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The Federal Reserve Bank of Atlanta Financial Statements as of and for the Years Ended December 31, 2014 and 2013 and Independent Auditors’ Report THE FEDERAL RESERVE BANK OF ATLANTA Table of Contents Management’s Report on Internal Control Over Financial Reporting Independent Auditors’ Report Abbreviations page1 pages2 - 4 page5 Financial Statements: Statements of Condition as of December 31, 2014 and December 31, 2013 page6 Statements of Income and Comprehensive Income for the years ended December 31, 2014 and December 31, 2013page7 Statements of Changes in Capital for the years ended December 31, 2014 and December 31, 2013page8 Notes to Financial Statements pages9 - 38 FEDERAL RESERVE BANK of ATLANTA March 11,2015 To the Board of Directors of the Federal Reserve Bank of Atlanta: 1000 P eachtree S treet N.E. Atlanta, Georgia 30309-4470 404.498.8500 www.frbatlanta.org The management of the Federal Reserve Bank of Atlanta (Bank) is responsible for the preparation and fair presentation of the Statements of Condition as of December 31, 2014 and 2013, and the Statements of Income and Comprehensive Income, and Statements of Changes in Capital for the years then ended (the financial statements). The financial statements have been prepared in conformity with the accounting principles, policies, and practices established by the Board of Governors of the Federal Reserve System as set forth in the Financial Accounting Manual for Federal Reserve Banks (FAM), and, as such, include some amounts that are based on management judgments and estimates. To our knowledge, the financial statements are, in all materia respects, fairly presented in conformity with the accounting principles, policies and practices documented in the FAM and include all disclosures necessary for such fair presentation. The management of the Bank is responsible for establishing and maintaining effective internal control over financial reporting as it relates to the financial statements. The Bank’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with the FAM. The Bank’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 Bank’s assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with FAM, and that the Bank’s receipts and expenditures are being made only in accordance with authorizations of its management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Bank’s assets that could have a material effect on its financial statements. Even effective internal control, no matter how well designed, has inherent limitations, including the possibility of human error, and therefore can provide only reasonable assurance with respect to the preparation of reliable financial statements. 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 management of the Bank assessed its internal control over financial reporting based upon the criteria established in the Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, we believe that the Bank maintained effective internal control over financial reporting. Federal Reserve Bank of Atlanta (signed)Dennis P. Lockhart, President and Chief Executive Officer (signed)Marie C. Gooding, First Vice President and Chief Operating Officer (signed)Anne M. DeBeer, Senior Vice President and Chief Financial Officer Deloitte & Touche LLP 191 Peachtree Street NE Suite 2000 Atlanta, GA 30303-1749 USA Tel: +1 404 220 1500 Fax: +1 404 220 1583 www.deloitte.com INDEPENDENT AUDITORS’ REPORT To the Board of Governors of the Federal Reserve System and the Board of Directors of the Federal Reserve Bank of Atlanta: We have audited the accompanying financial statements of the Federal Reserve Bank of Atlanta (“FRB Atlanta”), which are comprised of the statements of condition as of December 31, 2014 and 2013, and the related statements of income and comprehensive income, and of changes in capital for the years then ended, and the related notes to the financial statements. We also have audited the FRB Atlanta’s internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management’s Responsibility The FRB Atlanta’s management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles established by the Board of Governors of the Federal Reserve System (the “Board”) as described in Note 3 to the financial statements. The Board has determined that this basis of accounting is an acceptable basis for the preparation of the FRB Atlanta’s financial statements in the circumstances. The FRB Atlanta’s management is also responsible for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. The FRB Atlanta’s management is also responsible for its assertion of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Auditors’ Responsibility Our responsibility is to express an opinion on these financial statements and an opinion on the FRB Atlanta’s internal control over financial reporting based on our audits. We conducted our audits of the financial statements in accordance with auditing standards generally accepted in the United States of America and in accordance with the auditing standards of the Public Company Accounting Oversight Board (United States) (the “PCAOB”) and we conducted our audit of internal control over financial reporting in accordance with attestation standards established by the American Institute of Certified Public Accountants and in accordance with the auditing standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement and whether effective internal control over financial reporting was maintained in all material respects. An audit of the financial statements involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers Member of Deloitte Touche Tohmatsu Limited internal control relevant to the FRB Atlanta’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances. An audit of the financial statements also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. An audit of internal control over financial reporting involves obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Definition of Internal Control Over Financial Reporting The FRB Atlanta’s internal control over financial reporting is a process designed by, or under the supervision of, the FRB Atlanta’s principal executive and principal financial officers, or persons performing similar functions, and effected by the FRB Atlanta’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability o f financial reporting and the preparation of financial statements for external purposes in accordance with the accounting principles established by the Board. The FRB Atlanta’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the FRB Atlanta; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with the accounting principles established by the Board, and that receipts and expenditures of the FRB Atlanta are being made only in accordance with authorizations of management and directors of the FRB Atlanta; and (3) provide reasonable assurance regarding prevention or timely detection and correction of unauthorized acquisition, use, or disposition of the FRB Atlanta’s assets that could have a material effect on the financial statements. Inherent Limitations of Internal Control Over Financial Reporting Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected and corrected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the FRB Atlanta as of December 31, 2014 and 2013, and the results of its operations for the years then ended in accordance with the basis of accounting described in Note 3 to the financial statements. Also, in our opinion, the FRB Atlanta maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on the criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Basis of Accounting We draw attention to Note 3 to the financial statements, which describes the basis of accounting. The FRB Atlanta has prepared these financial statements in conformity with accounting principles established by the Board, as set forth in the Financial Accounting Manual for Federal Reserve Banks, which is a basis of accounting other than accounting principles generally accepted in the United States of America. The effects on such financial statements of the differences between the accounting principles established by the Board and accounting principles generally accepted in the United States of America are also described in Note 3 to the financial statements. Our opinion is not modified with respect to this matter. (signed)Deloitte+ToucheLLP March 11, 2015 FEDERAL RESERVE BANK OF ATLANTA Abbreviations: ACH ASC ASU BEP Bureau FAM FASB FOMC FRBNY GAAP GSE IMF MBS SDR SERP SOMA TBA TDF Automated clearinghouse Accounting Standards Codification Accounting Standards Update Benefit Equalization Retirement Plan Bureau of Consumer Financial Protection Financial Accounting Manual for Federal Reserve Banks Financial Accounting Standards Board Federal Open Market Committee Federal Reserve Bank of New York Accounting principles generally accepted in the United States of America Government-sponsored enterprise International Monetary Fund Mortgage-backed securities Special drawing rights Supplemental Retirement Plan for Select Officers of the Federal Reserve Banks System Open Market Account To be announced Term Deposit Facility FEDERAL RESERVE BANK OF ATLANTA STATEMENTS OF CONDITION As of December 31, 2014 and December 31, 2013 (in millions) Header row column 1: category Column 2: 2014 Column 3: 2013 end header row ASSETS: Gold certificates 2014: 1,349 2013: 1,421 ASSETS: Special drawing rights certificates 2014: 654 2013: 654 ASSETS: Coin 2014: 208 2013: 238 ASSETS: Loans to depository institutions 2014: 5 2013: 6 ASSETS: System Open Market Account: Treasury securities, net (of which $616 and $1,139 is lent as of December 31, 2014 and 2013, respectively) 2014: 143,519 2013: 156,734 ASSETS: System Open Market Account: Government-sponsored enterprise debt securities, net (of which $35 and $73 is lent as of December 31, 2014 and 2013, respectively) 2014: 2,211 2013: 3,927 ASSETS: System Open Market Account: Federal agency and government-sponsored enterprise mortgage-backed securities, net 2014: 98,899 2013: 101,892 ASSETS: System Open Market Account: Foreign currency denominated investments, net 2014: 1,202 2013: 1,352 ASSETS: System Open Market Account: Central bank liquidity swaps 2014: 88 2013: 15 ASSETS: System Open Market Account: Accrued interest receivable 2014: 1,418 2013: 1,560 ASSETS: System Open Market Account: Other assets 2014: 2 2013: ASSETS: Bank premises and equipment, net 2014: 239 2013: 240 ASSETS: Items in process of collection 2014: 85 2013: 165 ASSETS: Interdistrict settlement account 2014: 13,938 2013: ASSETS: Other assets 2014: 74 2013: 67 ASSETS: Total assets 2014: 263,891 2013: 268,271 LIABILITIES AND CAPITAL: Federal Reserve notes outstanding, net 2014: 191,944 2013: 152,081 LIABILITIES AND CAPITAL: System Open Market Account: Securities sold under agreements to repurchase 2014: 28,183 2013: 20,986 LIABILITIES AND CAPITAL: System Open Market Account: Other liabilities 2014: 46 2013: 88 LIABILITIES AND CAPITAL: Deposits: Depository institutions 2014: 39,629 2013: 45,828 LIABILITIES AND CAPITAL: Deposits: Other deposits 2014: 9 2013: 12 LIABILITIES AND CAPITAL: Interest payable to depository institutions 2014: 2 2013: 2 LIABILITIES AND CAPITAL: Accrued benefit costs 2014: 204 2013: 175 LIABILITIES AND CAPITAL: Deferred credit items 2014: 556 2013: 1,009 LIABILITIES AND CAPITAL: Accrued remittances to the Treasury 2014: 51 2013: 231 LIABILITIES AND CAPITAL: Interdistrict settlement account 2014: - 2013: 44,679 LIABILITIES AND CAPITAL: Other liabilities 2014: 15 2013: 16 LIABILITIES AND CAPITAL: Total liabilities 2014: 260,639 2013: 265,107 LIABILITIES AND CAPITAL: Capital paid-in 2014: 1,626 2013: 1,582 LIABILITIES AND CAPITAL: Surplus (including accumulated other comprehensive loss of $35 and $19 at December 31, 2014 and 2013, respectively) 2014: 1,626 2013: 1,582 LIABILITIES AND CAPITAL: Total capital 2014: 3,252 2013: 3,164 LIABILITIES AND CAPITAL: Total liabilities and capital 2014: 263,891 2013: 268,271 The accompanying notes are an integral part of these financial statements. FEDERAL RESERVE BANK OF ATLANTA STATEMENTS OF INCOME AND COMPREHENSIVE INCOME For the years ended December 31, 2014 and December 31, 2013 (in millions) Header row column 1: category column 2: 2014 column 3: 2013 end of header row INTEREST INCOME: System Open Market Account: Treasury securities, net 2014: 3,660 2013: 3,345 INTEREST INCOME: System Open Market Account: Government-sponsored enterprise debt securities, net 2014: 93 2013: 140 INTEREST INCOME: System Open Market Account: Federal agency and government-sponsored enterprise mortgage-backed securities, net 2014: 2,985 2013: 2,377 INTEREST INCOME: System Open Market Account: Foreign currency denominated investments, net 2014: 4 2013: 6 INTEREST INCOME: System Open Market Account: Central bank liquidity swaps 2014: - 2013: 1 Total interest income 2014: 6,742 2013: 5,869 INTEREST EXPENSE: System Open Market Account: Securities sold under agreements to repurchase 2014: 6 2013: 4 INTEREST EXPENSE: Deposits: Depository institutions 2014: 111 2013: 114 INTEREST EXPENSE: Deposits: Term Deposit Facility 2014: 1 2013: 1 INTEREST EXPENSE: Total interest expense 2014: 118 2013: 119 INTEREST EXPENSE: Net interest income 2014: 6,624 2013: 5,750 NON-INTEREST INCOME: System Open Market Account: Federal agency and government-sponsored enterprise mortgage-backed securities gains, net 2014: 5 2013: 4 NON-INTEREST INCOME: System Open Market Account: Foreign currency translation losses, net 2014: (167) 2013: (72) NON-INTEREST INCOME: System Open Market Account: Other 2014: 1 2013: 1 NON-INTEREST INCOME: Income from services 2014: 253 2013: 274 NON-INTEREST INCOME: Compensation received for service costs provided 2014: 1 2013: 1 NON-INTEREST INCOME: Reimbursable services to government agencies 2014: 22 2013: 22 NON-INTEREST INCOME: Other 2014: 4 2013: 6 NON-INTEREST INCOME: Total non-interest income 2014: 119 232013: 6 OPERATING EXPENSES: Salaries and benefits 2014: 216 202013: 6 OPERATING EXPENSES: Occupancy 2014: 21 22013: 1 OPERATING EXPENSES: Equipment 2014: 11 2013: 10 OPERATING EXPENSES: Compensation paid for service costs incurred 2014: 127 2013: 126 OPERATING EXPENSES: Other 2014: 100 2013: 74 OPERATING EXPENSES: Assessments: Board of Governors operating expenses and currency costs 2014: 135 2013: 141 OPERATING EXPENSES: Assessments: Bureau of Consumer Financial Protection 2014: 32 2013: 33 OPERATING EXPENSES: Total operating expenses 2014: 642 2013: 611 Net income before providing for remittances to the Treasury 2014: 6,101 2013: 5,375 Earnings remittances to the Treasury 2014: 5,945 2013: 5,286 Net income 2014: 156 2013: 89 Change in prior service costs and actuarial (losses) gains related to benefit plans 2014: (16) 2013: 29 Total other comprehensive (loss) income 2014: (16) 2013: 29 Comprehensive income 2014: 140 2013: 118 The accompanying notes are an integral part of these financial statements. FEDERAL RESERVE BANK OF ATLANTA STATEMENTS OF CHANGES IN CAPITAL For the years ended December 31, 2014 and December 31, 2013 (in millions, except share data) header row column 1: category column 2: Capital paid-in column 3: Surplus: Net income retained column 4: Surplus: Accumulated other comprehensive loss column 5: Surplus: Total surplus column 6: Total capital end header row Balance at December 31, 2012 (31,172,082 shares) Capital paid-in: 1,559 Surplus: Net income retained: 1,607 Surplus: Accumulated other comprehensive loss: (48) Surplus: Total surplus: 1,559 Total capital: 3,118 Balance at December 31, 2012 (31,172,082 shares): Net change in capital stock issued (459,924 shares) Capital paid-in: 23 Surplus: Net income retained: -- Surplus: Accumulated other comprehensive loss: - Surplus: Total surplus: - Total capital: 23 Balance at December 31, 2012 (31,172,082 shares): Comprehensive income: Net income Capital paid-in: - Surplus: Net income retained: 89 Surplus: Accumulated other comprehensive loss: - Surplus: Total surplus: 89 Total capital: 89 Balance at December 31, 2012 (31,172,082 shares): Comprehensive income: Other comprehensive income Capital paid-in: - Surplus: Net income retained: - Surplus: Accumulated other comprehensive loss: 29 Surplus: Total surplus: 29 Total capital: 29 Balance at December 31, 2012 (31,172,082 shares): Dividends on capital stock Capital paid-in: - Surplus: Net income retained: (95) Surplus: Accumulated other comprehensive loss: - Surplus: Total surplus: (95) Total capital: (95) Balance at December 31, 2012 (31,172,082 shares): Net change in capital Capital paid-in: 23 Surplus: Net income retained: (6) Surplus: Accumulated other comprehensive loss: 29 Surplus: Total surplus: 23 Total capital: 46 Balance at December 31, 2013 (31,632,006 shares) Capital paid-in: 1,582 Surplus: Net income retained: 1,601 Surplus: Accumulated other comprehensive loss: (19) Surplus: Total surplus: 1,582 Total capital: 3,164 Balance at December 31, 2013 (31,632,006 shares): Net change in capital stock issued (884,703 shares) Capital paid-in: 44 Surplus: Net income retained: - Surplus: Accumulated other comprehensive loss: - Surplus: Total surplus: - Total capital: 44 Balance at December 31, 2013 (31,632,006 shares): Comprehensive income: Net income Capital paid-in: Surplus: Net income retained: 156 Surplus: Accumulated other comprehensive loss: - Surplus: Total surplus: 156 Total capital: 156 Balance at December 31, 2013 (31,632,006 shares): Comprehensive income: Other comprehensive loss Capital paid-in: Surplus: Net income retained: - Surplus: Accumulated other comprehensive loss: (16) Surplus: Total surplus: (16) Total capital: (16) Balance at December 31, 2013 (31,632,006 shares): Dividends on capital stock Capital paid-in: Surplus: Net income retained: (96) Surplus: Accumulated other comprehensive loss: - Surplus: Total surplus: (96) Total capital: (96) Balance at December 31, 2013 (31,632,006 shares): Net change in capital Capital paid-in: 44 Surplus: Net income retained: 60 Surplus: Accumulated other comprehensive loss: (16) Surplus: Total surplus: 44 Total capital: 88 Balance at December 31, 2014 (32,516,709 shares) Capital paid-in: 1,626 Surplus: Net income retained: 1,661 Surplus: Accumulated other comprehensive loss: (35) Surplus: Total surplus: 1,626 Total capital: 3,252 The accompanying notes are an integral part of these financial statements. FEDERAL RESERVE BANK OF ATLANTA NOTES TO FINANCIAL STATEMENTS 1. St r u c t u r e The Federal Reserve Bank of Atlanta (Bank) is part of the Federal Reserve System (System) and is one of the 12 Federal Reserve Banks (Reserve Banks) created by Congress under the Federal Reserve Act of 1913 (Federal Reserve Act), which established the central bank of the United States. The Reserve Banks are chartered by the federal government and possess a unique set of governmental, corporate, and central bank characteristics. The Bank serves the Sixth Federal Reserve District, which includes Georgia, Florida, Alabama, and portions of Louisiana, Tennessee, and Mississippi. In accordance with the Federal Reserve Act, supervision and control of the Bank is exercised by a board of directors. The Federal Reserve Act specifies the composition of the board of directors for each of the Reserve Banks. Each board is composed of nine members serving three-year terms: three directors, including those designated as chairman and deputy chairman, are appointed by the Board of Governors of the Federal Reserve System (Board of Governors) to represent the public, and six directors are elected by member banks. Banks that are members of the System include all nationally-chartered banks and any state-chartered banks that apply and are approved for membership. Member banks are divided into three classes according to size. Member banks in each class elect one director representing member banks and one representing the public. In any election of directors, each member bank receives one vote, regardless of the number of shares of Reserve Bank stock it holds. In addition to the 12 Reserve Banks, the System also consists, in part, of the Board of Governors and the Federal Open Market Committee (FOMC). The Board of Governors, an independent federal agency, is charged by the Federal Reserve Act with a number of specific duties, including general supervision over the Reserve Banks. The FOMC is composed of members of the Board of Governors, the president of the Federal Reserve Bank of New York (FRBNY), and, on a rotating basis, four other Reserve Bank presidents. 2. O p e r a t io n s and Se r v ic e s The Reserve Banks perform a variety of services and operations. These functions include participating in formulating and conducting monetary policy; participating in the payment system, including transfers of funds, automated clearinghouse (ACH) operations, and check collection; distributing coin and currency; performing fiscal agency functions for the U.S. Department of the Treasury (Treasury), certain federal agencies, and other entities; serving as the federal government’s bank; providing short-term loans to depository institutions; providing loans to participants in programs or facilities with broad-based eligibility in unusual and exigent circumstances; serving consumers and communities by providing educational materials and information regarding financial consumer protection rights and laws and information on community development programs and activities; and supervising bank holding companies, state member banks, savings and loan holding companies, U.S. offices of foreign banking organizations, and designated financial market utilities pursuant to authority delegated by the Board of Governors. Certain services are provided to foreign and international monetary authorities, primarily by the FRBNY. The FOMC, in conducting monetary policy, establishes policy regarding domestic open market operations, oversees these operations, and issues authorizations and directives to the FRBNY to execute transactions. The FOMC authorizes and directs the FRBNY to conduct operations in domestic markets, including the direct purchase and sale of Treasury securities, government-sponsored enterprise (GSE) debt securities, and federal agency and GSE mortgage-backed securities (MBS); the purchase of these securities under agreements to resell; and the sale of these securities under agreements to repurchase. The FRBNY holds the resulting securities and agreements in a portfolio known as the System Open Market Account (SOMA). The FRBNY is authorized and directed to lend the Treasury securities and GSE debt securities that are held in the SOMA. To be prepared to counter disorderly conditions in foreign exchange markets or to meet other needs specified by the FOMC to carry out the System’s central bank responsibilities, the FOMC has authorized and directed the FRBNY to execute spot and forward foreign exchange transactions in 14 foreign currencies, to hold balances in those currencies, and to invest such foreign currency holdings, while maintaining adequate liquidity. The FRBNY holds these securities and obligations in the SOMA. The FOMC has also authorized the FRBNY to maintain reciprocal currency arrangements with the Bank of Canada and the Bank of Mexico in the maximum amounts of $2 billion and $3 billion, respectively, and to warehouse foreign currencies for the Treasury and the Exchange Stabilization Fund in the maximum amount of $5 billion. Because of the global character of bank funding markets, the System has at times coordinated with other central banks to provide liquidity. The FOMC authorized and directed the FRBNY to establish U.S. dollar liquidity and reciprocal foreign currency liquidity swap lines with the Bank of Canada, the Bank of England, the European Central Bank, the Bank of Japan, and the Swiss National Bank. The FRBNY holds amounts outstanding under these swap lines in the SOMA. These swap lines, which were originally established as temporary arrangements, were converted to standing arrangements on October 31, 2013, and will remain in place until further notice. Although the Reserve Banks are separate legal entities, they collaborate on the delivery of certain services to achieve greater efficiency and effectiveness. This collaboration takes the form of centralized operations and product or function offices that have responsibility for the delivery of certain services on behalf of the Reserve Banks. Various operational and management models are used and are supported by service agreements between the Reserve Banks. In some cases, costs incurred by a Reserve Bank for services provided to other Reserve Banks are not shared; in other cases, the Reserve Banks are reimbursed for costs incurred in providing services to other Reserve Banks. Major services provided by the Bank on behalf of the System for which the costs were not reimbursed by the other Reserve Banks include the Retail Payments Office and Central Billing Services. 3. Sig n if ic a n t Ac c o u n t in g P o l ic ie s Accounting principles for entities with the unique powers and responsibilities of the nation’s central bank have not been formulated by accounting standard-setting bodies. The Board of Governors has developed specialized accounting principles and practices that it considers to be appropriate for the nature and function of a central bank. These accounting principles and practices are documented in the Financial Accounting Manual for Federal Reserve Banks (FAM), which is issued by the Board of Governors. The Reserve Banks are required to adopt and apply accounting policies and practices that are consistent with the FAM. The financial statements have been prepared in accordance with the FAM. Limited differences exist between the accounting principles and practices in the FAM and accounting principles generally accepted in the United States of America (GAAP), due to the unique nature of the Bank’s powers and responsibilities as part of the nation’s central bank and given the System’s unique responsibility to conduct monetary policy. The primary differences are the presentation of all SOMA securities holdings at amortized cost, adjusted for credit impairment, if any, the recording of all SOMA securities on a settlement-date basis, and the use of straight-line amortization for Treasury securities, GSE debt securities, and foreign currency denominated investments. Amortized cost, rather than the fair value presentation, more appropriately reflects the financial position associated with the Bank’s securities holdings given the System’s unique responsibility to conduct monetary policy. Although the application of fair value measurements to the securities holdings may result in values substantially greater or less than their carrying values, these unrealized changes in value have no direct effect on the quantity of reserves available to the banking system or on the ability of the Reserve Banks, as the central bank, to meet their financial obligations and responsibilities. Both the domestic and foreign components of the SOMA portfolio may involve transactions that result in gains or losses when holdings are sold before maturity. Decisions regarding securities and foreign currency transactions, including their purchase and sale, are motivated by monetary policy objectives rather than profit. Accordingly, fair values, earnings, and gains or losses resulting from the sale of such securities and currencies are incidental to open market operations and do not motivate decisions related to policy or open market activities. Accounting for these securities on a settlement-date basis, rather than the trade-date basis required by GAAP, better reflects the timing of the transaction’s effect on the quantity of reserves in the banking system. The cost bases of Treasury securities, GSE debt securities, and foreign government debt instruments are adjusted for amortization of premiums or accretion of discounts on a straight-line basis, rather than using the interest method required by GAAP. In addition, the Bank does not present a Statement of Cash Flows as required by GAAP because the liquidity and cash position of the Bank are not a primary concern given the Reserve Bank’s unique powers and responsibilities as a central bank. Other information regarding the Bank’s activities is provided in, or may be derived from, the Statements of Condition, Income and Comprehensive Income, and Changes in Capital, and the accompanying notes to the financial statements. Other than those described above, there are no significant differences between the policies outlined in the FAM and GAAP. Preparing the financial statements in conformity with the FAM requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. In 2014, the description of certain line items presented in the Statements of Condition and the Statements of Income and Comprehensive Income have been revised to better reflect the nature of these items. Amounts related to these line items were not changed from the prior year, only the nomenclature for the line item was revised, as further noted below: • The line item “System Open Market Account: Other investments” has been revised in the Statements of Condition to “System Open Market Account: Other assets.” • The line item “System Open Market Account: Foreign currency denominated assets, net” has been revised in the Statements of Income and Comprehensive Income to “System Open Market Account: Foreign currency denominated investments, net.” Certain amounts relating to the prior year have been reclassified in the Statements of Income and Comprehensive Income to conform to the current year presentation. $1 million previously reported for the year ended December 31, 2013 as “Non-interest income: Other” has been reclassified into a new line titled “Non-interest income: System Open Market Account: Other.” Significant accounts and accounting policies are explained below. a. Consolidation The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act) established the Bureau of Consumer Financial Protection (Bureau) as an independent bureau within the System that has supervisory authority over some institutions previously supervised by the Reserve Banks in connection with those institutions’ compliance with consumer protection statutes. Section 1017 of the Dodd-Frank Act provides that the financial statements of the Bureau are not to be consolidated with those of the Board of Governors or the System. The Board of Governors funds the Bureau through assessments on the Reserve Banks as required by the Dodd-Frank Act. The Reserve Banks reviewed the law and evaluated the design of and their relationship to the Bureau and determined that it should not be consolidated in the Bank’s financial statements. b. Gold and Special Drawing Rights Certificates The Secretary of the Treasury is authorized to issue gold certificates to the Reserve Banks. Upon authorization, the Reserve Banks acquire gold certificates by crediting equivalent amounts in dollars to the account established for the Treasury. The gold certificates held by the Reserve Banks are required to be backed by the gold owned by the Treasury. The Treasury may reacquire the gold certificates at any time, and the Reserve Banks must deliver them to the Treasury. At such time, the Treasury’s account is charged, and the Reserve Banks’ gold certificate accounts are reduced. The value of gold for purposes of backing the gold certificates is set by law at $42 2/9 per fine troy ounce. Gold certificates are recorded by the Banks at original cost. The Board of Governors allocates the gold certificates among the Reserve Banks once a year based on each Reserve Bank’s average Federal Reserve notes outstanding during the preceding twelve months. Special drawing rights (SDR) are issued by the International Monetary Fund (IMF) to its members in proportion to each member’s quota in the IMF at the time of issuance. SDRs serve as a supplement to international monetary reserves and may be transferred from one national monetary authority to another. Under the law providing for U.S. participation in the SDR system, the Secretary of the Treasury is authorized to issue SDR certificates to the Reserve Banks. When SDR certificates are issued to the Reserve Banks, equivalent amounts in U.S. dollars are credited to the account established for the Treasury and the Reserve Banks’ SDR certificate accounts are increased. The Reserve Banks are required to purchase SDR certificates, at the direction of the Treasury, for the purpose of financing SDR acquisitions or for financing exchange-stabilization operations. At the time SDR certificate transactions occur, the Board of Governors allocates the SDR certificates among the Reserve Banks based upon each Reserve Bank’s Federal Reserve notes outstanding at the end of the preceding calendar year. SDR certificates are recorded by the Banks at original cost. There were no SDR certificate transactions during the years ended December 31, 2014 and 2013. c. Coin The amount reported as coin in the Statements of Condition represents the face value of all United States coin held by the Bank. The Bank buys coin at face value from the U.S. Mint in order to fill depository institution orders. d. Loans Loans to depository institutions are reported at their outstanding principal balances and interest income is recognized on an accrual basis. Loans are impaired when current information and events indicate that it is probable that the Bank will not receive the principal and interest that are due in accordance with the contractual terms of the loan agreement. Impaired loans are evaluated to determine whether an allowance for loan loss is required. The Bank has developed procedures for assessing the adequacy of any allowance for loan losses using all available information to identify incurred losses. This assessment includes monitoring information obtained from banking supervisors, borrowers, and other sources to assess the credit condition of the borrowers and, as appropriate, evaluating collateral values. Generally, the Bank would discontinue recognizing interest income on impaired loans until the borrower’s repayment performance demonstrates principal and interest would be received in accordance with the terms of the loan agreement. If the Bank discontinues recording interest on an impaired loan, cash payments are first applied to principal until the loan balance is reduced to zero; subsequent payments are applied as recoveries of amounts previously deemed uncollectible, if any, and then as interest income. e. Securities Purchased Under Agreements to Resell, Securities Sold Under Agreements to Repurchase, and Securities Lending The FRBNY may engage in purchases of securities with primary dealers under agreements to resell (repurchase transactions). These repurchase transactions are typically settled through a tri-party arrangement. In a tri-party arrangement, two commercial custodial banks manage the collateral clearing, settlement, pricing, and pledging, and provide cash and securities custodial services for and on behalf of the FRBNY and counterparty. The collateral pledged must exceed the principal amount of the transaction by a margin determined by the FRBNY for each class and maturity of acceptable collateral. Collateral designated by the FRBNY as acceptable under repurchase transactions primarily includes Treasury securities (including Treasury Inflation-Protected Securities, Separate Trading of Registered Interest and Principal of Securities Treasury securities, and Treasury Floating Rate Notes); direct obligations of several federal and GSE-related agencies, including Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, and Federal Home Loan Banks; and pass-through federal agency and GSE MBS. The repurchase transactions are accounted for as financing transactions with the associated interest income recognized over the life of the transaction. These transactions are reported at their contractual amounts as “System Open Market Account: Securities purchased under agreements to resell” and the related accrued interest receivable is reported as a component of “System Open Market Account: Accrued interest receivable” in the Statements of Condition. The FRBNY may engage in sales of securities under agreements to repurchase with primary dealers and with a set of expanded counterparties which includes banks, savings associations, GSEs, and domestic money market funds (Overnight and term reverse repurchase agreements). These reverse repurchase transactions, are settled through a tri-party arrangement, similar to repurchase transactions. Reverse repurchase transactions may also be executed with foreign official and international account holders as part of a service offering. Reverse repurchase agreements are collateralized by a pledge of an amount of Treasury securities, GSE debt securities, or federal agency and GSE MBS that are held in the SOMA. Reverse repurchase transactions are accounted for as financing transactions, and the associated interest expense is recognized over the life of the transaction. These transactions are reported at their contractual amounts as “System Open Market Account: Securities sold under agreements to repurchase” and the related accrued interest payable is reported as a component of “System Open Market Account: Other liabilities” in the Statements of Condition. Treasury securities and GSE debt securities held in the SOMA may be lent to primary dealers, typically overnight, to facilitate the effective functioning of the domestic securities markets. The amortized cost basis of securities lent continues to be reported as “System Open Market Account: Treasury securities, net” and “System Open Market Account: Government-sponsored enterprise debt securities, net,” as appropriate, in the Statements of Condition. Securities lending transactions are fully collateralized by Treasury securities based on the fair values of the securities lent increased by a margin determined by the FRBNY. The FRBNY charges the primary dealer a fee for borrowing securities, and these fees are reported as a component of “Non-interest income: System Open Market Account: Other” in the Statements of Income and Comprehensive Income. Activity related to securities purchased under agreements to resell, securities sold under agreements to repurchase, and securities lending is allocated to each of the Reserve Banks on a percentage basis derived from an annual settlement of the interdistrict settlement account that occurs in the second quarter of each year. f. Treasury Securities, Government-Sponsored Enterprise Debt Securities, Federal Agency and GovernmentSponsored Enterprise Mortgage-Backed Securities, Foreign Currency Denominated Investments, and Warehousing Agreements Interest income on Treasury securities, GSE debt securities, and foreign currency denominated investments included in the SOMA is accrued using the straight-line method. Interest income on federal agency and GSE MBS is accrued using the interest method and includes amortization of premiums, accretion of discounts, and gains or losses associated with principal paydowns. Premiums and discounts related to federal agency and GSE MBS are amortized or accreted over the term of the security to stated maturity, and the amortization of premiums and accretion of discounts are accelerated when principal payments are received. Gains and losses resulting from sales of securities are determined by specific issue based on average cost. Treasury securities, GSE debt securities, and federal agency and GSE MBS are reported net of premiums and discounts in the Statements of Condition and interest income on those securities is reported net of the amortization of premiums and accretion of discounts in the Statements of Income and Comprehensive Income. In addition to outright purchases of federal agency and GSE MBS that are held in the SOMA, the FRBNY enters into dollar roll transactions (dollar rolls), which primarily involve an initial transaction to purchase or sell “to be announced” (TBA) MBS for delivery in the current month combined with a simultaneous agreement to sell or purchase TBA MBS on a specified future date. During the years ended December 31, 2014 and 2013, the FRBNY executed dollar rolls to facilitate settlement of outstanding purchases of federal agency and GSE MBS. The FRBNY accounts for dollar rolls as purchases or sales on a settlement-date basis. In addition, TBA MBS transactions may be paired off or assigned prior to settlement. Net gains resulting from these MBS transactions are reported as “Non-interest income: System Open Market Account: Federal agency and government-sponsored enterprise mortgage-backed securities gains, net” in the Statements of Income and Comprehensive Income. Foreign currency denominated investments, which can include foreign currency deposits, securities purchased under agreements to resell, and government debt instruments, are revalued daily at current foreign currency market exchange rates in order to report these assets in U.S. dollars. Foreign currency translation gains and losses that result from the daily revaluation of foreign currency denominated investments are reported as “Non-interest income: System Open Market Account: Foreign currency translation losses, net” in the Statements of Income and Comprehensive Income. Because the FRBNY enters into commitments to buy Treasury securities, federal agency and GSE MBS, and foreign government debt instruments and records the related securities on a settlement-date basis in accordance with the FAM, the related outstanding commitments are not reflected in the Statements of Condition. Activity related to Treasury securities, GSE debt securities, and federal agency and GSE MBS, including the premiums, discounts, and realized gains and losses, is allocated to each Reserve Bank on a percentage basis derived from an annual settlement of the interdistrict settlement account that occurs in the second quarter of each year. Activity related to foreign currency denominated investments, including the premiums, discounts, and realized and unrealized gains and losses, is allocated to each Reserve Bank based on the ratio of each Reserve Bank’s capital and surplus to the Reserve Banks’ aggregate capital and surplus at the preceding December 31. Warehousing is an arrangement under which the FOMC has approved the exchange, at the request of the Treasury, of U.S. dollars for foreign currencies held by the Treasury over a limited period. The purpose of the warehousing facility is to supplement the U.S. dollar resources of the Treasury for financing purchases of foreign currencies and related international operations. Warehousing agreements are valued daily at current market exchange rates. Activity related to these agreements is allocated to each Reserve Bank based on the ratio of each Reserve Bank’s capital and surplus to the Reserve Banks’ aggregate capital and surplus at the preceding December 31. g. Central Bank Liquidity Swaps Central bank liquidity swaps, which are transacted between the FRBNY and a foreign central bank, can be structured as either U.S. dollar or foreign currency liquidity swap arrangements. Central bank liquidity swaps activity, including the related income and expense, is allocated to each Reserve Bank based on the ratio of each Reserve Bank’s capital and surplus to the Reserve Banks’ aggregate capital and surplus at the preceding December 31. The foreign currency amounts associated with these central bank liquidity swap arrangements are revalued daily at current foreign currency market exchange rates. U.S. dollar liquidity swaps At the initiation of each U.S. dollar liquidity swap transaction, the foreign central bank transfers a specified amount of its currency to a restricted account for the FRBNY in exchange for U.S. dollars at the prevailing market exchange rate. Concurrent with this transaction, the FRBNY and the foreign central bank agree to a second transaction that obligates the foreign central bank to return the U.S. dollars and the FRBNY to return the foreign currency on a specified future date at the same exchange rate as the initial transaction. The Bank’s allocated portion of the foreign currency amounts that the FRBNY acquires are reported as “System Open Market Account: Central bank liquidity swaps” in the Statements of Condition. Because the swap transaction will be unwound at the same U.S. dollar amount and exchange rate that were used in the initial transaction, the recorded value of the foreign currency amounts is not affected by changes in the market exchange rate. The foreign central bank compensates the FRBNY based on the amount outstanding and the rate under the swap agreement. The Bank’s allocated portion of the amount of compensation received during the term of the swap transaction is reported as “Interest income: System Open Market Account: Central bank liquidity swaps” in the Statements of Income and Comprehensive Income. Foreign currency liquidity swaps The structure of foreign currency liquidity swap transactions involves the transfer by the FRBNY, at the prevailing market exchange rate, of a specified amount of U.S. dollars to an account for the foreign central bank in exchange for its currency. The foreign currency amounts that the FRBNY receives are recorded as a liability. h. Bank Premises, Equipment, and Software Bank premises and equipment are stated at cost less accumulated depreciation. Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets, which range from 2 to 50 years. Major alterations, renovations, and improvements are capitalized at cost as additions to the asset accounts and are depreciated over the remaining useful life of the asset or, if appropriate, over the unique useful life of the alteration, renovation, or improvement. Maintenance, repairs, and minor replacements are charged to operating expense in the year incurred. Costs incurred to acquire software are capitalized based on the purchase price. Costs incurred during the application development stage to develop internal-use software are capitalized based on the cost of direct services and materials associated with designing, coding, installing, and testing the software. Capitalized software costs are amortized on a straight-line basis over the estimated useful lives of the software applications, which generally range from two to five years. Maintenance costs and minor replacements related to software are charged to operating expense in the year incurred. Capitalized assets, including software, buildings, leasehold improvements, furniture, and equipment, are impaired and an adjustment is recorded when events or changes in circumstances indicate that the carrying amount of assets or asset groups is not recoverable and significantly exceeds the assets’ fair value. i. Interdistrict Settlement Account Each Reserve Bank aggregates the payments due to or from other Reserve Banks. These payments result from transactions between the Reserve Banks and transactions that involve depository institution accounts held by other Reserve Banks, such as Fedwire funds and securities transfers and check and ACH transactions. The cumulative net amount due to or from the other Reserve Banks is reflected in the “Interdistrict settlement account” in the Statements of Condition. An annual settlement of the interdistrict settlement account occurs in the second quarter of each year. As a result of the annual settlement, the balance in each Bank’s interdistrict settlement account is adjusted by an amount equal to the average balance in the account during the previous twelve-month period ended March 31. An equal and offsetting adjustment is made to each Bank’s allocated portion of SOMA assets and liabilities. j. Federal Reserve Notes Federal Reserve notes are the circulating currency of the United States. These notes, which are identified as issued to a specific Reserve Bank, must be fully collateralized. All of the Bank’s assets are eligible to be pledged as collateral. The collateral value is equal to the book value of the collateral tendered with the exception of securities, for which the collateral value is equal to the par value of the securities tendered. The par value of securities sold under agreements to repurchase is deducted from the eligible collateral value. The Board of Governors may, at any time, call upon a Reserve Bank for additional security to adequately collateralize outstanding Federal Reserve notes. To satisfy the obligation to provide sufficient collateral for outstanding Federal Reserve notes, the Reserve Banks have entered into an agreement that provides for certain assets of the Reserve Banks to be jointly pledged as collateral for the Federal Reserve notes issued to all Reserve Banks. In the event that this collateral is insufficient, the Federal Reserve Act provides that Federal Reserve notes become a first and paramount lien on all the assets of the Reserve Banks. Finally, Federal Reserve notes are obligations of the United States government. “Federal Reserve notes outstanding, net” in the Statements of Condition represents the Bank’s Federal Reserve notes outstanding, reduced by the Bank’s currency holdings of $22,254 million and $18,059 million at December 31, 2014 and 2013, respectively. At December 31, 2014 and 2013, all Federal Reserve notes outstanding, reduced by the Reserve Bank’s currency holdings, were fully collateralized. At December 31, 2014, all gold certificates, all special drawing rights certificates, and $1,282 billion of domestic securities held in the SOMA were pledged as collateral. At December 31, 2014, no investments denominated in foreign currencies were pledged as collateral. k. Deposits Depository Institutions Depository institutions’ deposits represent the reserve and service-related balances in the accounts that depository institutions hold at the Bank. The interest rates paid on required reserve balances and excess balances are determined by the Board of Governors, based on an FOMC-established target range for the federal funds rate. Interest payable is reported as a component of “Interest payable to depository institutions” in the Statements of Condition. The Term Deposit Facility (TDF) consists of deposits with specific maturities held by eligible institutions at the Reserve Banks. The Reserve Banks pay interest on these deposits at interest rates determined by auction. Interest payable is reported as a component of “Interest payable to depository institutions” in the Statements of Condition. There were no deposits held by the Bank under the TDF at December 31, 2014 and 2013. Other Other deposits include the Bank’s allocated portion of foreign central bank and foreign government deposits held at the FRBNY. Other deposits also include cash collateral held by the Bank. l. Items in Process o f Collection and Deferred Credit Items Items in process of collection primarily represents amounts attributable to checks that have been deposited for collection and that, as of the balance sheet date, have not yet been presented to the paying bank. Deferred credit items represents the counterpart liability to items in process of collection. The amounts in this account arise from deferring credit for deposited items until the amounts are collected. The balances in both accounts can fluctuate significantly. m. Capital Paid-in The Federal Reserve Act requires that each member bank subscribe to the capital stock of the Reserve Bank in an amount equal to six percent of the capital and surplus of the member bank. These shares are nonvoting, with a par value of $100, and may not be transferred or hypothecated. As a member bank’s capital and surplus changes, its holdings of Reserve Bank stock must be adjusted. Currently, only one-half of the subscription is paid in, and the remainder is subject to call. A member bank is liable for Reserve Bank liabilities up to twice the par value of stock subscribed by it. By law, each Reserve Bank is required to pay each member bank an annual dividend of six percent on the paid-in capital stock. This cumulative dividend is paid semiannually. n. Surplus The Board of Governors requires the Reserve Banks to maintain a surplus equal to the amount of capital paidin. On a daily basis, surplus is adjusted to equate the balance to capital paid-in. Accumulated other comprehensive income is reported as a component of “Surplus” in the Statements of Condition and the Statements of Changes in Capital. Additional information regarding the classifications of accumulated other comprehensive income is provided in Notes 9 and 10. o. Remittances to the Treasury The Board of Governors requires the Reserve Banks to transfer excess earnings to the Treasury as interest on Federal Reserve notes after providing for the costs of operations, payment of dividends, and reservation of an amount necessary to equate surplus with capital paid-in. Currently, remittances to the Treasury are made on a weekly basis. This amount is reported as “Earnings remittances to the Treasury” in the Statements of Income and Comprehensive Income. The amount due to the Treasury is reported as “Accrued remittances to the Treasury” in the Statements of Condition. See Note 12 for additional information on earnings remittances to the Treasury. If earnings during the year are not sufficient to provide for the costs of operations, payment of dividends, and equating surplus and capital paid-in, remittances to the Treasury are suspended. A deferred asset is recorded that represents the amount of net earnings a Reserve Bank will need to realize before remittances to the Treasury resume. This deferred asset is periodically reviewed for impairment. p. Income and Costs Related to Treasury Services When directed by the Secretary of the Treasury, the Bank is required by the Federal Reserve Act to serve as fiscal agent and depositary of the United States Government. By statute, the Treasury has appropriations to pay for these services. During the years ended December 31, 2014 and 2013, the Bank was reimbursed for all services provided to the Treasury as its fiscal agent. q. Income from Services, Compensation Received fo r Service Costs Provided, and Compensation Paid fo r Service Costs Incurred The Bank has overall responsibility for managing the Reserve Banks’ provision of check and ACH services to depository institutions and, as a result, reports total System revenue for these services as “Income from services” in its Statements of Income and Comprehensive Income. The Bank compensates the applicable Reserve Banks for the costs incurred to provide these services and reports the resulting compensation paid as “Operating expenses: Compensation paid for service costs incurred” in its Statements of Income and Comprehensive Income. The FRBNY has overall responsibility for managing the Reserve Banks’ provision of Fedwire funds and securities services, and the Federal Reserve Bank of Chicago has overall responsibility for managing the Reserve Banks’ provision of electronic access services to depository institutions. The Reserve Bank that has overall responsibility for managing these services recognizes the related total System revenue in its Statements of Income and Comprehensive Income. The Bank is compensated for costs incurred to provide these services by the Reserve Banks responsible for managing these services and reports this compensation as “Non-interest income: Compensation received for service costs provided” in its Statements of Income and Comprehensive Income. r. Assessments The Board of Governors assesses the Reserve Banks to fund its operations and the operations of the Bureau. These assessments are allocated to each Reserve Bank based on each Reserve Bank’s capital and surplus balances. The Board of Governors also assesses each Reserve Bank for expenses related to producing, issuing, and retiring Federal Reserve notes based on each Reserve Bank’s share of the number of notes comprising the System’s net liability for Federal Reserve notes on December 31 of the prior year. The Dodd-Frank Act requires that, after the transfer of its responsibilities to the Bureau on July 21, 2011, the Board of Governors fund the Bureau in an amount not to exceed a fixed percentage of the total operating expenses of the System as reported in the Board of Governors’ 2009 annual report, which totaled $4.98 billion. After 2013, the amount will be adjusted annually in accordance with the provisions of the DoddFrank Act. The percentage of total operating expenses of the System for the years ended December 31, 2014 and 2013 was 12.22 percent ($608.4 million) and 12 percent ($597.6 million), respectively. The Bank’s assessment for Bureau funding is reported as “Assessments: Bureau of Consumer Financial Protection” in the Statements of Income and Comprehensive Income. s. Taxes The Reserve Banks are exempt from federal, state, and local taxes, except for taxes on real property. The Bank’s real property taxes were $3 million for each of the years ended December 31, 2014 and 2013, and are reported as a component of “Operating expenses: Occupancy” in the Statements of Income and Comprehensive Income. t. Restructuring Charges The Reserve Banks recognize restructuring charges for exit or disposal costs incurred as part of the closure of business activities in a particular location, the relocation of business activities from one location to another, or a fundamental reorganization that affects the nature of operations. Restructuring charges may include costs associated with employee separations, contract terminations, and asset impairments. Expenses are recognized in the period in which the Bank commits to a formalized restructuring plan or executes the specific actions contemplated in the plan and all criteria for financial statement recognition have been met. In 2014, the Treasury announced plans to consolidate the provision of substantially all fiscal agent services for the U.S. Treasury at the Federal Reserve Bank of Cleveland, the Federal Reserve Bank of Kansas City, the FRBNY, and the Federal Reserve Bank of St. Louis. The implementation plan associated with this consolidation is expected to be completed in 2018. Note 11 describes the Bank’s restructuring initiatives and provides information about the costs and liabilities associated with employee separations. Costs and liabilities associated with enhanced pension benefits in connection with the restructuring activities for all of the Reserve Banks are recorded on the books of the FRBNY. The Bank had no significant restructuring activities in 2014 and 2013. u. Recently Issued Accounting Standards In April 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-08, Presentation o f Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures o f Disposals o f Components o f an Entity. This update changes the requirements for reporting discontinued operations, which may include a component of an entity or a group of components of an entity, or a business or nonprofit activity. This update is effective for the Bank for the year ending December 31, 2015, and is not expected to have a material effect on the Bank’s financial statements. In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). This update was issued to create common revenue recognition guidance for U.S. GAAP and International Financial Reporting Standards. The guidance is applicable to all contracts for the transfer of goods or services regardless of industry or type of transaction. This update requires recognition of revenue in a manner that reflects the consideration that the entity expects to receive in return for the transfer of goods or services to customers. This update is effective for the Bank for the year ending December 31, 2018, and is not expected to have a material effect on the Bank’s financial statements. In June 2014, the FASB issued ASU 2014-11, Transfer and Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures. This update requires changes in the accounting for repurchase to maturity transactions and repurchase financing transactions. Additionally, this update provides guidance for the disclosures for certain transfers of financial assets accounted for as sales, where the transferor retains substantially all of the exposure to economic return on the transferred financial asset; and repurchase agreements, securities lending transactions, and repurchase to maturity transactions that are accounted for as secured borrowings. This update is effective for the Bank for the year ending December 31, 2015, and is not expected to have a material effect on the Bank’s financial statements. 4. Lo a n s Loans to Depository Institutions The Bank offers primary, secondary, and seasonal loans to eligible borrowers, and each program has its own interest rate. Interest is accrued using the applicable interest rate established at least every 14 days by the Bank’s board of directors, subject to review and determination by the Board of Governors. Primary and secondary loans are extended on a short-term basis, typically overnight, whereas seasonal loans may be extended for a period of up to nine months. Primary, secondary, and seasonal loans are collateralized to the satisfaction of the Bank to reduce credit risk. Assets eligible to collateralize these loans include consumer, business, and real estate loans; Treasury securities; GSE debt securities; foreign sovereign debt; municipal, corporate, and state and local government obligations; asset-backed securities; corporate bonds; commercial paper; and bank-issued assets, such as certificates of deposit, bank notes, and deposit notes. Collateral is assigned a lending value that is deemed appropriate by the Bank, which is typically fair value reduced by a margin. Loans to depository institutions are monitored daily to ensure that borrowers continue to meet eligibility requirements for these programs. If a borrower no longer qualifies for these programs, the Bank will generally request full repayment of the outstanding loan or, for primary or seasonal loans, may convert the loan to a secondary credit loan. Collateral levels are reviewed daily against outstanding obligations, and borrowers that no longer have sufficient collateral to support outstanding loans are required to provide additional collateral or to make partial or full repayment. Loans to depository institutions were $5 million and $6 million as of December 31, 2014 and 2013, respectively, with a remaining maturity within 15 days. At December 31, 2014 and 2013, the Bank did not have any loans that were impaired, restructured, past due, or on non-accrual status, and no allowance for loan losses was required. There were no impaired loans during the years ended December 31, 2014 and 2013. 5. Sy s t e m Op e n M a r k e t Ac c o u n t a. Domestic Securities Holdings The FRBNY conducts domestic open market operations and, on behalf of the Reserve Banks, holds the resulting securities in the SOMA. During the years ended December 31, 2014 and 2013, the FRBNY continued the purchase of Treasury securities and federal agency and GSE MBS under the large-scale asset purchase programs authorized by the FOMC. In September 2011, the FOMC announced that the Federal Reserve would reinvest principal payments from the SOMA portfolio holdings of GSE debt securities and federal agency and GSE MBS in federal agency and GSE MBS. In June 2012, the FOMC announced that it would continue this reinvestment policy. In September 2012, the FOMC announced that the Federal Reserve would purchase additional federal agency and GSE MBS at a pace of $40 billion per month. In December 2012, the FOMC announced that the Federal Reserve would also purchase longer-term Treasury securities initially at a pace of $45 billion per month after its program to extend the average maturity of its holdings of Treasury securities was completed in 2012. In December 2013, the FOMC announced that it would slow the pace of its additional asset purchases. In October 2014, the FOMC concluded its asset purchase program while maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Bank’s allocated share of activity related to domestic open market operations was 5.528 percent and 6.643 percent at December 31, 2014 and 2013, respectively. The Bank’s allocated share of Treasury securities, GSE debt securities, and federal agency and GSE MBS, net, excluding accrued interest, held in the SOMA at December 31 was as follows (in millions): header row column 1: category column 2: 2014: Par column 3: 2014 Unamortized premiums column 4: 2014 Unaccreted discounts column 5: 2014: Total amortized cost end header row Notes 2014: Par: 90,379 2014 Unamortized premiums: 1,530 2014 Unaccreted discounts: (427) 2014: Total amortized cost: 91,482 Bonds 2014: Par: 45,684 2014 Unamortized premiums: 6,889 2014 Unaccreted discounts: (536) 2014: Total amortized cost: 52,037 Total Treasury securities 2014: Par: 136,063 2014 Unamortized premiums: 8,419 2014 Unaccreted discounts: (963) 2014: Total amortized cost: 143,519 GSE debt securities 2014: Par: 2,138 2014 Unamortized premiums: 73 2014 Unaccreted discounts: 2014: Total amortized cost: $ 2,211 Federal agency and GSE MBS 2014: Par: 96,011 2014 Unamortized premiums: 2,942 2014 Unaccreted discounts: (54) 2014: Total amortized cost: 98,899 header row column 1: category column 2: 2013 Par column 3 2013 Unamortized premiums column 4 2013 Unaccreted discounts 2013: Total amortized cost end header row Notes 2013 Par: 97,479 2013 Unamortized premiums: 2,218 2013 Unaccreted discounts: (379) 2013: Total amortized cost : 99,318 Bonds 2013 Par: 49,247 2013 Unamortized premiums: 8,539 2013 Unaccreted discounts: (370) 2013: Total amortized cost : 57,416 Total Treasury securities 2013 Par: 146,726 2013 Unamortized premiums: 10,757 2013 Unaccreted discounts: (749) 2013: Total amortized cost : 156,734 GSE debt securities 2013 Par: 3,801 2013 Unamortized premiums: 126 2013 Unaccreted discounts: - 2013: Total amortized cost : 3,927 Federal agency and GSE MBS 2013 Par: 98,989 2013 Unamortized premiums: 2,975 2013 Unaccreted discounts: (72) 2013: Total amortized cost : 101,892 The FRBNY enters into transactions for the purchase of securities under agreements to resell and transactions to sell securities under agreements to repurchase as part of its monetary policy activities. These operations are for the purpose of further assessing the appropriate structure of such operations in supporting the implementation of monetary policy during normalization. In addition, transactions to sell securities under agreements to repurchase are entered into as part of a service offering to foreign official and international account holders. There were no material transactions related to securities purchased under agreements to resell during the years ended December 31, 2014 and 2013. Financial information related to securities sold under agreements to repurchase for the years ended December 31 was as follows (in millions): Header row column 1: category column 2: Allocated to the bank 2014 column 3: allocated to the Bank 2013 column 4 Total soma 2014 column 5 total SOMA 2013 end header row Overnight and term reverse repurchase agreements: Contract amount outstanding, end of year Allocated to the bank 2014: 21,930 allocated to the Bank 2013: 13,136 Total soma 2014: 396,705 total SOMA 2013: 197,755 Overnight and term reverse repurchase agreements: Average daily amount outstanding, during the year Allocated to the bank 2014: 7,461 allocated to the Bank 2013: 276 Total soma 2014: 130,281 total SOMA 2013: 4,161 Overnight and term reverse repurchase agreements: Maximum balance outstanding, during the year Allocated to the bank 2014: 21,930 allocated to the Bank 2013: 13,136 Total soma 2014: 396,705 total SOMA 2013: 197,755 Overnight and term reverse repurchase agreements: Securities pledged (par value), end of year Allocated to the bank 2014: 20,190 allocated to the Bank 2013: 12,490 Total soma 2014: 365,235 total SOMA 2013: 188,028 Overnight and term reverse repurchase agreements: Securities pledged (market value), end of year Allocated to the bank 2014: 22,031 allocated to the Bank 2013: 13,068 Total soma 2014: 398,540 total SOMA 2013: 196,726 Foreign official and international accounts: Contract amount outstanding, end of year Allocated to the bank 2014: 6,253 allocated to the Bank 2013: 7,850 Total soma 2014: 113,132 total SOMA 2013: 118,169 Foreign official and international accounts: Average daily amount outstanding, during the year Allocated to the bank 2014: 5,993 allocated to the Bank 2013: 6,182 Total soma 2014: 102,968 total SOMA 2013: 95,520 Foreign official and international accounts: Maximum balance outstanding, during the year Allocated to the bank 2014: 7,850 allocated to the Bank 2013: 7,850 Total soma 2014: 122,232 total SOMA 2013: 118,169 Foreign official and international accounts: Securities pledged (par value), end of year Allocated to the bank 2014: 5,990 allocated to the Bank 2013: 8,133 Total soma 2014: 108,355 total SOMA 2013: 122,424 Foreign official and international accounts: Securities pledged (market value), end of year Allocated to the bank 2014: 6,254 allocated to the Bank 2013: 7,850 Total soma 2014: 113,132 total SOMA 2013: 118,175 Total contract amount outstanding, end of year Allocated to the bank 2014: 28,183 allocated to the Bank 2013: 20,986 Total soma 2014: 509,837 total SOMA 2013: 315,924 Securities pledged as collateral, at December 31, 2014 and 2013, consisted solely of Treasury securities. The remaining maturity distribution of Treasury securities, GSE debt securities, federal agency and GSE MBS bought outright, and securities sold under agreements to repurchase that were allocated to the Bank at December 31, 2014 and 2013 was as follows (in millions): header row column 1: category column 2: Within 15 days column 3: 16 days to 90 days column 4: 91 days to 1 year column 5: Over 1 year to 5 years column 6: Over 5 years to 10 years column 7: Over 10 years column 8: Total end header row December 31, 2014: Treasury securities (par value) Within 15 days: - 16 days to 90 days: - 91 days to 1 year: 194 Over 1 year to 5 years: 61,522 Over 5 years to 10 years: 37,957 Over 10 years: 36,390 Total: 136,063 GSE debt securities (par value) Within 15 days: 60 16 days to 90 days: 39 91 days to 1 year: 218 Over 1 year to 5 years: 1,691 Over 5 years to 10 years: Over 10 years: 130 Total: 2,138 Federal agency and GSE MBS (par value)[see footnote 1] Within 15 days: - 16 days to 90 days: - 91 days to 1 year: - Over 1 year to 5 years: Over 5 years to 10 years: 357 Over 10 years: 95,654 Total: 96,011 Securities sold under agreements to repurchase (contract amount) Within 15 days: 28,183 16 days to 90 days: - 91 days to 1 year: - Over 1 year to 5 years: Over 5 years to 10 years: - Over 10 years: - Total: 28,183 December 31, 2013: Treasury securities (par value) Within 15 days: - 16 days to 90 days: 20 91 days to 1 year: 12 Over 1 year to 5 years: 50,707 Over 5 years to 10 years: 57,441 Over 10 years: 38,546 Total: 146,726 GSE debt securities (par value) Within 15 days: 153 16 days to 90 days: 503 91 days to 1 year: 576 Over 1 year to 5 years: 2,409 Over 5 years to 10 years: 4 Over 10 years: 156 Total: 3,801 Federal agency and GSE MBS (par value)1 Within 15 days: - 16 days to 90 days: - 91 days to 1 year: - Over 1 year to 5 years: - Over 5 years to 10 years: 169 Over 10 years: 98,820 Total: 98,989 Securities sold under agreements to repurchase (contract amount) Within 15 days: 20,986 16 days to 90 days: - 91 days to 1 year: - Over 1 year to 5 years: Over 5 years to 10 years: - Over 10 years: - Total: 20,986 [fotne]1 T he p a r am ount sh o w n for federal ag en cy and GSE M BS is th e rem aining principal balance o f th e secu rities.endfot1 Federal agency and GSE MBS are reported at stated maturity in the table above. The estimated weighted average life of these securities, which differs from the stated maturity primarily because it factors in scheduled payments and prepayment assumptions, was approximately 5.7 and 6.5 years as of December 31, 2014 and 2013, respectively. The amortized cost and par value of Treasury securities and GSE debt securities that were loaned from the SOMA under securities lending agreements, at December 31 were as follows (in millions): header row column 1: category column 2: Allocated to the bank 2014 column 3: allocated to the Bank 2013 column 4: Total soma 2014 column 5: total SOMA 2013 end header row Treasury securities (amortized cost) Allocated to the bank 2014: 616 allocated to the Bank 2013: 1,139 Total soma 2014: 11,144 total SOMA 2013: 17,153 Treasury securities (par value) Allocated to the bank 2014: 559 allocated to the Bank 2013: 1,026 Total soma 2014: 10,105 total SOMA 2013: 15,447 GSE debt securities (amortized cost) Allocated to the bank 2014: 35 allocated to the Bank 2013: 73 Total soma 2014: 633 total SOMA 2013: 1,099 GSE debt securities (par value) Allocated to the bank 2014: 34 allocated to the Bank 2013: 70 Total soma 2014: 616 total SOMA 2013: 1,055 The FRBNY enters into commitments to buy and sell Treasury securities and records the related securities on a settlement-date basis. As of December 31, 2014, there were no outstanding commitments. The FRBNY enters into commitments to buy and sell federal agency and GSE MBS and records the related securities on a settlement-date basis. As of December 31, 2014, the total purchase price of the federal agency and GSE MBS under outstanding purchase commitments was $28,692 million, none of which was related to dollar rolls. The total purchase price of outstanding purchase commitments allocated to the Bank was $1,586 million, none of which was related to dollar rolls. As of December 31, 2014, there were no outstanding sales commitments for federal agency and GSE MBS. These commitments, which had contractual settlement dates extending through January 2015, are principally for the purchase of TBA MBS for which the number and identity of the pools that will be delivered to fulfill the commitment are unknown at the time of the trade. These commitments are subject to varying degrees of off-balance-sheet market risk and counterparty credit risk that result from their future settlement. The FRBNY requires the posting of cash collateral for MBS commitments as part of its risk management practices used to mitigate the counterparty credit risk. Other assets consists primarily of cash and short-term investments related to the federal agency and GSE MBS portfolio. Other liabilities, which are primarily related to federal agency and GSE MBS purchases and sales, includes the FRBNY’s obligation to return cash margin posted by counterparties as collateral under commitments to purchase and sell federal agency and GSE MBS. In addition, other liabilities includes obligations that arise from the failure of a seller to deliver MBS to the FRBNY on the settlement date. Although the FRBNY has ownership of and records its investments in the MBS as of the contractual settlement date, it is not obligated to make payment until the securities are delivered, and the amount included in other liabilities represents the FRBNY’s obligation to pay for the securities when delivered. The amount of other assets and other liabilities allocated to the Bank and held in the SOMA at December 31 was as follows (in millions): header row column 1: category column 2: Allocated to the bank 2014 column 3: allocated to the Bank 2013 column 4: Total soma 2014 column 5: total SOMA 2013 end header row Other assets: MBS portfolio related cash and short term investments Allocated to the bank 2014: 2 allocated to the Bank 2013: - Total soma 2014: 28 total SOMA 2013: 1 Other assets: Other Allocated to the bank 2014: - allocated to the Bank 2013: - Total soma 2014: 1 total SOMA 2013: 1 Total other assets Allocated to the bank 2014: 2 allocated to the Bank 2013: - Total soma 2014: 29 total SOMA 2013: 2 Other liabilities: Cash margin Allocated to the bank 2014: 44 allocated to the Bank 2013: 87 Total soma 2014: 793 total SOMA 2013: 1,320 Other liabilities: Obligations from MBS trans action fails Allocated to the bank 2014: 2 allocated to the Bank 2013: 1 Total soma 2014: 30 total SOMA 2013: 11 Other liabilities: Other Allocated to the bank 2014: - allocated to the Bank 2013: - Total soma 2014: 7 total SOMA 2013: Total other liabilities Allocated to the bank 2014: 46 allocated to the Bank 2013: 88 Total soma 2014: 830 total SOMA 2013: 1,331 Accrued interest receivable on domestic securities holdings was $25,561 million and $23,405 million as of December 31, 2014 and 2013, respectively, of which $1,413 million and $1,555 million, respectively, was allocated to the Bank. These amounts are reported as a component of “System Open Market Account: Accrued interest receivable” in the Statements of Condition. Information about transactions related to Treasury securities, GSE debt securities, and federal agency and GSE MBS during the years ended December 31, 2014 and 2013, is summarized as follows (in millions): header row column 1: Category column 2: Allocated to the Bank: Notes Column 3: Allocated to the Bank: Bonds Column 4: Allocated to the Bank: Total Treasury securities Column 5: Allocated to the Bank: GSE debt securities Column 6: Allocated to the Bank: Federal agency and GSE MBS end header row Balance at December 31, 2012 Allocated to the Bank: Notes: 68,868 Allocated to the Bank: Bonds: 40,214 Allocated to the Bank: Total Treasury securities: 109,082 Allocated to the Bank: GSE debt securities: 4,792 Allocated to the Bank: Federal agency and GSE MBS: 57,298 Balance at December 31, 2012: Purchases[see footnote]1 Allocated to the Bank: Notes: 23,178 Allocated to the Bank: Bonds: 13,307 Allocated to the Bank: Total Treasury securities: 36,485 Allocated to the Bank: GSE debt securities: - Allocated to the Bank: Federal agency and GSE MBS: 55,615 Balance at December 31, 2012: Sales [see footnote]1 Allocated to the Bank: Notes: - Allocated to the Bank: Bonds: - Allocated to the Bank: Total Treasury securities: Allocated to the Bank: GSE debt securities: - Allocated to the Bank: Federal agency and GSE MBS: Balance at December 31, 2012: Realized gains, net [see footnote]2 Allocated to the Bank: Notes: - Allocated to the Bank: Bonds: - Allocated to the Bank: Total Treasury securities: Allocated to the Bank: GSE debt securities: - Allocated to the Bank: Federal agency and GSE MBS: Balance at December 31, 2012: Principal payments and maturities Allocated to the Bank: Notes: (1) Allocated to the Bank: Bonds: - Allocated to the Bank: Total Treasury securities: (1) Allocated to the Bank: GSE debt securities: (1,271) Allocated to the Bank: Federal agency and GSE MBS: (17,654) Balance at December 31, 2012: Amortization of premiums and accretion of discounts, net Allocated to the Bank: Notes: (390) Allocated to the Bank: Bonds: (616) Allocated to the Bank: Total Treasury securities: (1,006) Allocated to the Bank: GSE debt securities: (51) Allocated to the Bank: Federal agency and GSE MBS: (453) Balance at December 31, 2012: Inflation adjustment on inflation-indexed securities Allocated to the Bank: Notes: 19 Allocated to the Bank: Bonds: 43 Allocated to the Bank: Total Treasury securities: 62 Allocated to the Bank: GSE debt securities: - Allocated to the Bank: Federal agency and GSE MBS: Balance at December 31, 2012: Annual reallocation adjustment [see footnote]3 Allocated to the Bank: Notes: 7,644 Allocated to the Bank: Bonds: 4,468 Allocated to the Bank: Total Treasury securities: 12,112 Allocated to the Bank: GSE debt securities: 457 Allocated to the Bank: Federal agency and GSE MBS: 7,086 Balance at December 31, 2013 Allocated to the Bank: Notes: 99,318 Allocated to the Bank: Bonds: 57,416 Allocated to the Bank: Total Treasury securities: 156,734 Allocated to the Bank: GSE debt securities: 3,927 Allocated to the Bank: Federal agency and GSE MBS: 101,892 Balance at December 31, 2013: Purchases [see footnote]1 Allocated to the Bank: Notes: 9,977 Allocated to the Bank: Bonds: 5,157 Allocated to the Bank: Total Treasury securities: 15,134 Allocated to the Bank: GSE debt securities: - Allocated to the Bank: Federal agency and GSE MBS: 27,504 Balance at December 31, 2013: Sales [see footnote]1 Allocated to the Bank: Notes: - Allocated to the Bank: Bonds: - Allocated to the Bank: Total Treasury securities: Allocated to the Bank: GSE debt securities: - Allocated to the Bank: Federal agency and GSE MBS: (2) Balance at December 31, 2013: Realized gains, net [see footnote]2 Allocated to the Bank: Notes: - Allocated to the Bank: Bonds: - Allocated to the Bank: Total Treasury securities: Allocated to the Bank: GSE debt securities: - Allocated to the Bank: Federal agency and GSE MBS: Balance at December 31, 2013: Principal payments and maturities Allocated to the Bank: Notes: (30) Allocated to the Bank: Bonds: - Allocated to the Bank: Total Treasury securities: (30) Allocated to the Bank: GSE debt securities: (1,135) Allocated to the Bank: Federal agency and GSE MBS: (11,684) Balance at December 31, 2013: Amortization of premiums and accretion of discounts, net Allocated to the Bank: Notes: (323) Allocated to the Bank: Bonds: (590) Allocated to the Bank: Total Treasury securities: (913) Allocated to the Bank: GSE debt securities: (34) Allocated to the Bank: Federal agency and GSE MBS: (413) Balance at December 31, 2013: Inflation adjustment on inflation-indexed securities Allocated to the Bank: Notes: 29 Allocated to the Bank: Bonds: 75 Allocated to the Bank: Total Treasury securities: 104 Allocated to the Bank: GSE debt securities: - Allocated to the Bank: Federal agency and GSE MBS: Balance at December 31, 2013: Annual reallocation adjustment [see footnote]3 Allocated to the Bank: Notes: (17,489) Allocated to the Bank: Bonds: (10,021) Allocated to the Bank: Total Treasury securities: (27,510) Allocated to the Bank: GSE debt securities: (547) Allocated to the Bank: Federal agency and GSE MBS: (18,398) Balance at December 31, 2014 Allocated to the Bank: Notes: 91,482 Allocated to the Bank: Bonds: 52,037 Allocated to the Bank: Total Treasury securities: 143,519 Allocated to the Bank: GSE debt securities: 2,211 Allocated to the Bank: Federal agency and GSE MBS: 98,899 Year-ended December 31, 2013 Supplemental information - par value of transactions: Purchases[see footnote]4 Allocated to the Bank: Notes: 23,088 Allocated to the Bank: Bonds: 11,967 Allocated to the Bank: Total Treasury securities: 35,055 Allocated to the Bank: GSE debt securities: - Allocated to the Bank: Federal agency and GSE MBS: 53,893 Year-ended December 31, 2013 Supplemental information - par value of transactions: Sales Allocated to the Bank: Notes: - Allocated to the Bank: Bonds: - Allocated to the Bank: Total Treasury securities: - Allocated to the Bank: GSE debt securities: - Allocated to the Bank: Federal agency and GSE MBS: Year-ended December 31, 2014 Supplemental information - par value of transactions: Purchases[see footnote]4 Allocated to the Bank: Notes: 10,119 Allocated to the Bank: Bonds: 5,055 Allocated to the Bank: Total Treasury securities: 15,174 Allocated to the Bank: GSE debt securities: - Allocated to the Bank: Federal agency and GSE MBS: 26,581 Year-ended December 31, 2014 Supplemental information - par value of transactions: Sales Allocated to the Bank: Notes: - Allocated to the Bank: Bonds: - Allocated to the Bank: Total Treasury securities: - Allocated to the Bank: GSE debt securities: - Allocated to the Bank: Federal agency and GSE MBS: (2) fotne]1[ Purchases and sales may include payments and receipts related to principal, premiums, discounts, and inflation compensation adjustments to the basis of inflation-indexed securities. The amount reported as sales includes the realized gains and losses on such transactions. Purchases and sales exclude M B S T B A transactions that are settled on a net basis.[endfot1] fotne]2[ Realized gains, net offset the amount of realized gains and losses included in the reported sales amount.[endfot2] [fotne]3 Reflects the annual adjustment to the Bank's allocated portion of the related SOMA securities that results from the annual settlement of the interdistrict settlement account, as discussed in N ote 3i.[endfot3] [fotne]4 Includes inflation compensation.[endfot4] Total SOMA: Notes: (21) Total SOMA: Bonds: - Total SOMA: Total Treasury securities: (21) Total SOMA: GSE debt securities: (19,562) Total SOMA: Federal agency and GSE MBS: (273,990) Balance at December 31, 2012: Amortization of premiums and accretion of discounts, net Total SOMA: Notes: (6,024) Total SOMA: Bonds: (9,503) Total SOMA: Total Treasury securities: (15,527) Total SOMA: GSE debt securities: (795) Total SOMA: Federal agency and GSE MBS: (7,008) Balance at December 31, 2012: Inflation adjustment on inflation-indexed securities Total SOMA: Notes: 285 Total SOMA: Bonds: 645 Total SOMA: Total Treasury securities: 930 Total SOMA: GSE debt securities: - Total SOMA: Federal agency and GSE MBS: Balance at December 31, 2013: Total SOMA: Notes: 1,495,115 Total SOMA: Bonds: 864,319 Total SOMA: Total Treasury securities: 2,359,434 Total SOMA: GSE debt securities: 59,122 Total SOMA: Federal agency and GSE MBS: 1,533,860 Balance at December 31, 2013: Purchases [see footnote]1 Total SOMA: Notes: 165,306 Total SOMA: Bonds: 85,826 Total SOMA: Total Treasury securities: 251,132 Total SOMA: GSE debt securities: - Total SOMA: Federal agency and GSE MBS: 466,384 Balance at December 31, 2013: Sales [see footnote]1 Total SOMA: Notes: - Total SOMA: Bonds: - Total SOMA: Total Treasury securities: - Total SOMA: GSE debt securities: - Total SOMA: Federal agency and GSE MBS: (29) Balance at December 31, 2013: Realized gains, net [see footnote]2 Total SOMA: Notes: - Total SOMA: Bonds: - Total SOMA: Total Treasury securities: - Total SOMA: GSE debt securities: - Total SOMA: Federal agency and GSE MBS: Balance at December 31, 2013: Principal payments and maturities Total SOMA: Notes: (475) Total SOMA: Bonds: - Total SOMA: Total Treasury securities: (475) Total SOMA: GSE debt securities: (18,544) Total SOMA: Federal agency and GSE MBS: (203,933) Balance at December 31, 2013: Amortization of premiums and accretion of discounts, net Total SOMA: Notes: (5,545) Total SOMA: Bonds: (10,132) Total SOMA: Total Treasury securities: (15,677) Total SOMA: GSE debt securities: (588) Total SOMA: Federal agency and GSE MBS: (7,199) Balance at December 31, 2013: Inflation adjustment on inflation-indexed securities Total SOMA: Notes: 500 Total SOMA: Bonds: 1,327 Total SOMA: Total Treasury securities: 1,827 Total SOMA: GSE debt securities: - Total SOMA: Federal agency and GSE MBS: Balance at December 31, 2014 Total SOMA: Notes: 1,654,901 Total SOMA: Bonds: 941,340 Total SOMA: Total Treasury securities: 2,596,241 Total SOMA: GSE debt securities: 39,990 Total SOMA: Federal agency and GSE MBS: 1,789,083 Year-ended December 31, 2013 Supplemental information - par value of transactions: Purchases [see footnote]3 Total SOMA: Notes: 356,766 Total SOMA: Bonds: 184,956 Total SOMA: Total Treasury securities: 541,722 Total SOMA: GSE debt securities: - Total SOMA: Federal agency and GSE MBS: 837,490 Year-ended December 31, 2013 Supplemental information - par value of transactions: Sales Total SOMA: Notes: - Total SOMA: Bonds: - Total SOMA: Total Treasury securities: - Total SOMA: GSE debt securities: - Total SOMA: Federal agency and GSE MBS: Year-ended December 31, 2014 Supplemental information - par value of transactions: Purchases [see footnote]3 Total SOMA: Notes: 167,497 Total SOMA: Bonds: 83,739 Total SOMA: Total Treasury securities: 251,236 Total SOMA: GSE debt securities: - Total SOMA: Federal agency and GSE MBS: 450,633 Year-ended December 31, 2014 Supplemental information - par value of transactions: Sales Total SOMA: Notes: - Total SOMA: Bonds: - Total SOMA: Total Treasury securities: - Total SOMA: GSE debt securities: - Total SOMA: Federal agency and GSE MBS: (29) note]1[f Purchases and sales may include payments and receipts related to principal, premiums, discounts, and inflation compensation adjustments to the basis of inflation-indexed securities. The amount reported as sales includes the realized gains and losses on such transactions. Purchases and sales exclude M BS TBA transactions that are settled on a net basis.[endoft1] note]2[f Realized gains, net offset the amount o f realized gains and losses included in the reported sales amount.[endoft2] note]3[f Includes inflation compensation.[endoft3] b. Foreign Currency Denominated Investments The FRBNY conducts foreign currency operations and, on behalf of the Reserve Banks, holds the resulting foreign currency denominated investments in the SOMA. The FRBNY holds foreign currency deposits with foreign central banks and the Bank for International Settlements and invests in foreign government debt instruments of Germany, France, and Japan. These foreign government debt instruments are backed by the full faith and credit of the issuing foreign governments. In addition, the FRBNY enters into transactions to purchase Euro-denominated government debt securities under agreements to resell for which the accepted collateral is the debt instruments issued by the governments of Belgium, France, Germany, Italy, the Netherlands, and Spain, which are backed by the full faith and credit of those issuing governments. The Bank’s allocated share of activity related to foreign currency operations was 5.750 percent and 5.697 percent at December 31, 2014 and 2013, respectively. Information about foreign currency denominated investments valued at amortized cost and foreign currency market exchange rates at December 31headrowclumn1:tgy2ABk043TSOM 5 was as follows (in millions): vb8J -G 6,75hm M O S k201439T laB eigncydpstA uro:F E Accrued interest receivable on foreign currency denominated investments was $83 million and $88 million as of December 31, 2014 and 2013, respectively, of which $5 million was allocated to the Bank at each year end. These amounts are reported as a component of “System Open Market Account: Accrued interest receivable” in the Statements of Condition. The remaining maturity distribution of foreign currency denominated investments that were allocated to the Bank at December 31, 2014 and 2013, was as follows (in millions): 87Jp b,E D vT 36904O ih5sC n1:tgy2W clum eadrow H There were no foreign exchange contracts related to open market operations outstanding as of December 31, 2014. The FRBNY enters into commitments to buy foreign government debt instruments and records the related securities on a settlement-date basis. As of December 31, 2014, there were $137 million of outstanding commitments to purchase foreign government debt instruments, of which $8 million was allocated to the Bank. These securities settled on January 5, 2015, and replaced Euro-denominated government debt instruments held in the SOMA that matured on that date. During 2014, there were purchases and maturities of foreign government debt instruments of $5,494 million and $3,337 million, respectively, of which $316 million and $192 million, respectively, were allocated to the Bank. There were no sales of foreign government debt instruments in 2014. In connection with its foreign currency activities, the FRBNY may enter into transactions that are subject to varying degrees of off-balance-sheet market risk and counterparty credit risk that result from their future settlement. The FRBNY controls these risks by obtaining credit approvals, establishing transaction limits, receiving collateral in some cases, and performing monitoring procedures. At December 31, 2014 and 2013, there was no balance outstanding under the authorized warehousing facility. There were no transactions related to the authorized reciprocal currency arrangements with the Bank of Canada and the Bank of Mexico during the years ended December 31, 2014 and 2013. Foreign currency working balances held and foreign exchange contracts executed by the Bank to facilitate its international payments and currency transactions it made on behalf of foreign central banks and U.S. official institution customers were not material as of December 31, 2014 and 2013. c. Central Bank Liquidity Swaps U.S. Dollar Liquidity Swaps The Bank’s allocated share of U.S. dollar liquidity swaps was approximately 5.750 percent and 5.697 percent at December 31, 2014 and 2013, respectively. The total foreign currency held under U.S. dollar liquidity swaps in the SOMA at December 31, 2014 and 2013, was $1,528 million and $272 million, respectively, of which $88 million and $15 million, respectively, was allocated to the Bank. The remaining maturity distribution of U.S. dollar liquidity swaps that were allocated to the Bank at December 31 was as followsheadrow i5s3T (in millions): n1:tgy204W clum i-Jp8 4W E ehrw n5:20136dayst9T colum Foreign Currency Liquidity Swaps At December 31, 2014 and 2013, there was no balance outstanding related to foreign currency liquidity swaps. d. Fair Value o f SOMA Assets and Liabilities The fair value amounts below are presented solely for informational purposes. Although the fair value of SOMA security holdings can be substantially greater than or less than the recorded value at any point in time, these unrealized gains or losses have no effect on the ability of the Reserve Banks, as the central bank, to meet their financial obligations and responsibilities. Because SOMA securities are recorded at amortized cost, cumulative unrealized gains (losses) are not recognized in the Statements of Condition and the changes in cumulative unrealized gains (losses) are not recognized in the Statements of Income and Comprehensive Income. The fair value of the Treasury securities, GSE debt securities, federal agency and GSE MBS, and foreign government debt instruments in the SOMA’s holdings is subject to market risk, arising from movements in market variables such as interest rates and credit risk. The fair value of federal agency and GSE MBS is also affected by the expected rate of prepayments of mortgage loans underlying the securities. The fair value of foreign government debt instruments is also affected by currency risk. Based on evaluations performed as of December 31, 2014, there are no credit impairments of SOMA securities holdings. The following table presents the amortized cost, fair value, and cumulative unrealized gains (losses) on the Treasury securities, GSE debt securities, and federal agency and GSE MBS held in the SOMA at December 31 (in millions): Allocated to the Bank header row column 1: category category 2: 2014: Amortized cost category 3: 2014: Fair value category 4: 2014:Cumulative unrealized gains (losses) category 5: 2013: Amortized cost category 6: 2013: Fair value category 7: 2013: Cumulative unrealized gains (losses) end header row Treasury securities : Notes 2014: Amortized cost: 91,482 2014: Fair value: 93,056 2014:Cumulative unrealized gains (losses): 1,574 2013: Amortized cost: 99,318 2013: Fair value: 99,577 2013: Cumulative unrealized gains (losses): 259 Treasury securities Bonds 2014: Amortized cost: 52,037 2014: Fair value: 58,205 2014:Cumulative unrealized gains (losses): 6,168 2013: Amortized cost: 57,416 2013: Fair value: 55,955 2013: Cumulative unrealized gains (losses): (1,461) Total Treasury securities 2014: Amortized cost: 143,519 2014: Fair value: 151,261 2014:Cumulative unrealized gains (losses): 7,742 2013: Amortized cost: 156,734 2013: Fair value: 155,532 2013: Cumulative unrealized gains (losses): (1,202) GSE debt securities 2014: Amortized cost: 2,211 2014: Fair value: 2,349 2014:Cumulative unrealized gains (losses): 138 2013: Amortized cost: 3,927 2013: Fair value: 4,134 2013: Cumulative unrealized gains (losses): 207 Federal agency and GSE MBS 2014: Amortized cost: 98,899 2014: Fair value: 100,639 2014:Cumulative unrealized gains (losses): 1,740 2013: Amortized cost: 101,892 2013: Fair value: 99,349 2013: Cumulative unrealized gains (losses): (2,543) Total domestic SOMA portfolio securities holdings 2014: Amortized cost: 244,629 2014: Fair value: 254,249 2014:Cumulative unrealized gains (losses): 9,620 2013: Amortized cost: 262,553 2013: Fair value: 259,015 2013: Cumulative unrealized gains (losses): (3,538) Memorandum - Commitments for: Purchases of Treasury securities 2014: Amortized cost: - 2014: Fair value: - 2014:Cumulative unrealized gains (losses): 2013: Amortized cost: - 2013: Fair value: - 2013: Cumulative unrealized gains (losses): Memorandum - Commitments for: Purchases of Federal agency and GSE MBS 2014: Amortized cost: 1,586 2014: Fair value: 1,592 2014: Cumulative unrealized gains (losses): 6 2013: Amortized cost: 3,943 2013: Fair value: 3,928 2013: Cumulative unrealized gains (losses): (15) Memorandum - Commitments for: Sales of Federal agency and GSE MBS 2014: Amortized cost: - 2014: Fair value: - 2014:Cumulative unrealized gains (losses): - 2013: Amortized cost: - 2013: Fair value: - 2013: Cumulative unrealized gains (losses): - Total SOMA header row column 1: category column 2: 2014: Amortized cost column 3: 2014: Fair value column 4: 2014: Cumulative unrealized gains (losses) column 5: 2013: Amortized cost column 6: 2013: Fair value column 7: 2013: Cumulative unrealized gains (losses) end header row Treasury securities: Notes 2014: Amortized cost: 1,654,901 2014: Fair value: 1,683,377 2014: Cumulative unrealized gains (losses): 28,476 2013: Amortized cost: 1,495,115 2013: Fair value: 1,499,000 2013: Cumulative unrealized gains (losses): 3,885 Treasury securities: Bonds 2014: Amortized cost: 941,340 2014: Fair value: 1,052,916 2014: Cumulative unrealized gains (losses): 111,576 2013: Amortized cost: 864,319 2013: Fair value: 842,336 2013: Cumulative unrealized gains (losses): (21,983) Total Treasury securities 2014: Amortized cost: 2,596,241 2014: Fair value: 2,736,293 2014: Cumulative unrealized gains (losses): 140,052 2013: Amortized cost: 2,359,434 2013: Fair value: 2,341,336 2013: Cumulative unrealized gains (losses): (18,098) GSE debt securities 2014: Amortized cost: 39,990 2014: Fair value: 42,499 2014: Cumulative unrealized gains (losses): 2,509 2013: Amortized cost: 59,122 2013: Fair value: 62,236 2013: Cumulative unrealized gains (losses): 3,114 Federal agency and GSE MBS 2014: Amortized cost: 1,789,083 2014: Fair value: 1,820,544 2014: Cumulative unrealized gains (losses): 31,461 2013: Amortized cost: 1,533,860 2013: Fair value: 1,495,572 2013: Cumulative unrealized gains (losses): (38,288) Total domestic SOMA portfolio securities holdings 2014: Amortized cost: 4,425,314 2014: Fair value: 4,599,336 2014: Cumulative unrealized gains (losses): 174,022 2013: Amortized cost: 3,952,416 2013: Fair value: 3,899,144 2013: Cumulative unrealized gains (losses): (53,272) Memorandum - Commitments for: Purchases of Treasury securities 2014: Amortized cost: - 2014: Fair value: - 2014: Cumulative unrealized gains (losses): 2013: Amortized cost: - 2013: Fair value: - 2013: Cumulative unrealized gains (losses): Memorandum - Commitments for: Purchases of Federal agency and GSE MBS 2014: Amortized cost: 28,692 2014: Fair value: 28,803 2014: Cumulative unrealized gains (losses): 111 2013: Amortized cost: 59,350 2013: Fair value: 59,129 2013: Cumulative unrealized gains (losses): (221) Memorandum - Commitments for: Sales of Federal agency and GSE MBS 2014: Amortized cost: - 2014: Fair value: - 2014: Cumulative unrealized gains (losses): - 2013: Amortized cost: - 2013: Fair value: - 2013: Cumulative unrealized gains (losses): - The fair value of Treasury securities and GSE debt securities was determined using pricing services that provide market consensus prices based on indicative quotes from various market participants. The fair value of federal agency and GSE MBS was determined using a pricing service that utilizes a model-based approach that considers observable inputs for similar securities. The cost basis of securities purchased under agreements to resell, securities sold under agreements to repurchase, and other investments held in the SOMA domestic portfolio approximate fair value. At December 31, 2014 and 2013, the fair value of foreign currency denominated investments was $20,996 million and $23,802 million, respectively, of which $1,207 million and $1,356 million, respectively, was allocated to the Bank. The fair value of foreign government debt instruments was determined using pricing services that provide market consensus prices based on indicative quotes from various market participants. The fair value of foreign currency deposits and securities purchased under agreements to resell was determined by reference to market interest rates. The following table provides additional information on the amortized cost and fair values of the federal agency and GSE MBS portfolio at December 31 (in millions): v z3F gyp204A S B istbfM n1:D clum headrow M O S 7698,T k.% B avhw rtizeds5F n4:2013A colum The following tables present the realized gains and the change in the cumulative unrealized gains (losses) related to SOMA domestic securities holdings during the years ended December 31, 2014 and 2013 (in millions): Allocated to Bank header row column 1: category column 2: 2014 Realized gains [see footnote]1 column 3: 2014 Change in cumulative unrealized gains (losses)[see footnote]2 column 4: 2013 Realized gains [see footnote]1 column 5: 2013 Change in cumulative unrealized gains (losses) [see footnote]2 end header row Treasury securities 2014 Realized gains: - 2014 Change in cumulative unrealized gains (losses): 9,335 2013 Realized gains: - 2013 Change in cumulative unrealized gains (losses): (12,206) GSE debt securities 2014 Realized gains: - 2014 Change in cumulative unrealized gains (losses): (34) 2013 Realized gains: - 2013 Change in cumulative unrealized gains (losses): (158) Federal agency and GSE MBS 2014 Realized gains: 5 2014 Change in cumulative unrealized gains (losses): 4,134 2013 Realized gains: 4 2013 Change in cumulative unrealized gains (losses): (5,412) Total 2014 Realized gains: 5 13,435 2013 Realized gains: 4 2013 Change in cumulative unrealized gains (losses): (17,776) Total SOMA header row column 1: category column 2: 2014 Realized gains [see footnote]1 column 3: 2014 Change in cumulative unrealized gains (losses)[see footnote]2 column 4: 2013 Realized gains [see footnote]1 column 5: 2013 Change in cumulative unrealized gains (losses) [see footnote]2 end header row Treasury securities 2014 Realized gains: - 2014 Change in cumulative unrealized gains (losses): 158,150 2013 Realized gains: - 2013 Change in cumulative unrealized gains (losses): (183,225) GSE debt securities 2014 Realized gains: - 2014 Change in cumulative unrealized gains (losses): (605) 2013 Realized gains: - 2013 Change in cumulative unrealized gains (losses): (2,411) Federal agency and GSE MBS 2014 Realized gains: 81 2014 Change in cumulative unrealized gains (losses): 69,749 2013 Realized gains: 51 2013 Change in cumulative unrealized gains (losses): (81,957) Total 2014 Realized gains: 81 2014 Change in cumulative unrealized gains (losses): 227,294 2013 Realized gains: 51 2013 Change in cumulative unrealized gains (losses): (267,593) [fotne]1Realized gains are reported in “Non-interest income: System Open Market Account” in the Statements of Income and Comprehensive Income.[endfot1] [fotne]2Because SOMA securities are recorded at amortized cost, the change in the cumulative unrealized gains (losses) is not reported in the Statements of Income and Comprehensive Income.[endfot2] The amount of change in cumulative unrealized gains position, net, related to foreign currency denominated investments was a gain of $18 million and a loss of $90 million for the years ended December 31, 2014 and 2013, respectively, of which $1 million and $5 million, respectively, were allocated to the Bank. Accounting Standards Codification (ASC) Topic 820 (ASC 820) defines fair value 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. ASC 820 establishes a three-level fair value hierarchy that distinguishes between assumptions developed using market data obtained from independent sources (observable inputs) and the Bank’s assumptions developed using the best information available in the circumstances (unobservable inputs). The three levels established by ASC 820 are described as follows: • Level 1 - Valuation is based on quoted prices for identical instruments traded in active markets. • Level 2 - Valuation is based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market. • Level 3 - Valuation is based on model-based techniques that use significant inputs and assumptions not observable in the market. These unobservable inputs and assumptions reflect the Bank’s estimates of inputs and assumptions that market participants would use in pricing the assets and liabilities. Valuation techniques include the use of option pricing models, discounted cash flow models, and similar techniques. Treasury securities, GSE debt securities, federal agency and GSE MBS, and foreign government debt instruments are classified as Level 2 within the ASC 820 hierarchy because the fair values are based on indicative quotes and other observable inputs obtained from independent pricing services. The fair value hierarchy level of SOMA financial assets is not necessarily an indication of the risk associated with those assets. 6. rcoxfhybB t,2014:39D iseandqupm k Ba n k P r e m is e s , E q u ip m e n t , a n d So f t w a r e B a n k p re m ise s a n d e q u ip m e n t a t D e c eheadrow n1:tgy2043m b e r 31 w e re a s fo llo w s (in m illio n s): clum (6) b9A 75S F lov201438gchyC isdqut:L ankprem B The Bank leases space to outside tenants with remaining lease terms ranging from one to eight years. Rental income from such leases was $2 million for each of the years ended December 31, 2014 and 2013, and is reported as a component of “Non-interest income: Other” in the Statements of Income and Comprehensive Income. Future minimum lease payments that the Bank will receive under noncancelable lease agreements in existence at December 31, 2014, are as follows (in millions): 2015 2016 2017 2018 2019 Thereafter Total 2.5 1.3 1.1 1.1 0.9 1.4 _8.3 The Bank had capitalized software assets, net of amortization, of $29 million and $22 million at December 31, 2014 and 2013, respectively. Amortization expense was $39 million and $6 million for the years ended December 31, 2014 and 2013, respectively. During 2014, internally developed software assets totaling $37 million were transferred from the Federal Reserve Bank of Minneapolis to the Bank. Capitalized software assets are reported as a component of “Other assets” in the Statements of Condition and the related amortization is reported as a component of “Operating expenses: Other” in the Statements of Income and Comprehensive Income. Transferred software assets related to a multiyear ACH technology initiative were impaired and written off due to the suspension of development efforts. The resulting asset impairment loss of $23 million for the year ended December 31, 2014 is reported as a component of “Operating expenses: Other” in the Statements of Income and Comprehensive Income. The Bank had no impairment losses in 2013. As a result of the Bank’s restructuring plan as discussed in Note 11, the Bank sold the Nashville building during the second quarter of 2013. This sale resulted in a $546 thousand gain. This gain is reflected in “Non-interest income: Othef’ in the Statements of Income and Comprehensive Income. Co m m it m e n t s and C o n t in g e n c ie s In conducting its operations, the Bank enters into contractual commitments, normally with fixed expiration dates or termination provisions, at specific rates and for specific purposes. At December 31, 2014, the Bank was obligated under noncancelable leases for premises and equipment with remaining terms ranging from one to approximately five years. These leases provide for increased lease payments based upon increases in real estate taxes and operating costs. Rental expense under operating leases for certain operating facilities, warehouses, and office equipment (including taxes, insurance, and maintenance when included in rent), net of sublease rentals, was $1 million for each of the years ended December 31, 2014 and 2013. Future minimum lease payments under noncancelable operating leases, net of sublease rentals, with remaining terms of one year or more, at December 31, 2014, are as follows (in thousands): 2015 2016 2017 2018 2019 Future minimum lease payments Operating leases 255 242 226 230 196 1,149 _ 7. At December 31, 2014, there were no material unrecorded unconditional purchase commitments or obligations in excess of one year. Under the Insurance Agreement of the Reserve Banks, each of the Reserve Banks has agreed to bear, on a perincident basis, a share of certain losses in excess of 1 percent of the capital paid-in of the claiming Reserve Bank, up to 50 percent of the total capital paid-in of all Reserve Banks. Losses are borne in the ratio of a Reserve Bank’s capital paid-in to the total capital paid-in of all Reserve Banks at the beginning of the calendar year in which the loss is shared. No claims were outstanding under the agreement at December 31, 2014 and 2013. The Bank is involved in certain legal actions and claims arising in the ordinary course of business. Although it is difficult to predict the ultimate outcome of these actions, in management’s opinion, based on discussions with counsel, the legal actions and claims will be resolved without material adverse effect on the financial position or results of operations of the Bank. 8. Re t ir e m e n t and T h r if t P la n s Retirement Plans The Bank currently offers three defined benefit retirement plans to its employees, based on length of service and level of compensation. Substantially all of the employees of the Reserve Banks, Board of Governors, and Office of Employee Benefits of the Federal Reserve System participate in the Retirement Plan for Employees of the Federal Reserve System (System Plan). Under the Dodd-Frank Act, newly hired Bureau employees are eligible to participate in the System Plan. In addition, employees at certain compensation levels participate in the Benefit Equalization Retirement Plan (BEP) and certain Reserve Bank officers participate in the Supplemental Retirement Plan for Select Officers of the Federal Reserve Banks (SERP). The FRBNY, on behalf of the System, recognizes the net asset or net liability and costs associated with the System Plan in its consolidated financial statements. During the years ended December 31, 2014 and 2013, certain costs associated with the System Plan were reimbursed by the Bureau. The Bank’s projected benefit obligation, funded status, and net pension expenses for the BEP and the SERP at December 31, 2014 and 2013, and for the years then ended, were not material. Thrift Plan Employees of the Bank participate in the defined contribution Thrift Plan for Employees of the Federal Reserve System (Thrift Plan). The Bank matches 100 percent of the first 6 percent of employee contributions from the date of hire and provides an automatic employer contribution of 1 percent of eligible pay. The Bank’s Thrift Plan contributions totaled $9 million and $8 million for the years ended December 31, 2014 and 2013, respectively, and are reported as a component of “Operating expenses: Salaries and benefits” in the Statements of Income and Comprehensive Income. 9. P o s t r e t ir e m e n t Be n e f it s O t h e r T h a n Re t ir e m e n t P l a n s a n d P o s t e m p l o y m e n t Be n e f it s Postretirement Benefits Other Than Retirement Plans In addition to the Bank’s retirement plans, employees who have met certain age and length-of-service requirements are eligible for both medical and life insurance benefits during retirement. The Bank funds benefits payable under the medical and life insurance plans as due and, accordingly, has no plan assets. Following is a reconciliation of the beginning and ending balances of the benefit obligation (in millions): header row column 1: category column 2: 2014 column 3: 2013 end header row Accumulated postretirement benefit obligation at January 1 2014: 155.1 2013: 172.5 Service cost benefits earned during the period 2014: 6.2 2013: 7.1 Interest cost on accumulated benefit obligation 2014: 7.5 2013: 6.7 Net actuarial loss (gain) 2014: 16.5 2013: (23.7) Contributions by plan participants 2014: 2.4 2013: 2.5 Benefits paid 2014: (8.0) 2013: (8.8) Medicare Part D subsidies 2014: 0.4 2013: 0.4 Plan amendments 2014: 0.1 2013: (1.6) Accumulated postretirement benefit obligation at December 31 2014: 180.2 2013: 155.1 At December 31, 2014 and 2013, the weighted-average discount rate assumptions used in developing the postretirement benefit obligation were 3.96 percent and 4.79 percent, respectively. Discount rates reflect yields available on high-quality corporate bonds that would generate the cash flows necessary to pay the plan’s benefits when due. The System Plan discount rate assumption setting convention uses an unrounded rate. Following is a reconciliation of the beginning and ending balance of the plan assets, and the unfunded postretirement benefit obligation and accrued postretirement benefit costs (in millions): header row column 1: category column 2: 2014 column 3: 2013 end header row Fair value of plan assets at January 1 2014: - 2013: Contributions by the employer 2014: 5.2 2013: 5.9 Contributions by plan participants 2014: 2.4 2013: 2.5 Benefits paid 2014: (8.0) 2013: (8.8) Medicare Part D subsidies 2014: 0.4 2013: 0.4 Fair value of plan assets at December 31 2014: - 2013: Unfunded obligation and accrued postretirement benefit cost 2014: 180.2 2013: 155.1 Amounts included in accumulated other comprehensive loss are shown below: Prior service cost Net actuarial loss Total accumulated other comprehensive loss 2 0 1 4 1.3 2014(36.4) 2014 (35.1) 2 0 1 3 1.9 2013(20.6) 2013(18.7) Accrued postretirement benefit costs are reported as a component of “Accrued benefit costs” in the Statements of Condition. For measurement purposes, the assumed health-care cost trend rates at December 31 are as follows: Health-care cost trend rate assumed for next year Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) Year that the rate reaches the ultimate trend rate 20146.60% 20137.00% 20144.75% 20142019 20135.00% 20132019 Assumed health-care cost trend rates have a significant effect on the amounts reported for health-care plans. A one percentage point change in assumed health-care cost trend rates would have the following effects for the year ended December 31, 2014 (in millions): One percentage point increase Effect on aggregate of service and interest cost components of net periodic postretirement benefit costs Effect on accumulated postretirement benefit obligation One percentage point decrease onepercentagepointincrease3.2 $ oneprctagids(2.5) oneprctagis29.5onepercentagepointdecrease(23.8) The following is a summary of the components of net periodic postretirement benefit expense for the years ended December 31 (in millions): Service cost-benefits earned during the period Interest cost on accumulated benefit obligation Amortization of prior service cost Amortization of net actuarial loss Net periodic postretirement benefit expense 2 0 1 4 6.2 20147 . 5 2014(0.5) 20140.6 _2 0 1 4 13.8 2 0 1 3 7.1 20136.7 2013(0.4) 20134.3 2 0 1 3 17.7 Estimated amounts that will be amortized from accumulated other comprehensive loss into net periodic postretirement benefit expense in 2015 are shown below: Prior service cost Net actuarial loss Total (0.4) _________2.1 1.7 Net postretirement benefit costs are actuarially determined using a January 1 measurement date. At January 1, 2014 and 2013, the weighted-average discount rate assumptions used to determine net periodic postretirement benefit costs were 4.79 percent and 3.75 percent, respectively. Net periodic postretirement benefit expense is reported as a component of “Operating expenses: Salaries and benefits” in the Statements of Income and Comprehensive Income. The Medicare Prescription Drug, Improvement and Modernization Act of 2003 established a prescription drug benefit under Medicare (Medicare Part D) and a federal subsidy to sponsors of retiree health-care benefit plans that provide benefits that are at least actuarially equivalent to Medicare Part D. The benefits provided under the Bank’s plan to certain participants are at least actuarially equivalent to the Medicare Part D prescription drug benefit. The estimated effects of the subsidy are reflected in actuarial loss in the accumulated postretirement benefit obligation and net periodic postretirement benefit expense. Federal Medicare Part D subsidy receipts were $450 thousand and $349 thousand in the years ended December 31, 2014 and 2013, respectively. Expected receipts in 2015, related to benefits paid in the years ended December 31, 2014 and 2013, are $166 thousand. Following is a summary of expected postretirement benefit payments (in millions): 2015 2016 2017 2018 2019 2020 - 2024 Total Without subsidy 7.3 ithousbdy7.6 W ithousbdy7.9 W ithousbdy8.2 W ithousbdy8.8 W ithousbdy W 49.6 With subsidy 6.9 ithsubdy7.1 W ithsubdy7.4 W ithsubdy7.7 W ithsubdy8.2 W W ith subsidy 45.8 Without subsidy 89.4 With subsidy 83.1 Postemployment Benefits The Bank offers benefits to former or inactive employees. Postemployment benefit costs are actuarially determined using a December 31 measurement date and include the cost of medical, dental, and vision insurance; survivor income; disability benefits; and self-insured workers’ compensation expenses. The accrued postemployment benefit costs recognized by the Bank at December 31, 2014 and 2013, were $12 million and $11 million, respectively. This cost is included as a component of “Accrued benefit costs” in the Statements of Condition. Net periodic postemployment benefit expense included in 2014 and 2013 operating expenses were $2 million and $1 million, respectively, and are recorded as a component of “Operating expenses: Salaries and benefits” in the Statements of Income and Comprehensive Income. 10. Ac c u m u l a t e d Ot h e r C o m p r e h e n s iv e I n c o m e An d O t h e r C o m p r e h e n s iv e I n c o m e Following is a reconciliation of beginning and ending balances of accumulated other comprehensive loss as of December 31 (in millions): header row column 1: category column 2: 2014 Amount related to postretirement benefits other than retirement plans column 3: 2013 Amount related to postretirement benefits other than retirement plans end header row Balance at January 1 2014 Amount related to postretirement benefits other than retirement plans: (18.7) 2013 Amount related to postretirement benefits other than retirement plans: (47.8) Change in funded status of benefit plans: Prior service costs arising during the year 2014 Amount related to postretirement benefits other than retirement plans: - 2013 Amount related to postretirement benefits other than retirement plans: 1.5 Change in funded status of benefit plans: Amortization of prior service cost 2014 Amount related to postretirement benefits other than retirement plans: (0.5) [see footnote]1 2013 Amount related to postretirement benefits other than retirement plans: (0.4) [see footnote]1 Change in funded status of benefit plans: Amortization of prior service cost: Change in prior service costs related to benefit plans 2014 Amount related to postretirement benefits other than retirement plans: (0.5) 2013 Amount related to postretirement benefits other than retirement plans: 1.1 Change in funded status of benefit plans: Net actuarial (loss) gain arising during the year 2014 Amount related to postretirement benefits other than retirement plans: (16.5) 2013 Amount related to postretirement benefits other than retirement plans: 23.7 Change in funded status of benefit plans: Amortization of net actuarial loss 2014 Amount related to postretirement benefits other than retirement plans: 0.6 [see footnote]1 2013 Amount related to postretirement benefits other than retirement plans: 4.3 [see footnote]1 Change in funded status of benefit plans: Amortization of net actuarial loss: Change in actuarial (loss) gain related to benefit plans 2014 Amount related to postretirement benefits other than retirement plans: (15.9) 2013 Amount related to postretirement benefits other than retirement plans: 28.0 Change in funded status of benefit plans - other comprehensive (loss) income 2014 Amount related to postretirement benefits other than retirement plans: (16.4) 2013 Amount related to postretirement benefits other than retirement plans: 29.1 Balance at December 31 2014 Amount related to postretirement benefits other than retirement plans: (35.1) 2013 Amount related to postretirement benefits other than retirement plans: (18.7) [fotne]1Reclassification is reported as a component of “Operating Expenses: Salaries and benefits” in the Statements of Income and Comprehensive Income.[endfot1] Additional detail regarding the classification of accumulated other comprehensive loss is included in Note 9. 11. Bu s in e s s Re s t r u c t u r in g Ch a r g e s The Bank had no significant business restructuring charges in 2014 or 2013. In years prior to 2013, the Reserve Banks announced the acceleration of their check restructuring initiatives to align the check processing infrastructure and operations with declining check processing volumes. The new infrastructure consolidated paper and electronic check processing at the Bank. In addition, the Reserve Banks announced the consolidation of some of their currency processing operations. As a result of this initiative, currency processing operations performed in Nashville were consolidated into Atlanta. Final payouts related to these plans totaling $198 thousand were made in 2013. Restructuring costs related to employee separations are reported as a component of “Operating expenses: Salaries and benefits” in the Statements of Income and Comprehensive Income. Additional information regarding the Nashville building sold as a result of the currency processing restructuring is discussed in Note 6. 12. Dis t r ib u t io n of Co m p r e h e n s iv e I n c o m e In accordance with Board policy, Reserve Banks remit excess earnings, after providing for dividends and the amount necessary to equate surplus with capital paid-in, to the U.S. Treasury as earnings remittances to the Treasury. The following table presents the distribution of the Bank’s comprehensive income in accordance with the Board’s policy for the years ended December 31 (in millions): D iv id e n d s o n c a p it a l s t o c k T r a n s f e r to s u r p lu s - a m o u n t r e q u ir e d to e q u a t e s u r p lu s w ith c a p it a l p a id - in E a rn in g s r e m itta n c e s to t h e T r e a s u r y T o ta l d is tr i b u ti o n 2 0 1 4 96 2 0 1 3 95 2014 4 201323 ______ 20145,945 2 0 1 3 5,286 2014 6,085 2013 5,404 13. Su b s e q u e n t E v e n t s There were no subsequent events that require adjustments to or disclosures in the financial statements as of December 31, 2014. Subsequent events were evaluated through March 11, 2015, which is the date that the financial statements were available to be issued.
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