage can be chosen in $1,000 increments up to a maximum of $20,000.
Business Travel Accident Insurance
Business Travel Accident insurance provides a death benefit while traveling on Bank business, outside of the normal commute, at no cost to the employee.
Short-and Long-Term Disability Insurance
Short-and long-term disability insurance is provided at no cost to the employee.
Supplemental Short-Term Disability Coverage
We provide supplemental short-term disability coverage at no cost to the employee. This coverage provides 66.67% (up to a maximum of $1,000 per week) of a person’s salary while they are on disability leave. Once state disability coverage is confirmed, we reduce supplemental calculations by the amount payable from the Short-Term Disability provider.
Flexible Spending Accounts
Flexible spending accounts in accordance with IRC rules are provided to employees to allow tax benefits for certain medical expenses, dependent medical expenses, and mass transit expenses and parking expenses associated with commuting. The administrative costs for these accounts are paid by the Bank. Effective January 1, 2015, the Health Savings Account replaced the medical Flexible Spending Account.
Employee Assistance Program
Employee assistance counseling is available at no cost to employees. This is a Bank-provided benefit that allows employees to anonymously speak to a 3rd party provider regarding various issues such as stress, finance, smoking cessation, weight management and personal therapy.
Educational Development Assistance
Educational Development Assistance provides tuition reimbursement, subject to the satisfaction of certain conditions.
Voluntary Life Insurance
Employees are afforded the opportunity to purchase additional life insurance for themselves and their eligible dependents.
Long-Term Care
Employees are afforded the opportunity to purchase Long-Term Care insurance at their expense for themselves and their eligible dependents.
Fitness Center Reimbursement
Fitness center reimbursement, up to $350 per year, is available to all employees subject to the satisfaction of certain criteria.
Service Award
We provide employees, including NEOs, who are employed at the Bank for 10 years or more with a service award. This award is presented after 10 years in increments of 5 years. The award ranges from $250 - $1,000.
Perquisites
Perquisites represent expenditures totaling less than $10,000 for the year 2016 per NEO.
D. Severance Plan and Executive Change in Control Agreements
1. Severance Plan
Other than as described below, all Bank employees are employed under an “at will” arrangement. Accordingly, an employee may resign employment at any time and the Bank may terminate the employee’s employment at any time for any reason with or without cause.
Severance benefits to an employee in the event of termination of his or her employment may be paid in accordance with the Bank’s formal Board-approved Severance Plan (“Severance Plan”) available to all Bank employees who work twenty or more hours a week and have at least one year of employment.
Severance benefits may be paid to employees who:
(i) are part of a reduction in force;
(ii) have resigned from the Bank following a reduction in salary grade, level, or rank;
(iii) refuse a transfer of fifty miles or more;
(iv) have their position eliminated;
(v) are unable to perform his/her duties in a satisfactory manner and is warranted that the employee would not be discharged for cause; or
(vi) had their employment terminated as a result of a change in control (however, in the event of a change in control that affects the Bank President, the other Bank NEOs, and the Chief Audit Officer, provisions contained in separate Executive Change in Control Agreements shall govern; see below for more information).
An officer shall be eligible for two weeks of severance benefits for each six month period of service with the Bank, but not less than eight weeks of severance benefits nor more than thirty-six weeks of such benefits; in the event of a change in control, the ‘floor’ and ‘cap’ shall be twelve weeks and fifty-two weeks, respectively. Non-officers are eligible for severance benefits in accordance with different formulas.
If the terminated employee is enrolled in the Bank’s medical benefits plan at the time of termination and elects to purchase health insurance continuation coverage, the Bank may provide a lump sum payment in an amount to be determined by the Bank intended to be used in connection with payments by terminated employees related to health insurance. The Bank may also in its discretion arrange for outplacement services.
Payment of severance benefits under the Severance Plan is contingent on an employee executing a severance agreement which includes a release of any claim the employee may have against the Bank and any present and former director, officer and employee.
Severance benefits payable under the Severance Plan shall be paid on a lump sum basis.
2. Executive Change in Control Agreements
Executive Change in Control Agreements (“CIC Agreements”) were executed in January 2016 between the FHLBNY and each of the members of the Management Committee, including the CEO and the other Named Executive Officers, and the Chief Audit Officer, which, as more fully described below, would provide the executive with certain severance payments and benefits in the event employment is terminated in connection with a “change in control” of FHLBNY. Previously, on December 10, 2015, the Federal Housing Finance Agency indicated to FHLBNY that it would have no objection to the FHLBNY entering into agreements containing the severance payment provisions that are included in the CIC Agreements.
The CIC Agreements are effective commencing December 1, 2015 for three (3) years from the date the CIC Agreement is executed. Under the terms of the CIC Agreement, if the executive’s employment with FHLBNY is terminated by FHLBNY without “cause” (as defined in the CIC Agreement) or by the executive for “good reason” (as defined in the CIC Agreement) during the period beginning on the earliest of (a) twelve (12) months prior to the execution by FHLBNY of a definitive agreement regarding a Change in Control, (b) twelve (12) months prior to Change in Control mandated by federal statute, rule or directive, and (c) twelve (12) months prior to the adoption of a plan or proposal for the liquidation or dissolution of FHLBNY, and ending, in all cases, twenty-four (24) months following the effective date of the Change in Control, the executive becomes entitled to certain severance payments and benefits. These payments and benefits include: (i) an amount equal to the product of the executive’s average gross base salary for the three years prior to his employment termination date (with any partial years being annualized), multiplied by 2.99 for the CEO, and 1.5 for other CIC Agreement participants; (ii) if the executive is a participant in FHLBNY’s Incentive Compensation Plan (the “Annual Plan”), an amount equal to the product of the executive’s full target incentive payout estimate, or the actual amount of the payment to the executive under the Annual Plan, if lower, in either case, in respect of the year prior to the year of the employment termination date, multiplied by 2.99 for the CEO, and 1.5 for other CIC Agreement participants; (iii) an amount equal to the cost of health, dental and vision care benefits that FHLBNY actually incurred by FHLBNY on behalf of the Executive and his dependents, if any, during the twelve (12) months prior to the executive’s employment termination date; (iv) $15,000, which the executive may put toward outplacement services; (v) $15,000, which the executive may put toward accounting, actuarial, financial, legal or tax services; (vi) additional age and service credits under the FHLBNY non-qualified Benefit Equalization Plan of three (3) years for the CEO and one and one-half (1.5) years for other CIC Agreement participants; and (vii) an amount equal to 2.99 times the CEO’s annual matching contribution under the DC Plan and 1.5 times the match for other CIC Agreement participants.
The payments described above are payable in a lump sum within sixty (60) days following the executive’s employment termination date, with the benefits under the BEP being distributed in accordance with the terms of the BEP. All payments and benefits are conditioned on the executive having delivered an irrevocable general release of claims against FHLBNY before payment occurs. In addition, notwithstanding anything to the contrary, all payments and benefits remain subject to FHLBNY’s compliance with any applicable statutory and regulatory requirements relating to the payment of amounts under the CIC Agreements and in the event that a governmental authority or a court with competent jurisdiction directs that any portion or all of the payments may not be paid to the executive, the executive shall not be eligible to receive, or shall return, such payments.
V. Explanation of how we determine the amount and, where applicable, the formula for each element of compensation
Please see Section IV directly above for an explanation of the mechanisms used to determine employee compensation.
VI. Explanation of how each element of compensation and the decisions regarding that element fit into the overall compensation objectives and affect decisions regarding other elements of compensation
The Committee believes it has developed a unified, coherent system of compensation. Please refer to the Introduction section under the heading “The Total Compensation Program” for an explanation of the components that make up our total compensation program. Together, these components comprised the total compensation program for 2016, and they are discussed in detail in Section IV above.
Our overall objectives with regard to our compensation and benefits program are to motivate employees to achieve consistent and superior results over a long period of time, and to provide a program that allows us to compete for and retain talent that otherwise might be lured away. Section IV of the CD&A above describes how each element of the compensation objectives and the decisions regarding each element fit within such objectives.
As we make changes to one element of the compensation and benefits program mix, the C&HR Committee considers the impact on the other elements of the mix. In this regard, the C&HR Committee strives to maintain programs that keep the Bank within the parameters of its Compensation Policy.
We note that differences in compensation levels that may exist among the NEOs are primarily attributable to the benchmarking process. The Board does have the power to adjust compensation from the results of the benchmarking process; however, this power is not normally exercised.
COMPENSATION COMMITTEE REPORT
The C&HR Committee of the Board of Directors has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the C&HR Committee recommended to the Board that the Compensation Discussion and Analysis be included in the annual report on Form 10-K for the year 2016.
THE COMPENSATION AND HUMAN RESOURCES COMMITTEE
|
|
C. Cathleen Raffaeli, Chair |
|
|
DeForest B. Soaries, Jr., Vice Chair |
|
|
James W. Fulmer |
|
|
Gerald H. Lipkin |
|
|
Christopher P. Martin |
|
|
David J. Nasca |
|
|
Monte N. Redman |
RISKS ARISING FROM COMPENSATION PRACTICES
We do not believe that risks arising from the compensation policies with respect to its employees are reasonably likely to have a material adverse effect on the Bank. We do not structure any of our compensation plans in a way that inappropriately encourages risk taking to achieve payment.
Our business model operates on a low return/low risk basis. One of the important characteristics of our culture is appropriate attention to risk management. We have established procedures with respect to risk which are reviewed frequently by entities such as our regulator, external audit firm, Risk Management Group, and Internal Audit Department.
In addition, we have a Board and associated Committees that provide governance. The compensation programs are reviewed annually by the C&HR Committee to ensure they follow the goals.
The structure of our compensation programs provides evidence of the balanced approach to risk and reward in our culture. The rationale behind the structure of the Incentive Plan and its goals is to motivate management to take a balanced approach to managing risks and returns in the course of managing the business, while at the same time ensuring that we fulfill our mission. The Incentive Plan design is intended to motivate management to act in ways that are aligned with the Board’s wishes to have us achieve forecasted returns while managing risks within prescribed risk parameters. In addition, the goals in the Incentive Plan will not motivate management to increase returns if they require imprudently increasing risk.
We operate with a philosophy that all our employees are risk managers and are, therefore, responsible for managing risk. It is true that we have separated operational management from risk oversight, and those employees who work in the Risk Management Group have a special responsibility to identify, measure, and report risk. However, all employees need to be aware of and responsible for managing risks at the Bank, and to consider the risk implications of their decisions. To do otherwise is to relegate the management of risks to a limited number of professionals and allow other managers to believe that managing risks is not part of their jobs. In our view, such an approach could lead to imprudent risk-taking and may erode the Bank’s value over time.
In addition, we are prohibited by law from offering equity-based compensation, and we do not currently offer long-term incentives. However, many of the firms in our peer group do offer these types of compensation. The total compensation program takes into account the existence of these other types of compensation by offering defined benefit and defined contribution plans to help effectively compete for talent. The defined benefit and defined contribution plans are designed to reward employees for continued strong performance over the course of their careers — that is, the longer an employee works at the Bank, the greater the benefit the employee is likely to accumulate. Senior and mid-level employees are generally long-tenured and we believe that these employees would not want to endanger their pension benefits by inappropriately stretching rules to achieve a short-term financial gain. By definition, these programs are reflective of the low risk culture.
The Finance Agency also has issued certain compensation principles, one of which is that executive compensation should be consistent with sound risk management and preservation of the Market value of Equity to Capital Stock Ratio Value of membership stock. Also, the Finance Agency reviews all executive compensation plans relative to these principles and such other factors as the Finance Agency determines to be appropriate, including the Bank’s annual Incentive Plan, prior to their becoming effective.
Thus, the Bank’s low risk culture, which is reflected in the compensation policy, leads us to believe that any risks arising from the compensation policies with respect to our employees are not reasonably likely to have a material adverse effect.
Compensation Committee Interlocks and Insider Participation
The following persons served on the C&HR Committee during all or some of the period from January 1, 2016 through the date of this annual report on Form 10-K: DeForest B. Soaries, Jr., James W. Fulmer, Gerald H. Lipkin, Christopher P. Martin, David J. Nasca, Vincent F. Palagiano, C. Cathleen Raffaeli and Monte N. Redman. During this period, no interlocking relationships existed between any member of the Bank’s Board of Directors or the C&HR Committee and any member of the board of directors or compensation committee of any other company, nor did any such interlocking relationship existed in the past. Further, no member of the C&HR Committee listed above was an officer or our employee during the course of their service as a member of the Committee, or was formerly an officer or our employee before becoming a member of the Committee.
The table below summarizes the total compensation earned by each of the Named Executive Officers (“NEOs”) for the years 2016, 2015 and 2014 (in dollars):
Summary Compensation Table for Calendar Years 2016, 2015 and 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in |
|
|
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Value |
|
|
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and Nonqualified |
|
|
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity |
|
Deferred |
|
All Other |
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive |
|
Compensation |
|
Compensation |
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan |
|
(b,c) |
|
(d, e, f, g, h, i, j, k, l) |
|
|
| |||||
|
|
|
|
|
Salary |
|
|
|
Stock |
|
Option |
|
Compensation |
|
(2, 3) |
|
(4, 5, 6, 7, 8, 9, 10) |
|
Total |
| |||||
|
Name and Principal Position |
|
Year |
|
(m) (11) (K) |
|
Bonus |
|
Awards |
|
Awards |
|
(a) (1) (A) |
|
(B, C) |
|
(D, E, F, G, H, I, J) |
|
(n) |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
José R. González |
|
2016 |
|
$ |
791,779 |
|
— |
|
— |
|
— |
|
$ |
781,402 |
|
$ |
72,000 |
|
$ |
45,954 |
|
$ |
1,691,135 |
|
|
President & |
|
2015 |
|
$ |
729,750 |
|
— |
|
— |
|
— |
|
$ |
677,021 |
|
$ |
60,000 |
|
$ |
97,968 |
|
$ |
1,564,739 |
|
|
Chief Executive Officer (PEO) |
|
2014 |
|
$ |
700,000 |
|
— |
|
— |
|
— |
|
$ |
428,212 |
|
$ |
50,000 |
|
$ |
89,821 |
|
$ |
1,268,033 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Kevin M. Neylan |
|
2016 |
|
$ |
469,492 |
|
— |
|
— |
|
— |
|
$ |
347,149 |
|
$ |
627,000 |
|
$ |
64,267 |
|
$ |
1,507,908 |
|
|
Senior Vice President, |
|
2015 |
|
$ |
419,190 |
|
— |
|
— |
|
— |
|
$ |
282,548 |
|
$ |
192,000 |
|
$ |
77,460 |
|
$ |
971,198 |
|
|
Chief Financial Officer (PFO) |
|
2014 |
|
$ |
405,995 |
|
— |
|
— |
|
— |
|
$ |
203,348 |
|
$ |
815,000 |
|
$ |
71,958 |
|
$ |
1,496,301 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
John F. Edelen* |
|
2016 |
|
$ |
215,562 |
|
— |
|
— |
|
— |
|
$ |
16,639 |
|
$ |
1,522,000 |
|
$ |
547,712 |
|
$ |
2,301,913 |
|
|
Former Senior Vice President, |
|
2015 |
|
$ |
377,669 |
|
— |
|
— |
|
— |
|
$ |
257,779 |
|
$ |
75,000 |
|
$ |
98,216 |
|
$ |
808,664 |
|
|
Chief Risk Officer |
|
2014 |
|
$ |
368,458 |
|
— |
|
— |
|
— |
|
$ |
193,805 |
|
$ |
746,000 |
|
$ |
96,044 |
|
$ |
1,404,307 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
G. Robert Fusco** |
|
2016 |
|
$ |
386,097 |
|
— |
|
— |
|
— |
|
$ |
284,905 |
|
$ |
617,000 |
|
$ |
84,665 |
|
$ |
1,372,667 |
|
|
Senior Vice President, |
|
2015 |
|
$ |
324,451 |
|
— |
|
— |
|
— |
|
$ |
200,800 |
|
$ |
37,000 |
|
$ |
101,453 |
|
$ |
663,704 |
|
|
CIO & Head of Enterprise Services |
|
2014 |
|
$ |
314,238 |
|
— |
|
— |
|
— |
|
$ |
157,964 |
|
$ |
1,000,000 |
|
$ |
104,113 |
|
$ |
1,576,315 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Paul B. Héroux |
|
2016 |
|
$ |
400,054 |
|
— |
|
— |
|
— |
|
$ |
296,968 |
|
$ |
574,000 |
|
$ |
110,357 |
|
$ |
1,381,379 |
|
|
Senior Vice President, |
|
2015 |
|
$ |
377,410 |
|
— |
|
— |
|
— |
|
$ |
255,053 |
|
— |
|
$ |
113,262 |
|
$ |
745,725 |
| |
|
Chief Banking Operations Officer |
|
2014 |
|
$ |
365,530 |
|
— |
|
— |
|
— |
|
$ |
183,747 |
|
$ |
1,270,000 |
|
$ |
120,314 |
|
$ |
1,939,591 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Phillip A. Scott |
|
2016 |
|
$ |
382,038 |
|
— |
|
— |
|
— |
|
$ |
272,474 |
|
$ |
283,000 |
|
$ |
48,972 |
|
$ |
986,484 |
|
|
Senior Vice President, |
|
2015 |
|
$ |
370,013 |
|
— |
|
— |
|
— |
|
$ |
231,060 |
|
$ |
126,000 |
|
$ |
58,547 |
|
$ |
785,620 |
|
|
Chief Capital Markets Officer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Footnotes for Summary Compensation Table for the Year Ending December 31, 2016
(a) Bonuses are not provided by the Bank. However, the non-equity incentive plan compensation in the above table may be considered by some to be deemed a “bonus”. For 2016, the reported amount here is the sum of: (i) the 2016 Total Communicated Award and (ii) the adjustment to the third Deferred Incentive Award installment from the 2013 Plan based on the results of the Performance Scorecard and (iii) the adjustment to the second Deferred Incentive Award installment from the 2014 Plan based on the results of the Performance Scorecard and (iv) the adjustment to the first Deferred Incentive Award installment from the 2015 Plan based on the results of the Performance Scorecard. (Section IV. A.2 of the Compensation Discussion and Analysis, at “Deferred Portion of Incentive Compensation Plan”, provides further details). For each NEO, the amounts awarded are:
J. González — (i) $753,741, (ii) $3,563, (iii) $17,694 and (iv) $6,405
K. Neylan — (i) $329,565, (ii) $7,215, (iii) $7,836 and (iv) $2,534
J. Edelen — (ii) $6,871, (iii) $7,466 and (iv) $ $2,302
G. Robert Fusco — (i) $271,024, (ii) $5,855, (iii) $6,065 and (iv) $1,961
P. Héroux — (i) $280,822, (ii) $6,810, (iii) $7,055 and (iv) $2,281
P. Scott — (i) $268,175, (iii) $2,062 and (iv) $2,237
(b) Change in Pension Value for the Pentegra Defined Benefit Plan for Financial Institutions based on actuarial assumptions:
J. González — $72,000
K. Neylan — $179,000
J. Edelen — $666,000
G. Robert Fusco — $218,000
P. Héroux — $185,000
P. Scott — $97,000
(c) Change in Pension Value for the Nonqualified Defined Benefit Portion of the Benefit Equalization Plan based on actuarial assumptions:
J. González — n/a
K. Neylan — $448,000
J. Edelen — $856,000
G. Robert Fusco — $399,000
P. Héroux — $389,000
P. Scott — $186,000
(d) For all NEOs, includes these items for all employees: amount of funds matched in connection with the Pentegra Defined Contribution Plan for Financial Institutions, payment of group term life insurance premium, payment of long term disability insurance premium and payment of employee assistance program premium. Cost of health insurance premiums, dental insurance premiums, and vision insurance premiums are shared between the Bank and employees:
(e) For J. González, P. Héroux, and K. Neylan, includes payment of this item: officer physical examination.
(f) For P. Héroux, includes payment of this item: payment of term life insurance premium.
(g) For P. Héroux, K. Neylan, and P. Scott, includes payment of this item: fitness center reimbursement.
(h) For P. Héroux and K. Neylan, includes payment for the replacement plan for the Nonqualified Defined Contribution Portion of the BEP.
(i) For G. Robert Fusco, $42,020, P. Héroux, $48,879 and J. Edelen, $49,070, includes payment for the replacement plan for the Nonqualified Profit Sharing Plan.
(j) For J. Edelen, $416,279, includes payment for severance.
(k) For J. Edelen, $38,800, includes payment for consulting agreement fees.
(l) For J. Edelen, $16,000, reflects value of outplacement services.
(m) Figures represent salaries approved by our Board of Directors for the year 2016.
(n) For each NEO, the total compensation excluding the Change in Pension Value for the Pentegra Defined Benefit Plan for Financial Institutions and the Nonqualified Defined Benefit Portion of the Benefit Equalization Plan based on actuarial assumptions are:
J. González — $1,619,135
K. Neylan — $880,908
J. Edelen — $779,913
G. Robert Fusco — $755,667
P. Héroux — $807,379
P. Scott — $703,484
*J. Edelen, who held the CRO position, left the Bank on July 8, 2016. His Board-approved annual salary was $387,111; the salary actually paid was $215,562.
** G. Robert Fusco returned as an NEO in 2016.
Footnotes for Summary Compensation Table for the Year Ending December 31, 2015
(1) Bonuses are not provided by the Bank. However, the non-equity incentive plan compensation in the above table may be considered by some to be deemed a “bonus”. For 2015, the reported amount here is the sum of: (i) the 2015 Total Communicated Award and (ii) the adjustment to the third Deferred Incentive Award installment from the 2012 Plan based on the results of the Performance Scorecard and (iii) the adjustment to the second Deferred Incentive Award installment from the 2013 Plan based on the results of the Performance Scorecard and (iv) the adjustment to the first Deferred Incentive Award installment from the 2014 Plan based on the results of the Performance Scorecard. (Section IV. A.2 of the Compensation Discussion and Analysis, at “Deferred Portion of Incentive Compensation Plan”, provides further details). For each NEO, the amounts awarded are:
J. González — (i) $655,765, (iii) $3,562 and (iv) $17,694
K. Neylan — (i) $259,433, (ii) $8,064, (iii) $7,215 and (iv) $7,836
J. Edelen — (i) $235,701, (ii) $7,741, (iii) $6,871 and (iv) $7,466
P. Héroux — (i) $233,576, (ii) $7,612, (iii) $6,810 and (iv) $7,055
P. Scott — (i) $228,998 and (iii) $2,062
(2) Change in Pension Value for the Pentegra Defined Benefit Plan for Financial Institutions based on actuarial assumptions:
J. González — $60,000
P. Héroux — ($33,000)
J. Edelen — $13,000
K. Neylan — $66,000
P. Scott — $43,000
(3) Change in Pension Value for the Nonqualified Defined Benefit Portion of the Benefit Equalization Plan based on actuarial assumptions:
J. González — n/a
P. Héroux — ($77,000)
K. Neylan — $126,000
J. Edelen — $62,000
P. Scott — $83,000
(4) For all NEOs, includes these items for all employees: amount of funds matched in connection with the Pentegra Defined Contribution Plan for Financial Institutions, payment of group term life insurance premium, payment of long term disability insurance premium and payment of employee assistance program premium. Cost of health insurance premiums, dental insurance premiums, and vision insurance premiums are shared between the Bank and employees.
(5) For J. Edelen and K. Neylan, includes payment of this item: officer physical examination.
(6) For P. Héroux, includes payment of this item: payment of term life insurance premium.
(7) For P. Héroux, K. Neylan and P. Scott, includes payment of this item: fitness center reimbursement.
(8) For P. Héroux and K. Neylan, includes payment for the replacement plan for the Nonqualified Defined Contribution Portion of the BEP.
(9) For P. Héroux, $42,788 and J. Edelen, $43,812, includes payment for the replacement plan for the Nonqualified Profit Sharing Plan.
(10) Payment for an additional cash incentive award due to the employee receiving a rating of “Exceed Requirements” or “Outstanding” on their performance review. These amounts are equal to 3% or 6% , respectively, of base salary as described in Section III.A.2 of the Compensation Discussion & Analysis as determined by the C&HRC for the President, and by the President with respect to all other NEOs:
J. González — $43,785
P. Héroux — $11,322
K. Neylan — $12,576
P. Scott — $11,100
(11) Figures represent salaries approved by our Board of Directors for the year 2015.
* J. González became CEO on April 2, 2014.
** P. Scott is a new NEO in 2015.
***G. Fusco was not an NEO in 2015. Therefore, footnotes regarding 2015 compensation were not included in that year’s report.
Footnotes for Summary Compensation Table for the Year Ending December 31, 2014
(A) Bonuses are not provided by the Bank. However, the non-equity incentive plan compensation in the above table may be considered by some to be deemed a “bonus”. For 2014, the reported amount here is the sum of: (i) the 2014 Total Communicated Award and (ii) the adjustment to the second Deferred Incentive Award installment from the 2012 Plan based on the results of the Performance Scorecard and (iii) the adjustment to the first Deferred Incentive Award installment from the 2013 Plan based on the results of the Performance Scorecard. [Section A.2 (2012 and 2013 Deferred Incentive Compensation Plan) of the Compensation Discussion and Analysis provides further details]. For each NEO, the amounts awarded are:
J. González — (i) $424,649, (ii) n/a and (iii) $3,563
K. Neylan — (i) $188,069, (ii) $8,064 and (iii) $7,215
J. Edelen — (i) $179,193, (ii) $7,741 and (iii) $6,871
G. Fusco — (i) 145,565, (ii) $6,544 and (iii) $5,855
P. Héroux — (i) $169,325, (ii) $7,612 and (iii) $6,810
(B) Change in Pension Value for the Pentegra Defined Benefit Plan for Financial Institutions based on actuarial assumptions:
J. González — $50,000
P. Héroux — $435,000
J. Edelen — $312,000
K. Neylan — $321,000
G. Fusco — $520,000
(C) Change in Pension Value for the Nonqualified Defined Benefit Portion of the Benefit Equalization Plan based on actuarial assumptions:
J. González — n/a
P. Héroux — $835,000
G.Fusco — $480,000
K. Neylan — $494,000
J. Edelen — $434,000
(D) For all NEOs, includes these items for all employees: amount of funds matched in connection with the Pentegra Defined Contribution Plan for Financial Institutions, payment of group term life insurance premium, payment of long term disability insurance premium and payment of employee assistance program premium. Cost of health insurance premiums, dental insurance premiums, and vision insurance premiums are shared between the Bank and employees.
(E) For P. Heroux, K. Neylan and G. Fusco, includes payment of this item: officer physical examination.
(F) For P. Héroux, includes payment of this item: payment of term life insurance premium.
(G) For P. Heroux and K. Neylan, includes payment of this item for all employees: fitness center reimbursement.
(H) For P. Heroux and K. Neylan, includes payment for the replacement plan for the Nonqualified Defined Contribution Portion of the BEP.
(I) For P. Héroux, $41,397, G. Fusco, $35,588, and J. Edelen, $41,741, includes payment for the replacement plan for the Nonqualified Profit Sharing Plan.
(J) Payment for an additional award due to the employee receiving a rating of “Exceed Requirements” or “Outstanding” on their performance review. These amounts are based upon a 3% or 6% payment as found in the Section A.2 of the CD&A as determined by the C&HRC for the President and by the President with respect to all other NEOs:
J. González — $42,000
P. Héroux — $10,966
K. Neylan — $12,180
G. Fusco — $9,427
(K) Figures represent salaries approved by our Board of Directors for the year 2014.
*J. González became CEO in April 2, 2014.
***** G. Fusco is a new NEO in 2014.
The following table sets forth information regarding all incentive plan award opportunities made available to NEOs for the calendar year 2016 (in whole dollars):
Grants of Plan-Based Awards for Calendar Year 2016
Grants of Plan-Based Awards for Fiscal Year 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other |
|
All Other |
|
Exercise |
|
Grant |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock |
|
Option |
|
or |
|
Date |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards: |
|
Awards: |
|
Base |
|
Fair Value |
| |||
|
|
|
|
|
Estimated Future Payouts |
|
Estimated Future Payouts |
|
Number of |
|
Number of |
|
Price of |
|
of Stock |
| |||||||||||
|
|
|
|
|
Under Non-Equity Incentive |
|
Under Equity Incentive |
|
Shares of |
|
Securities |
|
Option |
|
and Option |
| |||||||||||
|
|
|
Grant |
|
Plan Awards (2) (3) |
|
Plan Awards |
|
Stock |
|
Underlying |
|
Awards |
|
Awards |
| |||||||||||
|
Name |
|
Date (1) |
|
Threshold |
|
Target |
|
Maximum |
|
Threshold |
|
Target |
|
Maximum |
|
or Units |
|
Options |
|
($/Sh) |
|
($/Sh) |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
|
José R. González |
|
1/27/2016 |
|
$ |
415,684 |
|
$ |
593,834 |
|
$ |
771,984 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
|
Kevin M. Neylan |
|
1/27/2016 |
|
$ |
150,238 |
|
$ |
234,747 |
|
$ |
340,382 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
|
John F. Edelen |
|
1/27/2016 |
|
$ |
123,876 |
|
$ |
193,556 |
|
$ |
280,656 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
|
G. Robert Fusco |
|
1/27/2016 |
|
$ |
123,551 |
|
$ |
193,049 |
|
$ |
279,920 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
|
Paul B. Héroux |
|
1/27/2016 |
|
$ |
128,018 |
|
$ |
200,027 |
|
$ |
290,039 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
|
Philip A. Scott |
|
1/27/2016 |
|
$ |
122,252 |
|
$ |
191,019 |
|
$ |
276,978 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(1) On this date, the Board of Directors’ C&HR Committee approved the 2016 Incentive Plan. Approval of the ICP does not mean a payout is guaranteed.
(2) Figures represent an assumed rating attained by the NEO of at least a specified threshold rating within the “Meets Requirements” category for the NEO with respect to their individual performance.
(3) Amounts represent potential awards under the 2016 Incentive Plan.
Incentive Compensation Plan Opportunity Table for Calendar Year 2016
The table below provides information regarding the total incentive compensation amount awarded to NEOs based on Bankwide goal results (in dollars):
|
|
|
|
|
Bankwide Component |
|
Individual |
|
|
|
|
|
|
|
|
| |||||||||||||
|
|
|
|
|
(90% of Opportunity) |
|
Component |
|
|
|
|
|
|
|
|
| |||||||||||||
|
|
|
2016 |
|
(1) |
|
(10% of |
|
Actual Result |
| |||||||||||||||||||
|
|
|
Annual Salary |
|
Threshold |
|
Target |
|
Maximum |
|
Opportunity) |
|
(2) |
| |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
Current |
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
Individual |
|
Bankwide |
|
Individual |
|
Communicated |
|
Communicated |
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
Performance |
|
Component |
|
Component |
|
Award |
|
Incentive Award |
| |||||||||
|
|
|
|
|
Bank Performance |
|
at Target |
|
(3) |
|
(4) |
|
(5) |
|
(6) |
| |||||||||||||
|
President |
|
|
|
50% |
|
75% |
|
100% |
|
75% |
|
|
|
|
|
|
|
|
| |||||||||
|
José R. González |
|
$ |
791,779 |
|
$ |
356,301 |
|
$ |
534,451 |
|
$ |
712,601 |
|
$ |
59,383 |
|
$ |
694,358 |
|
$ |
59,383 |
|
$ |
753,741 |
|
$ |
376,871 |
|
|
President & Chief Executive Officer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
|
|
|
|
|
30% |
|
50% |
|
75% |
|
50% |
|
|
|
|
|
|
|
|
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
|
Other NEOs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
|
Kevin M. Neylan |
|
$ |
469,492 |
|
$ |
126,763 |
|
$ |
211,272 |
|
$ |
316,907 |
|
$ |
23,475 |
|
$ |
306,090 |
|
$ |
23,475 |
|
$ |
329,565 |
|
$ |
164,782 |
|
|
Senior Vice President, Chief Financial Officer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
|
John F. Edelen* |
|
$ |
215,562 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
| ||||||||
|
Former Senior Vice President, Chief Risk Officer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
|
G. Robert Fusco |
|
$ |
386,097 |
|
$ |
104,246 |
|
$ |
173,744 |
|
$ |
260,615 |
|
$ |
19,305 |
|
$ |
251,719 |
|
$ |
19,305 |
|
$ |
271,024 |
|
$ |
135,512 |
|
|
Senior Vice President, CIO and Head of Enterprise Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
|
Paul B. Héroux |
|
$ |
400,054 |
|
$ |
108,015 |
|
$ |
180,024 |
|
$ |
270,036 |
|
$ |
20,003 |
|
$ |
260,819 |
|
$ |
20,003 |
|
$ |
280,822 |
|
$ |
140,411 |
|
|
Senior Vice President, Chief Banking Operations Officer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
|
Philip A. Scott |
|
$ |
382,038 |
|
$ |
103,150 |
|
$ |
171,917 |
|
$ |
257,876 |
|
$ |
19,102 |
|
$ |
249,073 |
|
$ |
19,102 |
|
$ |
268,175 |
|
$ |
134,088 |
|
|
Senior Vice President & Chief Capital Markets Officer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
(1) Each NEO’s Incentive Compensation is made up of two components: Bankwide goals (90%) and Individual Performance (10%).
(2) Overall weighted average result for Bankwide goals was 89.8% above target; for the Risk Management Group it was 89.8% above target. Payments are interpolated between the target and maximum amounts.
(3) The Bankwide component is calculated as follows: Annual Salary multiplied by Bankwide component Percentage multiplied by Target percentage multiplied by (1 plus the overall weighted average results [89.8% as mentioned in note 2 above]).
(4) Individual component is calculated as follows: Annual Salary multiplied by Individual Component multiplied by Target percentage. (When participants receive an Individual Component award, the award amount is at Target.)
(5) There may be small differences in the calculated payout amounts due to rounding.
(6) The Bank established a deferred compensation component for the Incentive Compensation Plan starting in 2012. The amount represented here is the Current Communicated Award of Incentive Compensation. The Current Communicated Incentive Award is the actual payout received by the NEO in 2017 for performance in 2016. [Refer to Section IV.A.2 (Required Deferral of IC Plan Awards for MC Members) of this Compensation Discussion and Analysis for further details].
* John Edelen, who held the CRO position, left the Bank on July 8, 2016.
Employment Arrangements
We are an “at will” employer and do not provide written employment agreements to any of its employees, except that we do provide Executive Change in Control Agreements to certain senior executives (refer to Section IV.D of the Compensation Discussion and Analysis, “Severance Plan and Executive Change in Control Agreements”, for further details). However, employees, including NEOs, receive: (a) cash compensation (i.e., base salary, and, for exempt employees, “variable” or “at risk” short-term incentive compensation); (b) retirement-related benefits (i.e., the Qualified Defined Benefit Plan; the Qualified Defined Contribution Plan; and the Nonqualified Defined Benefit Portion of the Benefit Equalization Plan (“DB BEP”)) and (c) health and welfare programs and other benefits. Other benefits, which are available to all regular employees, include medical, dental, vision care, life, business travel accident, and short and long term disability insurance, flexible spending accounts, an employee assistance program, educational development assistance, voluntary life insurance, long term care insurance, fitness club reimbursement and severance pay.
An additional benefit offered to all officers who are at Vice President rank or above, is a physical examination every 18 months.
The annual base salaries for the NEOs are as follows (in whole dollars):
|
|
|
2017 |
|
2016 |
| ||
|
|
|
(1) |
|
(2) |
| ||
|
|
|
|
|
|
| ||
|
José R. González |
|
$ |
875,000 |
|
$ |
791,779 |
|
|
Kevin M. Neylan |
|
$ |
484,751 |
|
$ |
469,492 |
|
|
John F. Edelen* |
|
— |
|
$ |
387,111 |
| |
|
G. Robert Fusco |
|
$ |
398,645 |
|
$ |
386,097 |
|
|
Paul B. Héroux |
|
$ |
410,055 |
|
$ |
400,054 |
|
|
Philip A. Scott |
|
$ |
394,454 |
|
$ |
382,038 |
|
The 2017 increases in the base salaries of the NEOs from 2016 were based on their 2016 performance.
(1) Figures represent salaries approved by our Board of Directors for the year 2017.
(2) Figures represent salaries approved by our Board of Directors for the year 2016.
* John Edelen, who held the CRO position, left the Bank on July 8, 2016.
A performance-based merit increase program exists for all employees, including NEOs that have a direct impact on base pay. Generally, employees receive merit increases on an annual basis. Such merit increases are based upon the attainment of a performance rating of “Outstanding,” “Exceeds Requirements,” or “Meets Requirements” achieved on individual performance evaluations. Merit guidelines are determined each year and distributed to managers. These guidelines establish the maximum merit increase percentage permissible for employee performance during that year. In November of 2016, the C&HR Committee determined that merit-related officer base pay increases for 2017 would be 2.50% for officers rated ‘Meets Requirements’; 3.25% for officers rated ‘Exceeds Requirements’; and 4.25% for officers rated ‘Outstanding’ for their performance in 2016.
Short-Term Incentive Compensation Plan (“Incentive Plan”)
Refer to section IV.A.2 (Cash Compensation; Incentive Plan —Deferred Portion of Incentive Compensation Plan) of this Compensation Discussion and Analysis for further details.
Qualified Defined Contribution Plan
Employees who have met the eligibility requirements contained in the Pentegra Qualified Defined Contribution Plan for Financial Institutions (“DC Plan”) can choose to contribute to the DC Plan, a retirement savings plan qualified under the IRC. Employees are eligible for membership in the DC Plan on the first day of the month following three full calendar months of employment. Refer to section IV.B.3 (DC Plan) of this Compensation Discussion and Analysis for further details.
OUTSTANDING EQUITY AWARDS AT CALENDAR YEAR-END
AND OPTION EXERCISES AND STOCK VESTED
The tables disclosing (i) outstanding option and stock awards and (ii) exercises of stock options and vesting of restricted stock for NEOs are omitted because all employees are prohibited by law from holding capital stock issued by a Federal Home Loan Bank. As such, these tables are not applicable.
PENSION BENEFITS
The table below shows the present value of accumulated benefits payable to each of the NEO, the number of years of service credited to each such person, and payments during the last Calendar year (if any) to each such person, under the Pentegra Defined Benefit Plan for Financial Institutions and the Nonqualified Defined Benefit Portion of the Benefit Equalization Plan (amounts in whole dollars) (refer to sections IV.B.1and 2 of the Compensation Discussion and Analysis for further details about these plans):
|
|
|
Pension Benefits |
| ||||||||
|
|
|
|
|
Number of |
|
Present Value |
|
Payment During |
| ||
|
|
|
Plan |
|
Years Credited |
|
of Accumulated |
|
Last |
| ||
|
Name |
|
Name |
|
Service [1] |
|
Benefit [2] |
|
Fiscal Year |
| ||
|
|
|
|
|
|
|
|
|
|
| ||
|
José R. González |
|
Pentegra Defined Benefit Plan for Financial Institutions Qualified Plan |
|
2.83 |
|
$ |
182,000 |
|
— |
| |
|
|
|
Nonqualified Defined Benefit Portion of the Benefit Equalization Plan |
|
— |
|
— |
|
— |
| ||
|
|
|
|
|
|
|
|
|
|
| ||
|
Kevin M. Neylan |
|
Pentegra Defined Benefit Plan for Financial Institutions Qualified Plan |
|
15.33 |
|
$ |
1,279,000 |
|
— |
| |
|
|
|
Nonqualified Defined Benefit Portion of the Benefit Equalization Plan |
|
15.33 |
|
$ |
1,926,000 |
|
— |
| |
|
|
|
|
|
|
|
|
|
|
| ||
|
John F. Edelen* |
|
Pentegra Defined Benefit Plan for Financial Institutions Qualified Plan |
|
18.83 |
|
$ |
1,627,000 |
|
$ |
19,000 |
|
|
|
|
Nonqualified Defined Benefit Portion of the Benefit Equalization Plan |
|
18.83 |
|
$ |
1,914,000 |
|
$ |
29,000 |
|
|
|
|
|
|
|
|
|
|
|
| ||
|
G. Robert Fusco |
|
Pentegra Defined Benefit Plan for Financial Institutions Qualified Plan |
|
29.42 |
|
$ |
2,071,000 |
|
— |
| |
|
|
|
Nonqualified Defined Benefit Portion of the Benefit Equalization Plan |
|
29.42 |
|
$ |
1,871,000 |
|
— |
| |
|
|
|
|
|
|
|
|
|
|
| ||
|
Paul B. Héroux |
|
Pentegra Defined Benefit Plan for Financial Institutions Qualified Plan |
|
30.00 |
|
$ |
2,065,000 |
|
— |
| |
|
|
|
Nonqualified Defined Benefit Portion of the Benefit Equalization Plan |
|
30.00 |
|
$ |
2,738,000 |
|
— |
| |
|
|
|
|
|
|
|
|
|
|
| ||
|
Philip A. Scott |
|
Pentegra Defined Benefit Plan for Financial Institutions Qualified Plan |
|
10.00 |
|
$ |
577,000 |
|
— |
| |
|
|
|
Nonqualified Defined Benefit Portion of the Benefit Equalization Plan |
|
10.00 |
|
$ |
379,000 |
|
— |
| |
(1) Number of years of credited service pertains to eligibility/participation in the qualified plan. Years of credited service for the Nonqualified Defined Benefit Portion of the Benefit Equalization Plan are the same as for the Pentegra Defined Benefit Plan for Financial Institutions Qualified Plan.
(2) As of 12/31/16.
*John Edelen, who held the CRO position, left the Bank on July 8, 2016 and elected to begin receiving a distribution from the qualified defined benefit plan and the nonqualified defined benefit plan in 2016. The amounts listed under “Payment During Last Fiscal Year” is the total amount of distribution Mr. Edelen received in 2016.
DISCLOSURE REGARDING TERMINATION AND CHANGE IN CONTROL PROVISIONS
Severance Plan
The Bank has a formal Board-approved Severance Plan available to all Bank employees who work twenty or more hours a week and have at least one year of employment. (Refer to Section IV.D.1 of the Compensation Discussion and Analysis, “Severance Plan”, for further details.)
The following table describes estimated severance payout information under the Severance Plan for each NEO assuming that severance would have occurred on December 31, 2016 for reasons other than a change in control (for example, a reduction in force) (amounts in whole dollars):
|
|
|
Number of Weeks Used to |
|
2016 Annual |
|
Severance Amount |
| ||
|
|
|
Calculate Severance Amount |
|
Base Salary |
|
Based on Years of Service* |
| ||
|
|
|
|
|
|
|
|
| ||
|
José R. González |
|
12 |
|
$ |
791,779 |
|
$ |
182,718 |
|
|
Kevin M. Neylan |
|
36 |
|
$ |
469,492 |
|
$ |
325,033 |
|
|
John F. Edelen** |
|
36 |
|
$ |
387,111 |
|
$ |
268,000 |
|
|
G. Robert Fusco |
|
36 |
|
$ |
386,097 |
|
$ |
267,298 |
|
|
Paul B. Héroux |
|
36 |
|
$ |
400,054 |
|
$ |
276,960 |
|
|
Philip A. Scott |
|
36 |
|
$ |
382,038 |
|
$ |
264,488 |
|
* Additionally, under the Bank’s Severance Plan, the Bank, in its discretion, may provide a payment to be used in connection with health insurance replacement costs.
**John Edelen who held the CRO position, left the Bank on July 8, 2016. His total severance amount paid included 52 weeks of salary ($387,111) and health insurance replacement costs ($29,168). Refer to section IV.D.1 of this Compensation Discussion and Analysis, “Severance Plan”, for further details.
Executive Change in Control Agreements
Executive Change in Control Agreements (“CIC Agreements”) were executed in January 2016 between the FHLBNY and each of the members of the Management Committee, including the CEO and the other Named Executive Officers, which, as more fully described below, would provide the executive with certain severance payments and benefits in the event employment is terminated in connection with a “change in control” of FHLBNY.
The following table describes estimated severance and benefit payout information under the CIC Agreements for each NEO assuming that a “change in control” would have occurred on December 31, 2016. (Refer to section IV.D.2 of the Compensation Discussion and Analysis, “Executive Change in Control Agreements”, for further details).
|
Provision |
|
José González |
|
Kevin Neylan |
|
John Edelen* |
|
Paul Héroux |
|
Phillip Scott |
|
Gaetano Fusco |
| ||||||
|
Amount equal to the executive’s average gross base salary for the three years prior to his employment termination date (with any partial years being annualized), multiplied by 2.99 for Mr. González, and 1.5 for Messrs. Neylan, Edelen, Héroux, Scott, and Fusco |
|
$ |
2,211,072 |
|
$ |
646,265 |
|
$ |
588,484 |
|
$ |
570,922 |
|
$ |
537,625 |
|
$ |
531,075 |
|
|
Amount equal to the executive’s full target incentive payout estimate, or the actual amount of the payment to the executive under the FHLBNY’s Incentive Compensation Plan, if lower, in either case, in respect of the year prior to the year of the employment termination date, multiplied by 2.99 for Mr. González, and 1.5 for Messrs. Neylan, Edelen, Héroux , Scott, and Fusco |
|
$ |
1,960,737 |
|
$ |
389,150 |
|
$ |
353,551 |
|
$ |
350,364 |
|
$ |
343,497 |
|
$ |
301,201 |
|
|
Amount equal to the cost of health, dental and vision care benefits that FHLBNY actually incurred by FHLBNY on behalf of the Executive and his dependents, if any, during the twelve (12) months prior to the executive’s employment termination date |
|
$ |
25,751 |
|
$ |
29,168 |
|
$ |
29,168 |
|
$ |
29,168 |
|
$ |
29,052 |
|
$ |
19,333 |
|
|
A payment in the amount of $15,000 which may be used by the Executive for job search-related expenses |
|
$ |
15,000 |
|
$ |
15,000 |
|
$ |
15,000 |
|
$ |
15,000 |
|
$ |
15,000 |
|
$ |
15,000 |
|
|
A payment in the amount of $15,000 which may be used by the Executive for accounting, actuarial, financial, legal and/or tax services |
|
$ |
15,000 |
|
$ |
15,000 |
|
$ |
15,000 |
|
$ |
15,000 |
|
$ |
15,000 |
|
$ |
15,000 |
|
|
Additional age and service credits under the FHLBNY non-qualified Benefit Equalization Plan (“BEP”) of three (3) years for Mr. González and one and one-half (1.5) years for Messrs. Neylan, Edelen, Héroux, Scott and Fusco |
|
$ |
919,913 |
|
$ |
341,033 |
|
$ |
255,281 |
|
$ |
389,719 |
|
$ |
147,444 |
|
$ |
228,318 |
|
|
Additional age and service credits under the FHLBNY qualified defined contribution plan of three (3) years for Mr. González and one and one-half (1.5) years for Messrs. Neylan, Edelen, Héroux, Scott, and Fusco |
|
$ |
47,700 |
|
$ |
23,850 |
|
$ |
23,850 |
|
$ |
23,850 |
|
$ |
23,850 |
|
$ |
23,850 |
|
|
Total value of contract |
|
$ |
5,195,173 |
|
$ |
1,459,466 |
|
$ |
1,280,334 |
|
$ |
1,394,023 |
|
$ |
1,111,468 |
|
$ |
1,133,777 |
|
Additionally, in the event of a change in control, the executive will be paid deferred incentive compensation otherwise owed under the terms of the deferred portion of the Bank’s Incentive Compensation Plan (as described at Section IV.A.2 of this Compensation Discussion and Analysis, “Deferred Portion of Incentive Compensation Plan”).
*John Edelen, who held the CRO position, left the Bank on July 8, 2016. The numbers reflect what he would have received had he remained employed through December 31, 2016.
DIRECTOR COMPENSATION
The following table summarizes the compensation paid by us to each of our Directors for the year ended December 31, 2016 (whole dollars):
|
|
|
|
|
|
|
|
|
|
|
Change in Pension |
|
|
|
|
| |||||||
|
|
|
|
|
|
|
|
|
|
|
Value and |
|
|
|
|
| |||||||
|
|
|
Fees |
|
|
|
|
|
Non-Equity |
|
Nonqualified |
|
All |
|
|
| |||||||
|
|
|
Earned or |
|
Stock |
|
Option |
|
Incentive Plan |
|
Deferred Compensation |
|
Other |
|
|
| |||||||
|
Name |
|
Paid in Cash |
|
Awards |
|
Awards |
|
Compensation |
|
Earnings |
|
Compensation |
|
Total |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
Michael M. Horn |
|
$ |
130,000 |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
130,000 |
|
|
James W. Fulmer |
|
105,000 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
105,000 |
| |||||||
|
John R. Buran |
|
105,000 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
105,000 |
| |||||||
|
Kevin Cummings |
|
95,000 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
95,000 |
| |||||||
|
Anne Evans Estabrook |
|
95,000 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
95,000 |
| |||||||
|
Jay M. Ford |
|
105,000 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
105,000 |
| |||||||
|
Caren S. Franzini |
|
95,000 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
95,000 |
| |||||||
|
Thomas L. Hoy |
|
105,000 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
105,000 |
| |||||||
|
Gerald H. Lipkin |
|
95,000 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
95,000 |
| |||||||
|
Christopher P. Martin |
|
95,000 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
95,000 |
| |||||||
|
Richard S. Mroz (a) |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
| |||||||
|
David J. Nasca |
|
95,000 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
95,000 |
| |||||||
|
Vincent F. Palagiano |
|
95,000 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
95,000 |
| |||||||
|
C. Cathleen Raffaeli |
|
105,000 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
105,000 |
| |||||||
|
Monte N. Redman |
|
95,000 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
95,000 |
| |||||||
|
Edwin C. Reed |
|
105,000 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
105,000 |
| |||||||
|
DeForest B. Soaries, Jr. |
|
95,000 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
95,000 |
| |||||||
|
Larry E. Thompson |
|
95,000 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
95,000 |
| |||||||
|
Carlos J. Vázquez |
|
91,875 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
91,875 |
| |||||||
|
Total Fees |
|
$ |
1,801,875 |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
1,801,875 |
|
(a) Director Mroz elected to not receive compensation for his Board service in 2016.
Director Compensation Policy: Director Fees
The Board establishes on an annual basis a Director Compensation Policy governing compensation for Board meeting attendance. This policy is established in accordance with the provisions of the Federal Home Loan Bank Act (“Bank Act”) and related Federal Housing Finance Agency. In sum, the applicable statutes and regulations allow each FHLBank to pay its Directors reasonable compensation and expenses, subject to the authority of the Director of the Finance Agency to object to, and to prohibit prospectively, compensation and/or expenses that the Director of the Finance Agency determines are not reasonable. The Director Compensation Policy provides that directors shall be paid a meeting fee for their attendance at meetings of the Board of Directors up to a maximum annual compensation amount as set forth in the Director Compensation Policy.
With respect to recent director compensation developments, the Board in November 2013 reviewed the matter of director compensation, and took into consideration recommendations contained in a director compensation survey performed earlier in 2013 by McLagan. The Board determined that a modest adjustment to Director compensation limits in 2014 in the amount of $5,000 per Director was merited due to the FHLBNY’s performance over the past few years, and the fact that there had not been an adjustment to Director compensation since the beginning of 2011. The Board noted that the increases were within the low to middle end of the ranges suggested by McLagan’s study, and that the comparators used in the study appeared to be appropriate. In November 2014, the Board determined that this director compensation structure continued to remain appropriate and did not require adjustment for 2015.
In September 2015, the Board again reviewed the matter of director compensation, and took into consideration recommendations contained in a director compensation survey performed earlier in the year by McLagan. The Board determined that an adjustment to Director compensation limits in 2016 in the amount of $15,000 per Director was appropriate given the FHLBNY’s continued performance. The Board noted that the increases were generally at the low end of the ranges suggested by McLagan’s study, and that the comparators used in the study appeared appropriate. In September 2016, the Board determined that the 2016 director compensation structure continued to remain appropriate and did not require adjustment for 2017.
Below are tables summarizing the Director fees and the annual compensation limits that were set by the Board for 2016. Following these tables are additional tables summarizing the Director fees and the annual compensation limits set by the Board for 2017.
Director Fees — 2016 (in whole dollars)
|
Position |
|
Fees For Each Board |
| |
|
Chairman |
|
$ |
15,000 |
|
|
Vice Chairman |
|
$ |
13,125 |
|
|
Committee Chair (b) |
|
$ |
13,125 |
|
|
All Other Directors |
|
$ |
11,875 |
|
Director Annual Compensation Limits — 2016 (in whole dollars)
|
Position |
|
Annual Limit |
| |
|
Chairman |
|
$ |
120,000 |
(c) |
|
Vice Chairman |
|
$ |
105,000 |
|
|
Committee Chair |
|
$ |
105,000 |
|
|
All Other Directors |
|
$ |
95,000 |
|
Director Fees — 2017 (in whole dollars)
|
Position |
|
Fees For Each Board |
| |
|
Chairman |
|
$ |
15,000 |
|
|
Vice Chairman |
|
$ |
13,125 |
|
|
Committee Chair (b) |
|
$ |
13,125 |
|
|
All Other Directors |
|
$ |
11,875 |
|
Director Annual Compensation Limits — 2017 (in whole dollars)
|
Position |
|
Annual Limit |
| |
|
Chairman |
|
$ |
120,000 |
(c) |
|
Vice Chairman |
|
$ |
105,000 |
|
|
Committee Chair |
|
$ |
105,000 |
|
|
All Other Directors |
|
$ |
95,000 |
|
(a) The numbers in this column represent payments for each of eight meetings attended.
(b) A Committee Chair does not receive any additional payment if he or she serves as the Chair of more than one Board Committee. In addition, the Board Chair and Board Vice Chair do not receive any additional compensation if they serve as a Chair of one or more Board Committees.
(c) The Chairman also receives an additional fee of $10,000 (payable in the amount of $2,500 per quarter) for service as the Chair of the Council of Federal Home Loan Banks.
Director Compensation Policy: Director Expenses
The Director Compensation Policy also authorizes us to reimburse Directors for necessary and reasonable travel, subsistence, and other related expenses incurred in connection with the performance of their official duties. For expense reimbursement purposes, Directors’ official duties can include:
· Meetings of the Board and Board Committees
· Meetings requested by the Federal Housing Finance Agency
· Meetings of Federal Home Loan Bank System committees
· Federal Home Loan Bank System director orientation meetings
· Meetings of the Council of Federal Home Loan Banks and Council committees
· Attendance at other events on behalf of the Bank with prior approval of the Board of Directors
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
FHLBNY stock can only be held by member financial institutions. No person, including directors and executive officers of the FHLBNY, may own our capital stock. As such, we do not offer any compensation plan to any individuals under which equity securities of the Bank are authorized for issuance. The following tables provide information about those members who were beneficial owners of more than 5% of our outstanding capital stock (shares in thousands) as of February 28, 2017 and December 31, 2016:
|
|
|
|
|
Number |
|
Percent |
|
|
|
|
February 28, 2017 |
|
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 |
|
15,641 |
|
25.75 |
% |
|
Metropolitan Life Insurance Company |
|
200 Park Avenue, New York, NY 10166 |
|
7,481 |
|
12.32 |
|
|
New York Community Bancorp, Inc.: |
|
|
|
|
|
|
|
|
New York Community Bank |
|
615 Merrick Avenue, Westbury, NY 11590 |
|
5,656 |
|
9.31 |
|
|
New York Commercial Bank |
|
615 Merrick Avenue, Westbury, NY 11590 |
|
159 |
|
0.26 |
|
|
|
|
|
|
5,815 |
|
9.57 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,937 |
|
47.64 |
% |
|
|
|
|
|
Number |
|
Percent |
|
|
|
|
December 31, 2016 |
|
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 |
|
17,666 |
|
27.87 |
% |
|
Metropolitan Life Insurance Company |
|
200 Park Avenue, New York, NY 10166 |
|
7,481 |
|
11.80 |
|
|
New York Community Bancorp, Inc.: |
|
|
|
|
|
|
|
|
New York Community Bank |
|
615 Merrick Avenue, Westbury, NY 11590 |
|
5,745 |
|
9.06 |
|
|
New York Commercial Bank |
|
615 Merrick Avenue, Westbury, NY 11590 |
|
164 |
|
0.26 |
|
|
|
|
|
|
5,909 |
|
9.32 |
|
|
HSBC Bank USA, National Association |
|
1800 Tysons Boulevard, McLean, VA 22102 |
|
3,376 |
|
5.33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,432 |
|
54.32 |
% |
|
|
|
|
|
|
|
|
|
Number |
|
Percent |
|
|
|
|
|
|
|
|
|
|
of Shares |
|
of Total |
|
|
Name |
|
Director |
|
City |
|
State |
|
Owned |
|
Capital Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investors Bank |
|
Kevin Cummings |
|
Short Hills |
|
NJ |
|
2,378 |
|
3.75 |
% |
|
Astoria Bank |
|
Monte N. Redman |
|
Lake Success |
|
NY |
|
1,248 |
|
1.97 |
|
|
Valley National Bank |
|
Gerald H. Lipkin |
|
Wayne |
|
NJ |
|
1,014 |
|
1.60 |
|
|
The Provident Bank |
|
Christopher P. Martin |
|
Iselin |
|
NJ |
|
753 |
|
1.19 |
|
|
Flushing Bank |
|
John R. Buran |
|
Uniondale |
|
NY |
|
592 |
|
0.93 |
|
|
The Dime Community Bank |
|
Vincent F. Palagiano |
|
Brooklyn |
|
NY |
|
444 |
|
0.70 |
|
|
Banco Popular de Puerto Rico |
|
Carlos J. Vazquez |
|
San Juan |
|
PR |
|
323 |
|
0.51 |
|
|
Banco Popular North America |
|
Carlos J. Vazquez |
|
San Juan |
|
PR |
|
257 |
|
0.41 |
|
|
Glens Falls National Bank & Trust Company |
|
Thomas L. Hoy |
|
Glens Falls |
|
NY |
|
85 |
|
0.13 |
|
|
The Bank of Castile |
|
James W. Fulmer |
|
Batavia |
|
NY |
|
72 |
|
0.11 |
|
|
Crest Savings Bank |
|
Jay M. Ford |
|
Wildwood |
|
NJ |
|
28 |
|
0.04 |
|
|
Evans Bank, N.A |
|
David J. Nasca |
|
Hamburg |
|
NY |
|
22 |
|
0.03 |
|
|
|
|
|
|
|
|
|
|
7,216 |
|
11.37 |
% |
All capital stock held by each member of the FHLBNY is by law automatically pledged to the FHLBNY as additional collateral for all indebtedness of each such member to the FHLBNY.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
We have a cooperative structure and our customers own the entity’s capital stock. Capital stock ownership is a prerequisite to the transaction by members of any business with us. The majority of the members of our Board of Directors are Member Directors (i.e., directors elected by our members who are officers or directors of our members). The remaining members of the Board are Independent Directors (i.e., directors elected by our members who are not officers or directors of our members). We conduct our advances and mortgage loan business almost exclusively with members. Grants under the AHP and AHP advances are also made in partnership or in connection with our members. Therefore, in the normal course of business, we may extend credit to members whose officers or directors may serve as our directors. In addition, we may also extend credit and offer services and AHP benefits to members who own more than 5% of our stock. All products, services and AHP benefits extended by us to such members are provided at market terms and conditions that are no more favorable to them than the terms and conditions of comparable transactions with other members. Under the provisions of Section 7(j) of the FHLBank Act (12 U.S.C. § 1427(j)), our Board is required to administer our business with our members without discrimination in favor of or against any member. For more information about transactions with stockholders, see Note 19. Related Party Transactions, in the audited financial statements in this Form 10-K.
The review and approval of transactions with related persons is governed by the Bank’s written Code of Ethics and Business Conduct (“Code”), which is posted on the Corporate Governance Section of the FHLBNY’s website at http://www.fhlbny.com. Under the Code, each director is required to disclose to the Board of Directors all actual or apparent conflicts of interest, including any personal financial interest that he or she has, as well as such interests of any immediate family member or business associate of the director known to the director, in any matter to be considered by the Board of Directors or in which another person does, or proposes to do, business with the Bank. Following such disclosure, the Board of Directors is empowered to determine whether an actual conflict exists. In the event the Board of Directors determines the existence of a conflict with respect to any matter, the affected director must recuse himself or herself from all further considerations relating to that matter. Issues under the Code regarding conflicts of interests involving directors are administered by the Board or, in the Board’s discretion, the Board’s Corporate Governance Committee.
The Code also provides that, subject to certain limited exceptions for, among other items, interests arising through ownership of mutual funds and certain financial interests acquired prior to employment by the Bank, no Bank employee may have a financial interest in any Bank member. Extensions of credit from members to employees are acceptable that are entered into or established in the ordinary, normal course of business, so long as the terms are no more favorable than would be available in like circumstances to persons who are not employees of the Bank. Employees provide disclosures regarding financial interests and financial relationships on a periodic basis. These disclosures are provided to and reviewed by the Director of Human Resources, who is (along with the Chief Audit Officer) one of the Bank’s two Ethics Officers; the Ethics Officers have responsibility for enforcing the Code of Ethics with respect to employees on a day-to-day basis.
Director Independence
In General
During the period from January 1, 2016 through and including the date of this annual report on Form 10-K, the Bank had a total of 20 directors serving on its Board, 12 of whom were Member Directors (i.e., directors elected by the Bank’s members who are officers or directors of Bank members) and 8 of whom were Independent Directors (i.e., directors elected by the Bank’s members who are not officers or directors of Bank members). All of the Bank’s directors were independent of management from the standpoint that they were not, and could not serve as, Bank employees or officers. Also, all individuals, including the Bank’s directors, are prohibited by law from personally owning stock or stock options in the Bank. In addition, the Bank is required to determine whether its directors are independent under two distinct director independence standards. First, Federal Housing Finance Agency (“Finance Agency”) regulations establish independence criteria for directors who serve as members of the Audit Committee of the Board of Directors. Second, the Securities and Exchange Commission’s (“SEC”) regulations require that the Bank’s Board of Directors apply the independence criteria of a national securities exchange or automated quotation system in assessing the independence of its directors.
Finance Agency Regulations Regarding Independence
The Finance Agency director independence standards prohibit individuals from serving as members of the Bank’s Audit Committee if they have one or more disqualifying relationships with the Bank or its management that would interfere with the exercise of that individual’s independent judgment. Under Finance Agency regulations, disqualifying relationships can include, but are not limited to: employment with the Bank at any time during the last five years; acceptance of compensation from the Bank other than for service as a director; being a consultant, advisor, promoter, underwriter or legal counsel for the Bank at any time within the last five years; and being an immediate family member of an individual who is or who has been within the past five years, a Bank executive officer. The Board of Directors has assessed the independence of all directors under the Finance Agency’s independence standards, regardless of whether they serve on the Audit Committee. From January 1, 2016 through and including the date of this Annual Report on Form 10-K, all of the persons who served as a director of the Bank, including all directors who served as members of the Audit Committee, were independent under these criteria.
NYSE Rules Regarding Independence
In addition, pursuant to SEC regulations, the Board has adopted the independence standards of the New York Stock Exchange (“NYSE”) to determine which of its directors are independent and which members of its Audit Committee are not independent.
After applying the NYSE independence standards, the Board has determined that all of the Bank’s Independent Directors who served at any time during the period from January 1, 2016 through and including the date of this annual report on Form 10-K (i.e., Anne Evans Estabrook, Caren Franzini, Michael M. Horn, Richard S. Mroz, C. Cathleen Raffaeli, Edwin C. Reed, DeForest B. Soaries, Jr., and Larry E. Thompson) were independent.
Separately, the Board was unable to affirmatively determine that there were no material relationships (as defined in the NYSE rules) between the Bank and its Member Directors, and has therefore concluded that none of the Bank’s Member Directors who served at any time during the aforementioned period (i.e., John R. Buran, Kevin Cummings, Jay M. Ford, James W. Fulmer, Thomas L. Hoy, Gerald H. Lipkin, Kenneth J. Mahon, Christopher P. Martin, David J. Nasca, Vincent F. Palagiano, Monte N. Redman, and Carlos J. Vázquez) were independent under the NYSE independence standards.
In making this determination, the Board considered the cooperative relationship between the Bank and its members. Specifically, the Board considered the fact that each of the Bank’s Member Directors are officers of a Bank member institution, and that each member institution has access to, and is encouraged to use, the Bank’s products and services.
Furthermore, the Board acknowledges that under NYSE rules, there are certain objective tests that, if not passed, would preclude a finding of independence. One such test pertains to the amount of business conducted with the Bank by the Member Director’s institution. It is possible that a Member Director could satisfy this test on a particular day. However, because the amount of business conducted by a Member Director’s institution may change frequently, and because the Bank generally desires to increase the amount of business it conducts with each member, the directors deemed it inappropriate to draw distinctions among the Member Directors based solely upon the amount of business conducted with the Bank by any director’s institution at a specific time.
Notwithstanding the foregoing, the Board believes that it functions as a governing body that can and does act with good judgment with respect to the corporate governance and business affairs of the Bank. The Board is aware of its statutory responsibilities under Section 7(j) of the Federal Home Loan Bank Act, which specifically provides that the Board of Directors of a Federal Home Loan Bank must administer the affairs of the Home Loan Bank fairly and impartially and without discrimination in favor of or against any member borrower.
The Board has a standing Audit Committee. For the reasons noted above, the Board has determined that none of the Member Directors who served at any time as members of the Board’s Audit Committee during the period from January 1, 2016 through and including the date of this annual report on Form 10-K (Kevin Cummings, Jay M. Ford, James W. Fulmer, Thomas L. Hoy, and Monte N. Redman) were independent under the NYSE standards for such committee members. The Board also determined that the Independent Directors who served as members of the Board’s Audit Committee during the period from January 1, 2016 through and including the date of this annual report on Form 10-K (Caren Franzini and Larry E. Thompson) were independent under the NYSE independence standards for such committee members.
The Board also has a standing Compensation & Human Resources Committee (“C&HRC”). For the reasons noted above, the Board has determined that none of the Member Directors who served at any time as members of the Bank’s C&HRC during the period from January 1, 2016 through and including the date of this annual report on Form 10-K (James W. Fulmer, Gerald H. Lipkin, Christopher P. Martin, Vincent F. Palagiano, David J. Nasca, and Monte N. Redman) were independent under the NYSE standards for such committee members. The Board also determined that the Independent Directors who served as members of the Board’s C&HRC during the period from January 1, 2016 through and including the date of this annual report on Form 10-K (C. Cathleen Raffaeli and DeForest B. Soaries, Jr.) were independent under the NYSE independence standards for such committee members.
Item 14. Principal Accounting Fees and Services.
The following table sets forth the fees paid to our independent registered public accounting firm, PricewaterhouseCoopers, LLP (“PwC”), during years ended December 31, 2016, 2015 and 2014 (in thousands):
|
|
|
Years ended December 31, |
| |||||||
|
|
|
2016 (a) |
|
2015 (a) |
|
2014 (a) |
| |||
|
|
|
|
|
|
|
|
| |||
|
Audit Fees and Expenses |
|
$ |
859 |
|
$ |
836 |
|
$ |
855 |
|
|
Audit-related Fees |
|
261 |
|
189 |
|
116 |
| |||
|
Tax Fees |
|
26 |
|
3 |
|
6 |
| |||
|
All Other Fees |
|
10 |
|
23 |
|
3 |
| |||
|
Total |
|
$ |
1,156 |
|
$ |
1,051 |
|
$ |
980 |
|
(a) The amounts in the table do not include the assessment from the Office of Finance (“OF”) for the Bank’s share of the audit fees of approximately $58 thousand, $55 thousand and $59 thousand for 2016, 2015 and 2014, incurred in connection with the audit of the combined financial statements published by the OF.
AUDIT FEES
Audit fees relate to professional services rendered in connection with the audit of the FHLBNY’s annual financial statements, and review of interim financial statements included in quarterly reports on Form 10-Q.
AUDIT-RELATED FEES
Audit-related fees primarily relate to consultation services provided in connection with respect to certain accounting and reporting standards.
TAX FEES
Tax fees relate to consultation services provided primarily with respect to tax withholding matters.
ALL OTHER FEES
These other fees are primarily related to review of various accounting matters and consultation services.
Policy on Audit Committee Pre-approval of Audit and Non-Audit Services Performed by the Independent Registered Public Accounting Firm.
We have adopted a policy that prohibits our independent registered public accounting firm from performing non-financial consulting services, such as information technology consulting and internal audit services. This policy also mandates that the audit and non-audit services and related budget be approved by the full Audit Committee or Audit Committee Chair in advance, and that the Audit Committee be provided with periodic quarterly reporting on actual spending. In accordance with this policy, all services to be performed by PwC were pre-approved by either the full Audit Committee or the Audit Committee Chair.
Subsequent to the enactment of the Sarbanes-Oxley Act of 2002 (the “Act”), the Audit Committee has met with PwC to further understand the provisions of that Act as it relates to independence. PwC will rotate the lead audit partner and other partners as appropriate in compliance with the Act. The Audit Committee will continue to monitor the activities undertaken by PwC to comply with the Act.
Item 15. Exhibits, Financial Statement Schedules.
(a) 1. Financial Statements
The financial statements included as part of this Form 10-K are identified in the index to the Financial Statements appearing in Item 8 of this Form 10-K, which index is incorporated in this Item 15 by reference.
2. Financial Statement Schedules
Financial statement schedules have been omitted because they are not applicable or the required information is shown in the financial statements or notes, under Item 8, “Financial Statements and Supplementary Data.”
3. Exhibits
|
No. |
|
Exhibit Description |
|
Filed with |
|
Form |
|
Date Filed |
|
|
|
|
|
|
|
|
|
|
|
3.01 |
|
Restated Organization Certificate of the Federal Home Loan Bank of New York (“Bank”) |
|
|
|
8-K |
|
12/1/2005 |
|
3.02 |
|
Amended and Restated Bylaws of the Bank |
|
|
|
8-K |
|
2/24/2016 |
|
4.01 |
|
Amended and Restated Capital Plan of the Bank |
|
|
|
8-K |
|
7/2/2014 |
|
10.01 |
|
Bank 2015 Incentive Compensation Plan (a) |
|
|
|
10-Q |
|
5/8/2015 |
|
10.02 |
|
Bank 2016 Incentive Compensation Plan (a) |
|
|
|
10-K |
|
3/21/2016 |
|
10.03 |
|
Bank 2017 Incentive Compensation Plan (a) |
|
X |
|
|
|
|
|
10.04 |
|
2015 Director Compensation Policy (a) |
|
|
|
10-K |
|
3/23/2015 |
|
10.05 |
|
2016 Director Compensation Policy (a) |
|
|
|
10-K |
|
3/21/16 |
|
10.06 |
|
2017 Director Compensation Policy(a) |
|
X |
|
|
|
|
|
10.07 |
|
Bank Amended and Restated Severance Pay Plan (2015) (a) |
|
|
|
10-K |
|
3/21/2016 |
|
10.08 |
|
Bank Amended and Restated Severance Pay Plan (2016) (a) |
|
X |
|
|
|
|
|
10.09 |
|
Qualified Defined Benefit Plan (a) |
|
|
|
10-K |
|
3/25/2013 |
|
10.10 |
|
Qualified Defined Contribution Plan (a) |
|
|
|
10-K |
|
3/25/2013 |
|
10.11 |
|
Bank Amended and Restated Benefit Equalization Plan (2016) (a) |
|
|
|
10-K |
|
3/21/2016 |
|
10.12 |
|
Bank Amended And Restated |
|
|
|
8-K |
|
12/9/2016 |
|
10.13 |
|
Nonqualified Deferred Incentive Compensation Plan (2017) (a) |
|
|
|
8-K |
|
12/9/2016 |
|
10.14 |
|
Thrift Restoration Plan (a) |
|
|
|
10-Q |
|
8/12/2010 |
|
10.15 |
|
Bank Amended and Restated Bank Profit Sharing Plan (a) |
|
|
|
10-K |
|
3/25/2013 |
|
10.16 |
|
Compensatory Arrangements for Named Executive Officers (a) |
|
X |
|
|
|
|
|
10.17 |
|
Amended and Restated Federal Home Loan Banks P&I Funding and Contingency Agreement (2017) |
|
X |
|
|
|
|
|
10.18 |
|
Form of Executive Change in Control Agreement between the Bank and each of the CEO and the other members of the Bank’s Management Committee (a) |
|
|
|
10-K |
|
3/21/16 |
|
10.19 |
|
Amended Joint Capital Enhancement Agreement among the Federal Home Loan Banks |
|
|
|
8-K |
|
8/5/2011 |
|
12.01 |
|
Computation of Ratio of Earnings to Fixed Charges |
|
X |
|
|
|
|
|
31.01 |
|
Certification of Registrant’s Chief Executive Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002 |
|
X |
|
|
|
|
|
31.02 |
|
Certification of the Registrant’s Chief Financial Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002 |
|
X |
|
|
|
|
|
32.01 |
|
Certification of Registrant’s Chief Executive Officer, as required by Section 906 of the Sarbanes-Oxley Act of 2002 |
|
X |
|
|
|
|
|
32.02 |
|
Certification of Registrant’s Chief Financial Officer, as required by Section 906 of the Sarbanes-Oxley Act of 2002 |
|
X |
|
|
|
|
|
99.01 |
|
Audit Committee Report |
|
X |
|
|
|
|
|
99.02 |
|
Audit Committee Charter |
|
X |
|
|
|
|
|
101.INS |
|
XBRL Instance Document |
|
X |
|
|
|
|
|
101.SCH |
|
XBRL Taxonomy Extension Schema Document |
|
X |
|
|
|
|
|
101.CAL |
|
XBRL Taxonomy Extension Calculation Linkbase Document |
|
X |
|
|
|
|
|
101.LAB |
|
XBRL Taxonomy Extension Label Linkbase Document |
|
X |
|
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101.PRE |
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XBRL Taxonomy Extension Presentation Linkbase Document |
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X |
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101.DEF |
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XBRL Taxonomy Extension Definition Linkbase Document |
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X |
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Notes:
(a) This exhibit includes a management contract, compensatory plan or arrangement required to be noted herein.
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.
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Federal Home Loan Bank of New York | |
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By: |
/s/ José R. González |
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José R. González |
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President and Chief Executive Officer |
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(Principal Executive Officer) |
Date: March 21, 2017
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated below:
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Title |
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/s/ José R. González |
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President and Chief Executive Officer |
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March 21, 2017 |
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José R. González |
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(Principal Executive Officer) |
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/s/ Kevin M. Neylan |
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Senior Vice President and Chief |
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March 21, 2017 |
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Kevin M. Neylan |
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Financial Officer |
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(Principal Financial Officer) |
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/s/ Backer Ali |
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Vice President, Chief Accounting |
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March 21, 2017 |
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Backer Ali |
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Officer and Controller |
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(Principal Accounting Officer) |
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/s/ Michael M. Horn |
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Chairman of the Board of Directors |
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March 21, 2017 |
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Michael M. Horn |
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/s/ James W. Fulmer |
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Vice Chairman of the Board of |
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March 21, 2017 |
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James W. Fulmer |
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Directors |
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/s/ John R. Buran |
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Director |
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March 21, 2017 |
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John R. Buran |
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/s/ Kevin Cummings |
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Director |
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March 21, 2017 |
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Kevin Cummings |
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/s/ Anne Evans Estabrook |
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Director |
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March 21, 2017 |
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Anne Evans Estabrook |
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/s/ Jay M. Ford |
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Director |
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March 21, 2017 |
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Jay M. Ford |
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/s/ Thomas L. Hoy |
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Director |
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March 21, 2017 |
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Thomas L. Hoy |
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/s/ Gerald H. Lipkin |
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Director |
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March 21, 2017 |
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Gerald H. Lipkin |
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/s/ Kenneth J. Mahon |
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Director |
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March 21, 2017 |
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Kenneth J. Mahon |
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/s/ Christopher P. Martin |
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Director |
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March 21, 2017 |
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Christopher P. Martin |
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/s/ Richard S. Mroz |
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Director |
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March 21, 2017 |
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Richard S. Mroz |
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/s/ David J. Nasca |
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Director |
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March 21, 2017 |
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David J. Nasca |
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/s/ C. Cathleen Raffaeli |
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Director |
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March 21, 2017 |
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C. Cathleen Raffaeli |
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/s/ Monte N. Redman |
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Director |
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March 21, 2017 |
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Monte N. Redman |
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/s/ Edwin C. Reed |
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Director |
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March 21, 2017 |
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Edwin C. Reed |
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/s/ DeForest B. Soaries, Jr. |
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Director |
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March 21, 2017 |
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DeForest B. Soaries, Jr. |
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/s/ Larry E. Thompson |
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Director |
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March 21, 2017 |
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Larry E. Thompson |
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/s/ Carlos J. Vázquez |
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Director |
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March 21, 2017 |
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Carlos J. Vázquez |
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