Full text of Annual Report of the Federal Reserve Bank of Philadelphia : Transitions and Accomplishments : 2006 Annual Report

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Contents
President’s Message

First Vice President’s Perspective

Preparing for Consolidation

Coordinating the Merger

Role of Facilities Management

It Takes a Whole Bank

Updating the System’s Technology

Balancing the Treasury’s Checkbook

Operating Statistics

Board of Directors

Advisory Councils

Current Officers

Statement of Auditor Independence

Financial Reports

Notes to Financial Statements

Transitions and Accomplishments
Transitions and Accomplishments aptly describe
2006 at the Federal Reserve Bank of Philadelphia.
Last year, we welcomed a new president, Charles
I. Plosser. We were also involved in a considerable
endeavor: consolidating the check processing
operations of the Federal Reserve Bank of New
York’s East Rutherford Operations Center (EROC)
into Philadelphia. But we didn’t stop there. We
also completed and implemented two other major
projects: the Treasury Check Information System
(TCIS) and the Collateral Management System
(CMS). All three of these major undertakings were
successful thanks to our talented and dedicated
employees. This annual report presents the
teamwork, talent, and effort that helped achieve
these “Transitions and Accomplishments” — all
of which support the Federal Reserve’s mission to
ensure an efficient and effective payments system
and a stable financial environment.

President’s Message

Transitions and Accomplishments
The year 2006 was marked by operational successes and major changes at the
Philadelphia Fed, but leadership was the most important transition the Bank
experienced. Charles I. Plosser became the Bank’s 10th chief executive in August
of last year. In his first annual report message as president, he talks about his
background, his philosophy of leadership, and his goals for the Federal Reserve
Bank of Philadelphia.

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President’s Message

This is my first annual report message to you as

monetary policy and more broadly to the mission of

president of the Federal Reserve Bank of Philadelphia.

the Federal Reserve. It is a privilege I greatly value.

I joined the Bank last August, after spending nearly
30 years as a professor of economics and more than

Goals for the Bank

a decade as a business school dean at the University

One of my goals as president of the Bank is to

of Rochester. The opportunity to lead such a high-

maintain and enhance Philadelphia’s leadership

caliber institution as the Philadelphia Fed while

role in the Federal Reserve System and the Third

retaining my economic roots is truly, for me, the

Federal Reserve District. I believe that if we here at

best of both worlds.

the Philadelphia Fed want to be leaders, we must be
innovators. Innovation is the best path to ensuring

My interest in central banking and the Federal Reserve

our reputation as one of the outstanding Banks in

System has spanned my career. As an academic, I had

the Federal Reserve System. What is the best way to

These transitions and accomplishments are examples
of how far our Bank can reach when we empower our
employees to implement ideas, give them flexibility, and
encourage them to be creative.

the opportunity to analyze and critique the actions

become innovators? I believe it boils down to three

of the Federal Reserve and other central banks with

main elements.

an outsider’s perspective. People often ask me if my
views have changed now that I am on the inside.

First, we must focus on hiring and retaining

Truthfully, they have not. Economic science helps

talented employees and equipping them with

us understand the way the world works, and good

the skills and flexibility they need to be successful

economic analysis should be independent of one’s

innovators. Second, we must create an environment

vantage point. What has changed is that now I have

that empowers employees to use their talents. A

the privilege to contribute in a meaningful way to

key component of empowerment is delegating

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President’s Message

decision-making. Delegating responsibility — and

accomplished some truly remarkable things. I have

accountability — also builds skills and develops

no doubt that together we will continue to succeed

future leaders. Third, we need the appropriate

in carrying out the Fed’s mission: conducting the

infrastructure to support innovation. Infrastructure

nation’s monetary policy, ensuring a sound and

means more than just physical capital. More broadly,

accessible banking system, and maintaining public

supporting

confidence in all forms of payments.

and

encouraging

decentralized

organization is an important part of developing the
right infrastructure. If we have these three elements

Board Contributions

in place, we will encourage innovation and we will be

In my time here, I have quickly gained a keen

Innovation is the best path to ensuring our reputation as one
of the outstanding Banks in the Federal Reserve System.

well positioned to seize opportunities for leadership

appreciation for the contribution of our Board

when they come along.

of Directors.

Throughout all our transitions and

accomplishments, their support is always highly
Our Accomplishments, Our Future

valued.

Of course, we have already been innovative here
in Philadelphia. The list of accomplishments in

We offer our sincere gratitude to two members of

2006 supports that statement. The three major

our Board who have completed their service with

undertakings of last year, which you will read about

us: Audrey S. Oswell, former president and CEO of

elsewhere in this annual report, speak to the abilities

Resorts Atlantic City, and Eugene W. Rogers, CEO

and creativity of our employees.

and director of Newfield National Bank. Their advice
and guidance on our Board will be missed.

In fact, I am deeply impressed by the dedication and
integrity exhibited by the staff of this outstanding

We are pleased to report that Doris M. Damm,

institution.

president and CEO of ACCU Staffing Services,

Thanks

them,

this

Bank

has

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President’s Message

has been re-appointed chairman of the Board of

Concluding Thoughts

Directors, and William F. Hecht, retired chairman,

The transitions and accomplishments detailed in

president, and CEO of PPL Corporation, has been

this annual report are examples of how far our

re-appointed deputy chairman of the Board of

Bank can reach when we empower our employees

Directors.

to implement ideas, give them flexibility, and
encourage them to be creative. Supporting such an

We also welcome our newest Board members and

environment is essential to our goal of enhancing

look forward to their insights and counsel. Michael

our capabilities and contributions to the mission

F. Camardo, retired executive vice president of

of the Federal Reserve and firmly establishing the

Lockheed Martin Information & Technology Services,

Philadelphia Reserve Bank as a center of excellence.

and Aaron L. Groff, Jr., chairman, president, and
CEO of Ephrata National Bank, both joined our

Again, I want to say how pleased I am to be part of

Board in 2007, bringing a wealth of experience.

the Philadelphia Fed community. I look with great
anticipation toward building on the momentum

Let me also recognize that the Board has re-appointed

already so capably begun here, and I look forward

Ted Cecala, chairman and CEO of Wilmington Trust

to working with our many constituents throughout

Company, to represent the Third District on the

the Third District.

Federal Advisory Council in 2007.

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Charles I. Plosser
President
April 2007

First Vice President’s Perspective

Our Mission and Responsibilities
First Vice President Bill Stone shares
his perspective on how three major
projects allowed the Philadelphia Fed
to capitalize on its areas of strength
and pursue leadership opportunities
that benefit not only the financial system but the Bank, the Federal Reserve
System, and the Treasury.
Since the creation of the Federal Reserve in 1913, its
mission and responsibilities have evolved. The Fed
has learned that its actions have significant effects
on the financial system and overall economy.
While all areas of the Federal Reserve’s mission —
monetary policy, bank supervision and regulation,
and payments — have changed dramatically since
1913, the biggest changes in recent years have been
in the payments system. Payments have been part
of the Fed’s core activities since the beginning, and
they are the largest component of Federal Reserve
operations. Moreover, this is an area in which the
Fed faces both intense competitive pressure from
the marketplace and the forces of technological
change that have been a hallmark of the past several decades.
That is why three major System projects implemented by the Philadelphia Fed in 2006 are of special importance. Full details on each of these are presented
later in this report.

William H. Stone, Jr.
First Vice President

EROC Consolidation
On August 18, 2006, the Philadelphia Fed — home
to one of the Federal Reserve’s largest check processing centers — absorbed New York’s East Rutherford Operations Center (EROC) in the largest System

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First Vice President’s Perspective

consolidation yet in the Fed’s check restructuring efforts. In many ways, this consolidation was a significant undertaking for the System and the Bank.
“This is part of the evolutionary process as check
volumes decline,” says Stone. He goes on to explain
that changes in the payments system, driven by the
industry’s ongoing shift to electronic forms of payment, have necessitated consolidations among the
Fed’s check processing operations. In each of the past
several years, the Federal Reserve’s Retail Payments

to move EROC’s operations here. In addition, Philadelphia’s geographic proximity to New York made it
the logical candidate for consolidation with EROC.
EROC staffers were instrumental in helping the Bank
prepare for and implement the consolidation. Staff
from other Reserve Banks and the Federal Reserve’s
Retail Payments Office also played important roles in
the consolidation.
Stone attributes much of the decision to the Bank’s
painstaking preparations. “We had positioned our-

Given the complexity of this particular consolidation and
that it was the largest to date, we are particularly proud it
was executed so smoothly.

Office has made recommendations for restructuring
the Fed’s check processing infrastructure. “This restructuring allows us to fulfill our traditional role of
payments processor while at the same time maintaining efficiency in this new environment. These
consolidations bring about substantial cost savings
and are consistent with the System’s direction for
fewer Reserve Bank locations involved in the check
business,” explains Stone.
For the consolidation to be successful, it was imperative that the New York and Philadelphia Fed check
processing sites be able to work together to provide
a nearly seamless transition in service to customers.
Philadelphia’s reputation as a high-quality and efficient operation played a key role in the decision

selves to be able to take on System consolidations.
When the time came, we were ready for the opportunity. Given the complexity of this particular consolidation and that it was the largest to date, we are
particularly proud it was executed so smoothly. The
EROC consolidation has become the System benchmark for the successful implementation of a largescale consolidation,” Stone reports.
Stone sums up the success of the project in two
words: “dedicated staff.” He continues, “The most
important component of this restructuring was,
without doubt, our Retail Payments staff. Our staff
rose to the challenge, and I was proud to see their
dedication and teamwork. They understood and focused on the importance of this consolidation as a

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First Vice President’s Perspective

determinant of our future success. Individuals across
the Bank came together to reach our goals.”
In addition to good planning and hard work, the
project’s success relied heavily on Retail Payments’
ability to meet customers’ needs throughout the
transition. “This required early communication with
customers whose service would be affected and a
thorough understanding and ongoing analysis of
customer service issues throughout the process,”
says Stone.
Before absorbing EROC’s check volume, Philadelphia
had been processing nearly 3.5 million checks per
day. Following the merger, daily volumes averaged
over 5 million. The Philadelphia Fed has long been a
leader in the System with a premier check operation,
but this new responsibility meant additional employees, equipment, and space renovations to accommodate the increased workload. These changes required support and cooperation from departments
across the organization. Building staff worked hard
to prepare and reconfigure the physical space. Human Resources recruited and trained new employees and guided them through the hiring process.
Protection officers did background checks and supplied employee badges. Among the new staff were
some transfers from the EROC facility who knew
the business and customers and whose efforts were
invaluable in helping to smooth the transition. Additional EROC staff worked in Philadelphia through
the first several weeks of the consolidation.
Collateral Management System
The Collateral Management System (CMS) software
redevelopment project was another bright spot in a
year of operational success stories. The Philadelphia
Fed was asked to re-engineer the CMS on behalf of the

Federal Reserve System’s Subcommittee on Credit, Reserves, and Risk Management (SCRRM). This System
initiative, which allows straight-through processing of
collateral, successfully implements portal technology
and includes an automated interface that addresses
the needs of the Fed’s depository institutions.
The Philadelphia Fed was assigned this project not
only because it ran the system being replaced by the
CMS but also because Bank staff had the specialized
skills best suited to the task. Stone elaborates, “We
were able to bring an understanding of the business
requirements for a collateral management system as
well as expert knowledge of how the system operates. And importantly, we could bring together the
technical expertise to build such a system.”
This initiative involved the conversion of the existing
CMS to a System standard technology and allowed
the Bank to use the Federal Reserve’s intranet as a
way to deliver service. Essentially, the goal of the
project was to convert the CMS from a client-server-based application to a web browser application.
This provides more seamless user access, alleviates
redundancy, and reduces costs.
Treasury Check Information System
In 2001, the U.S. Treasury asked the Philadelphia
Fed to modernize and improve the outdated application used for its check processing and reconcilement system. This check processing and reconcilement system is essentially the Treasury’s checkbook
— a vast system that tracks all government checks
issued and paid and handles claims that arise when
checks aren’t received or when a check was sent erroneously.
The Treasury sought out the Philadelphia Reserve

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First Vice President’s Perspective

Bank to assist in developing sophisticated programming tools that would create a new and more efficient means to reconcile Treasury checks. The Bank
was charged with this monumental task based on
its strong relationship with the Treasury, its excellent
track record in other Treasury joint initiatives, and
its proven expertise in check processing. The Bank’s

225 million check payments and 600,000 claims a
year and stores data for up to at least seven years.
That means TCIS will allow online retrieval of information on more than 1.5 billion check payments and
4 million check claims over a seven-year period.
TCIS ensures the highest levels of financial integ-

TCIS will allow online retrieval of information on
more than 1.5 billion check payments and 4 million check claims
over a seven-year period.

long working relationship with the Treasury helped
simplify the overall development effort, which provided the Treasury with such benefits as improved
automation and the elimination of paper-based
operations.

rity, significantly improves the processing of Treasury transactions, and reduces losses resulting from
counterfeit checks or administrative errors in processing. The Philadelphia Fed is justifiably proud of
this product.

Philadelphia produced a very strong proposal for
taking existing technology, integrating it into a very
critical area of Treasury operations, and then determining what software to develop to make it work
in the Treasury’s environment. Stone explains, “The
final result was the successful creation of a product
that addresses a critical business need and automates
the reconcilement of the Treasury’s checkbook.”

Changing Environment, Certain Future
The three System projects successfully completed
by the Philadelphia Fed last year bring to light the
changing operations environment within the Federal Reserve.

The Bank worked closely with the Treasury’s Financial
Management Service to develop the final product:
the Treasury Check Information System (TCIS). This
fully web-enabled infrastructure records and reconciles the worldwide issuance and payment of U.S.
Treasury checks. Currently, TCIS processes more than

“Both CMS and TCIS may involve additional opportunities for us as the projects expand. Furthermore,
the success of the EROC consolidation positions us
well for further consolidations into 2008 and beyond.” Stone concludes, “We are leveraging successes, strengthening our processes, and proving
our project management skills. This is a testament
to the credibility of our work and will allow us to
build ever-stronger capabilities in the future.”

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Check Processing Consolidation

Preparing for Consolidation
In May 2005, the Philadelphia Fed
announced that the Federal Reserve
System’s Conference of Presidents
had approved the recommendation
of the Retail Payments Office (RPO)
to move check processing from New
York to Philadelphia.

Although the final consolidation of the New York
Fed’s East Rutherford Operations Center (EROC)
took place in mid-2006, the story actually began
a year earlier. What happened between the announcement of the decision to merge and the final
consolidation date — August 18, 2006 — demonstrates that an undertaking of this size involves the
cooperation of many people and departments.

The department and employees most directly affected by the consolidation were, of course, those in the
Bank’s Retail Payments Department. While changes
to the physical plant were underway (see story on
page 16), the department hired and trained new
staff, installed new equipment, dealt with software
issues, and tested the Bank’s ability to handle the in-

May 2005

Philadelphia Fed
announces merger
of East Rutherford
Operations Center’s
(EROC) check processing
with Philadelphia’s

creased volume of checks. Employees did whatever
was necessary to make the transition a success: putting in extra hours, working weekends, and learning
new skills. Also, throughout this transition, Retail
Payments staff still had to process the Bank’s normal
daily check volume.
In short, for employees in this area, 2006 was a
year of changes and challenges. Below we highlight
some of the key staff and components of this multifaceted undertaking.
Hiring New Staff
Lisa Irwin, manager, HR Support, Retail Payments,
notes that to handle the increased workload, the
department needed many different types of expertise: sorter operators, data prep staff, and shipping
clerks. Management decided to start the hiring process early — in March 2006 — so employees would
be up to speed by August.
Originally, Retail Payments planned to hire about
60 new employees; however, the department hired
almost 100 new workers, both temporary and permanent. The Bank also made offers of employment

August 2005

November 2005

December 2005

January 2006

Facilities Management
starts renovations on
fifth-floor checks area

Work begins on
reconfiguring loading
dock area

Retail Payments starts
to relocate sorters and
other equipment

Fifth-floor
renovations
completed

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Check Processing Consolidation

to displaced EROC workers, 10 of whom accepted positions and moved to Philadelphia.
Moving and Installing
Equipment
Mike Penhollow, check operations coordinator, oversaw the installation of new mediumand high-speed sorters and the relocation
of existing ones. To accommodate the consolidation, the Philadelphia Fed increased the
number of high-speed sorters from 15 to 21
and the number of medium-speed sorters
from eight to 10.

Penhollow and his crew started moving
equipment in December 2005. It took approximately four months to get new and
existing sorters in place. All of the machines
needed for Check 21 processing had to be
relocated as well.

Wanda Preston (left), Check Adjustments Officer, and Lisa Irwin, Manager, HR Support, Retail Rayments

Dealing with Software Concerns
Less obvious to the casual observer was the behindthe-scenes work of the data migration team, under
manager Pete Milkovits. This group reviewed EROC’s
file structures to see how they fit into the Philadelphia environment and created new sort patterns for
EROC checks. Moreover, they had to determine how
EROC’s deadlines fit in with Philadelphia’s.

Over the course of many visits to northern New Jersey, Philadelphia’s data migration team worked closely with EROC’s operations and technical staff to iron
out problems and discuss issues concerning customer
databases and services. In fact, the Philadelphia Fed
created test files that mirrored formats used by East
Rutherford. Over a three-month period, the banks
served by EROC tested these files to ensure their systems were compatible before the final cutover.

May 2006

May 2006 (cont.)

June 2006

July 2006

August 2006

Loading dock reconfiguration completed.
Retail Payments
receives first “live”
EROC weekend
deposits

Retail Payments
starts testing ability
to handle increased
checks volume
(25% of anticipated
increase)

Retail Payments
conducts two more
tests at 50% and
100% of anticipated
increase

Retail Payments
conducts final test at
100% of anticipated
increase

Consolidation
becomes final on
August 18th

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Check Processing Consolidation

Transporting Checks
Another logistical problem that had to be addressed
was: How would EROC checks get from the New
York area to Philadelphia (inbound checks) and back
again (outbound checks)? In particular, Philadelphia
needed two transit points for inbound and outbound
checks: one for New York City banks and one for
EROC’s banks outside the city. Charlie McCormack,
check operations manager, and Donna Strigari, senior transportation planner, explain that for various
reasons, the Retail Payments Office had to find two
new transit sites in the New York area. The locations
chosen were one site in lower Manhattan, about two
miles from the New York Fed, and another in South
Hackensack, New Jersey, about five miles from the
operations center at East Rutherford.

McCormack points out that consolidation wouldn’t
change how EROC checks were transported: “All
the same runs would be in place, only now they’d
leave from Hackensack.”
Talking to Customers
Another area involved in the consolidation was Retail
Payments’ customer service unit. These representatives, along with coordinator Larry O’Toole, deal with
day-to-day questions from Philadelphia’s financial-institution clients. To prepare for the EROC consolidation, the unit expanded from three to five employees
and prepared to field questions from the Bank’s new
customers in New York. Preparation involved, among
other things, dealing with differences in terminology.
O’Toole notes that “we had to educate ourselves

(Left to right): Mike Penhollow, Check Operations Coordinator; Pete Milkovits, Check Automation Support Manager; Donna
Strigari, Senior Transportation Planner; and Charlie McCormack, Manager, Check Operations

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Check processing Consolidation

about EROC’s terminology, and EROC customers
had to become familiar
with ours.”

Of course, consolidation
has meant an increased
workload for this group.
Since August, calls handled by customer service
reps have almost doubled: they’ve gone from
approximately 160 calls a
day to 300 — and even
more at peak times.
Retail Payments customer service operators (left to right): Sharon Howard, Shelby Coleman, Wylene

Ensuring Quality
Bullard, and Joann New. Not shown: Karen McDuffie
Ed McCloskey, senior
quality analyst, along with other Check staff, went
tion area, handouts for staff members, and workto East Rutherford fairly early in the consolidation
flow charts to help reduce confusion that can lead
process to review its operations. One purpose of
to mistakes.
these trips was to spot potential pitfalls before they
became major problems.
Testing Increased Check Volume

Meanwhile, Check staff had to prepare for testOf special concern to McCloskey was the qualing their ability to handle the increased workload.
ity of the deposits — for example, reject rates and
First, though, Retail Payments had to find a large
the number of errors per 100,000 items processed.
number of test documents. Bill Barker, night-shift
Once Philadelphia had an early opportunity to promanager, explains that the check operations area
cess EROC’s weekend deposits, McCloskey put tohad to produce enough test documents to simulate
gether a presentation on quality and, with others
a peak processing day — close to 7 million items. To
from Philadelphia, held a series of seminars with
meet its testing needs, the department purchased
EROC customers. As McCloskey puts it, “We gave
test checks, borrowed from other Fed offices that
the Philly perspective on quality to our new cushad undergone consolidation, and used its Check
tomers and told them what types of changes they
21 capabilities to manufacture test checks.
should expect after the consolidation.”

Once the test documents were in hand, Retail PayMcCloskey also created and distributed job aids,
ments scheduled a series of weekend tests. Emwhich included signage in the fifth-floor producployees across two shifts staged events just as they

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Check Processing Consolidation

operations while he moved temporarily to days, and
Gerri Killebrew and Tracey Hambeau-Fakolujo for all
of the effort they put into preparing and testing return items.

Although a third test at 100 percent had been
planned for the end of July, management, with the
approval of the RPO representatives who were here
throughout the transition, decided this test wasn’t
necessary. The Federal Reserve Bank of Philadelphia
was ready to take on the largest consolidation to
date in the Federal Reserve System.

Ed McCloskey (left), Senior Quality Analyst, and Bill Barker, Night-Shift
Manager, Retail Payments

would occur in a work situation. Barker notes that
the department had to ensure sufficient staffing
levels to carry out the tests and process the normal
check volume on each shift.

Finally, in May, Check staff tested workload at 25
percent of the anticipated increased volume. In early
June, they tested at 50 percent and, in late June,
100 percent. Finally, in July Check staff ran a second
100 percent test, using what they had learned in the
late-June test.

After each test was completed, the documents were
prepared for the next round. Tight turnarounds
— the last two tests were only two weeks apart
— made this task a particularly challenging one for
employees. But, as was the case all along, Retail Payments staff proved equal to the job. In particular,
Barker praises Supervisors Bob Brown, John Hampton, and Dolores McDevitt for managing night-shift

Going Live
Although the Philadelphia Fed had started to process
“live” weekend deposits from EROC in May, the final
consolidation took place on August 18.

How did it go? In general, the consolidation was extremely successful. Retail Payments staff were well
prepared, and the department had drawn on the
expertise of many employees from around the Bank
and at EROC. But like any project of this magnitude,
the EROC/Philadelphia consolidation was not without its share of unanticipated problems to be solved
and new questions to be answered.

As Executive Vice President Blake Prichard summed
it up shortly after the final consolidation: “We have
been successful thus far because of the expertise,
dedication, and attention to detail of our employees
and of staff members from other Feds who have assisted us. We’ve also received help from the Retail
Payments Office. We continue to learn from experience as we process the increased volume of checks
and provide a wider scope of services to our new
customers. The operation gets better and stronger
every day, thanks to the dedication of our people.”

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Coordination and cooperation are essential to completing any project. The merger of EROC with the
Philadelphia Fed’s check processing was no exception. Arun Jain and Jack Kelly managed the overall
consolidation.

Actually, Kelly was involved in the consolidation
long before the official announcement was made.
About two-and-a-half years ago, Kelly was asked to
analyze the impact that absorbing EROC would have
on Philadelphia’s check operations. The request was
motivated by the Retail Payments Office (RPO) initiative to examine the Federal Reserve System’s check
infrastructure, given declining volumes.

Arun Jain, Vice President (left), and Jack Kelly, Assistant
Vice President, Retail Payments

Coordinating the Merger
Once the decision to merge was made, Kelly, along
with Bill Barker, test project manager, helped identify the resources needed to complete the testing for
consolidation. Kelly also participated in the workflow
analysis and helped revamp the department’s scheduling. Perhaps most important of all, Kelly kept Retail Payments managers and supervisors on schedule
and focused on the consolidation.

As it was for everyone in Retail Payments, 2006 was
a busy year for Arun Jain. As the consolidation site
manager, he was the primary point of contact with
all Federal Reserve entities. In addition, Jain continued to run day-to-day check operations. Jain oversaw the consolidation’s many dimensions: customer
communications, products and services, transportation, renovations on the fifth floor and loading dock,
migration of data, and new equipment. He also ensured that EROC’s financial institutions were briefed
about changes to deadlines, products, and transportation logistics to minimize the impact on these new
customers. Reconfigured software and new equipment also had to be tested.

Another step was assembling teams and assigning
specific tasks to each. To keep the teams on target,
Jain held weekly or bi-weekly meetings at which
each team reported its progress to date. This made it
easier to spot bottlenecks in the process and allocate
resources to ensure everything stayed on track for
the final consolidation. Team leaders also met with
Jain to confirm that all of the project’s components
were in sync. These meetings were critically important to the smooth functioning of the merger.

Before the final cutover, Retail Payments conducted
four readiness tests that simulated the consolidated
production environment. These tests were crucial to
ensuring that workflow, processing capacity, staffing, and the customer service setup were correct.

In the end, the hard work and extra hours put in by
Kelly, Jain, and all Retail Payments employees paid off.
Federal Reserve colleagues have declared that all future consolidations will be measured against the overwhelming success of the Philadelphia/EROC venture.

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Role of Facilities Management
To accommodate the anticipated
increase in check volume from the
EROC/Philadelphia consolidation, the
Bank’s Facilities Management staff
had to complete two major projects
within a short time frame: reconfigure the loading dock and renovate
the check operations space.
Loading Dock
According to Chris Ivanoski, manager, design and
construction, the loading dock had not been upgraded since its construction in the 1970s. Federal
Reserve security guidelines have changed considerably since then, and the Bank had been planning for
some time to reconfigure the loading dock area in
order to meet current standards.
The EROC consolidation added a sense of urgency to
the project and necessitated significant acceleration
of both the design and the construction schedules.
The need to accommodate the combined Philadelphia and EROC check volume while still satisfying
physical security requirements made the project particularly challenging.

One key element of the work was to raise the level of
the Cherry Street driveway and two of the receiving
bays by three feet while still allowing the Bank’s daily
work to go on. To accommodate that need, the Facilities staff constructed a temporary receiving area for

Chris Ivanoski, Manager; Nasrollah Tahmasebi, Supervisor;
and Claudia Le, Space Planner, Facilities Management

checks by cutting a new opening in the side of the
building in the west courtyard and creating a temporary ramp and a special conveyor-fed x-ray system.

The design work that led to the new loading dock
configuration involved extensive collaboration

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Check Processing Consolidation

between Bank staff and outside design firms. The
Bank successfully incorporated material-handling
techniques that have proved successful at other
Reserve Banks, including automated conveyors,
a sorting area for incoming checks, and specially
designed “transfer rooms” for outbound check
shipments, similar to those that have long been
used in Cash Services operations.

tions. Essentially, the design team started from scratch,
and the result was a radically different configuration.

By August 2005, renovations were underway. To
create room to work, the Facilities crew had to move
the Settlement area to temporary quarters on the
seventh floor. Ivanoski notes that this move was “the
only way we could create space to work and not dis-

The new facilities have met or exceeded all expectations.

Construction work started in November 2005 and
was substantially completed by May 2006. The new
facilities have met or exceeded all expectations.
Check Operations Area
The fifth-floor check operations area also underwent major renovations. Mike Penhollow, check
operations coordinator, and Charlie McCormack,
manager, check operations, collaborated extensively
with Chris Ivanoski and the Facilities Management
staff to come up with a plan for the floor that would
allow Retail Payments to work more efficiently. As
Ivanoski points out, the checks area was still laid out
“the same as it was 30 years ago,” yet the department had grown over the years. In fact, the old layout actually impeded the workflow in check processing. For example, over the course of a shift, checks
traveled over three-quarters of the floor, from the
time they came off the elevator until the time they
left the floor for shipment back to banks.

So the design team asked themselves how they could
maximize the efficiency of each area of check opera-

rupt operations.” The construction team gutted the
entire floor and renovated it one unit at a time. By
the time the dust settled, all of the major areas in
Retail Payments had been moved to a different spot
on the floor: shipping, receiving, medium-speed processing, high-speed processing, and settlement.
Extensive work on the electrical and data communications infrastructure was also necessary. Facilities staff
had to change all of the electrical and data feeds for
every piece of equipment in the Retail Payments area
while also constructing about 5000 square feet of
raised flooring and relocating five air conditioners.

Renovations were completed in mid-January 2006.
Although Ivanoski is proud of the work of the Facilities team, he shares the credit for a job well done
with the Retail Payments staff: “Even though Check
employees had to carry out all of their regular duties
while the renovations were going on, they nonetheless took the time to help us and tell us their ideas.
Communications and coordination were excellent
— nothing was done in a vacuum.”

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Check Processing Consolidation

It Takes a Whole Bank
The success of the East Rutherford
Operations Center/Philadelphia Fed
check processing consolidation involved people throughout the Bank.
Here is a brief look at other departments and employees who contributed to the ultimate success of the
consolidation.

Tom Lombardo, financial services industry relations
officer, was responsible for overseeing project reporting. Using the Federal Reserve System’s restructuring repeatable processes template as a road map,
Lombardo maintained the project plan — taking
information from the various consolidation teams,
tracking various tasks involved in the consolidation,
and gathering empirical measures of the Bank’s percentage of readiness. He then used these data to
generate reports for the Retail Payments Office and
high-level Federal Reserve officials. In essence, Lombardo served as the “face” of the EROC/Philadelphia
consolidation project at the System level.

Customer Relations

Human Resources (HR)

This group pitched in to support the EROC consolidation by partnering with EROC’s business development staff to conduct seminars for Second District
customers, confirming shipping arrangements, updating agreements for various services as needed,
and reviewing EROC’s products and services and
comparing them with those available in Philadelphia.
In fact, Bond Kraemer, sales support coordinator,
developed a database to make it easier to compare
EROC’s products with Philadelphia’s. Subsequently,
the Federal Reserve System’s Retail Payments Office
made a template for the database part of its repeatable processes manual. Customer Relations staff
also kept Third District financial institutions informed
about the various stages of the consolidation.

The Staffing division worked long and hard to interview and hire qualified employees for the EROC
consolidation. Senior Staffing Recruiter Michelle
Small was the lead recruiter for the project, supported by Paulette Pompey and Marcos Delgado, senior
staffing assistants. Staffing Manager Donna Koller
worked with the team to make sure that the hiring
process went smoothly and that lines of communication were kept open. She joined Retail Payments
management on a trip to EROC to interview existing
staff there about possibly moving to Philadelphia.
HR’s Lisa Martino, senior medical administrator, coordinated the medical aspects of the hiring process.
Tom Ballay, training specialist, worked with new
hires as a facilitator and mentor.

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Check Processing Consolidation

Information Technology
Services (ITS)
ITS staff made key contributions to the consolidation project. They had to ensure all of the Retail Payments Department’s wiring and network connectivity needs were met. Since many employees had to
be temporarily moved out of the check processing
area during renovations, then moved back again, IT
employees were kept busy. Ray Capriotti, Ed Harkins, and Willis Ross saw to the timely completion
of network and telephone wiring. Office Automa-

Protection
The officers in Protection kept the hiring process
moving by fingerprinting new hires and doing background checks. In particular, Officer Vicky Rodriguez
coordinated the scheduling and fingerprinting of all
new hires — whether they were temporary workers
or permanent employees. Rodriguez had to process
a larger number of employees than were actually
hired, since some potential new hires didn’t make
the final cut.

“I am deeply impressed by the dedication and integrity exhibited by
the staff of this institution.”

— Charles I. Plosser

tion Support staff — John Pietropaulo, Mark Zirpoli,
Don Lisbon, and Rob Torney — completed all of
the workstation moves and additions, taking care of
personal computers for the temporary offices and
the renovated checks area. Communications and
Technical Support staff — Pete Bittle, Mark Bryant,
Len Reingold, Rich Bauer, and Brenda Aldridge —
assisted in the installation efforts by providing key
technical support for this complex project. Finally,
Ron Dorsch and Mike Whitzer managed and coordinated the ITS support efforts, including connectivity
for all new and relocated sorters, printers, and other
network devices.

Protection’s special projects coordinator, Thomas
Raggio, played a vital role in making sure all security concerns were addressed during consolidation.
In addition to attending weekly meetings, Tom was
instrumental in providing critical information about
the configuration of the loading dock area to ensure
that access was well-controlled but did not impede
workflow. He also helped to advise on the placement of screening technologies in the loading dock
area. The advice and experience of Assistant Vice
President Danny Spriggs were invaluable in devising
practical ways to maintain a safe and secure environment during the massive construction projects.

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Collateral Management System

Updating the System’s Technology
The Philadelphia Fed converted a complex centralized system, which tracks
more than $1 trillion in collateral, to
a web-based portal platform that has
paved the way for portal technology
to be implemented throughout the
Federal Reserve System.
A team from the Philadelphia Fed was selected to
modernize the Collateral Management System (CMS)
because of Philadelphia’s long-standing expertise in
managing the Fed’s collateral activities. The team reengineered the CMS infrastructure, streamlining an
elaborate set of monitoring tools used to record securities, commercial paper, and customer notes for
financial institutions nationwide. Furthermore, the
system’s portal technology enables users to access
multiple applications in one place, maximizing productivity and minimizing maintenance. CMS is designed to meet the collateral management requirements not only of the Federal Reserve but also of
specific programs for the U.S. Treasury.
CMS uses sophisticated methodologies to calculate
accurate values for each asset pledged as collateral
based on current market prices and characteristics
such as asset type, duration, time to maturity, interest rate, and investment grade. Collateral values
change regularly based on market conditions, and
CMS allows every Reserve Bank from San Francisco
to Boston to value collateral based on District-unique
circumstances. Analysts can query CMS at any time

to review an institution’s collateral portfolio. If institutions pledge securities without market prices, such
as customer notes, CMS performs calculations using
valuation models that are updated frequently.
Completed in July 2006, this strategic initiative was a
three-year undertaking that replaced outdated technology with a web-based platform that enhanced
functionality for Federal Reserve users and financial
institutions. The project’s success can be attributed
to the collaboration among Philadelphia’s talented
team, the Federal Reserve’s credit and risk management group, and external partners that were involved in the project from the start.
Thanks to the overhaul of CMS, financial institutions
now have an automated system that eliminates
manual review and processing of collateral transactions originating through the Depository Trust Company (DTC). CMS has a new electronic link between
DTC and the Federal Reserve, which improves Reserve Banks’ ability to accept and process pledges of
securities other than Treasuries. This is a critical feature of the new system and fulfills a long-standing
request from our financial institutions. The Bank’s
partnership with DTC in establishing this link was
one key to the success of the overall project.
“We now offer banks the capability to pledge as
much collateral as they need to manage their portfolio. The entire CMS project, especially the DTC
interface, is an enormous accomplishment for the
Bank and the Federal Reserve System. It is a testa-

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Collateral Management System

ment to the extraordinary working relationship of
the business and development teams,” said John D.
Ackley, assistant vice president, Treasury Services.
One primary object of the redesigned system was to
ensure that it was flexible enough to accommodate
changing business needs while supporting current
needs. That’s why the team worked closely with all
the Reserve Banks to define critical business needs.
User groups were involved every step of the way and
determined what functions were needed. They also
helped to document system requirements, including
workflows, screen displays, and report designs.
The Bank conducted extensive testing to keep problems to a minimum. “We executed more than 1,000
test scripts, during many testing phases, to ensure the
application met business requirements,” Ackley said.

help desk support, and testing enhancements. However, it is important to recognize that the Philadelphia
Fed has a history of expertise in building technology
to support collateral management dating back to
the 1980s. Then, Philadelphia managed the largest
customer safekeeping service in the Federal Reserve
System. In the early 1990s, Philadelphia developed
a PC-based local area network application to update
the older mainframe technology and has continued
to take on increasingly extensive leadership roles in
the collateral management business line.
But in spite of the project’s success, one thing is certain: Collateral management is a constantly evolving
process. Consequently, the Philadelphia team will
continue to enhance its reputation as the primary
provider of collateral management information to
the U.S. Treasury and the Federal Reserve’s credit
and risk management community.

Users played an integral role in the testing,
and
representatives
from each Federal Reserve participated in
the user-acceptance
test phase. During the
final testing phase,
Philadelphia offered
on-site and computerbased training to all
Reserve Bank users.
The Philadelphia team
is responsible for the
day-to-day operations
of CMS, including
management of the
application, customer

Pictured left to right: John Ackley, Assistant Vice President; Marie Tkaczyk, Assistant Vice President; Chris DeYoung, Group Manager, Systems Development; and Bob Mucerino, National Support
Service Manager

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Treasury Check Information System

Balancing the Treasury’s Checkbook
If you have ever had trouble balancing
your checkbook, just imagine the
chore the U.S. government faces
balancing billions of dollars in checks
every day. However, thanks to the
Federal Reserve Bank of Philadelphia,
the government’s job just got easier.
The Philadelphia Fed was chosen for this job because of its expertise and its past success in custom-

izing software for the Treasury. A team from Philadelphia led the U.S. Treasury Financial Management
Service’s (FMS) conversion from a labor-intensive
paper-based check data program to an automated
web-based system responsible for recording and
reconciling the worldwide issuance and payment of
U.S. Treasury checks.
New Features
Called the Treasury Check Information System (TCIS),
this new streamlined program features enhanced
software that more easily manages
bookkeeping and helps to quickly
solve lost and problem check issues.
It also maintains payment data for
at least seven years, which means
that TCIS will allow online retrieval
of information on more than 1.5
billion check payments and 4 million check claims over a seven-year
period.
TCIS serves more than the Treasury.
Nearly 4,000 government users distribute checks through the service,
such as the Department of Defense,
Social Security, Internal Revenue
Service, and many others.
The TCIS project spanned several
years as staff from the Bank’s Retail
Payments and Information Technology departments joined forces to

Clockwise from left: Tom Gibbons, Group Manager, Systems Development; Ann
O’Brien, Business Project Manager; Leigh Carasso, Group Manager, Systems Development; Michael Pelle, Lead Technical Specialist; Mona Wells, Lead Technical Specialist;
and Gregory Fanelli, Treasury Payments Officer

Federal Reserve Bank of Philadelphia |

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Treasury Check Information System

replace the aging system. The nearly 20-year-old system was becoming costly to maintain and difficult to
upgrade, and individuals with extensive knowledge
of the system were retiring. Modernizing the mammoth mainframe database system required a comprehensive understanding of the checks business.
The Treasury’s Business
It may be surprising to learn that about 99.9 percent
of the Treasury’s 250 million checks issued and 250
million checks paid balance to the penny. “But there
is that outstanding one-tenth of a percent that can
add up to millions of dollars,” said Ann O’Brien, a
project manager. Her assignment was to improve
the software reconcilement and claims processing
applications.
“The Treasury needed a system where they could
quickly view their account and access it at any time.
We gave them an electronic system, and no one has
to touch a piece of paper,” O’Brien said.
An average day in reconcilement may mean that 100
check record discrepancies need to be investigated.
For each case there may be 284 possible reasons
for the difference and just as many solutions to sort
out. “Endless things can happen to a check, and if it
happens once, you have to have software to handle
it,” O’Brien explains.
Encoding errors and machine misreads are among
the most common reasons a check ends up in check
reconcilement. Previously, dozens of three-digit
codes were used to describe the claims. For new
employees, finding the correct code was difficult;
now it’s easier to process. “We substituted words
for numbers,” O’Brien explained.

Having a large vocabulary is important when the
software generates around 600,000 claims each
year that must be individually resolved. Of these
600,000 mailed claims, approximately 60,000 are
returned and processed by TCIS. TCIS is equipped
to place stop payments on checks if people claim
they did not receive their check. The entire process
is electronic, with letters, e-mails, and outgoing files
all within a click-and-pick menu.
TCIS has also improved the amount and speed at
which altered or counterfeit checks are found. It leverages the Federal Reserve’s image archive, which
stores digital images of every Treasury check. “Although the rate of successfully detecting fraudulent
checks was high with the Treasury check fraud detection system alone, it has greatly increased due to
its linkage with TCIS,” said Greg Fanelli, who oversaw the TCIS management team and coordinated
activities with the numerous stakeholders.
“One of the challenges in the development process
was how to adhere to the complex rules Treasury’s
claim processing requires. In addition, both the Treasury and the Federal Reserve have robust security
requirements that had to be met,” Fanelli said.
TCIS’ developers had to recognize that more and
more checks are being processed electronically since
the implementation of the Check Clearing for the
21st Century Act, or Check 21. Check 21, which
became effective October 2004, makes it easier for
banks to electronically collect check images instead
of physically transferring paper checks. Additionally,
unique requirements were needed to accommodate
several users, such as the U.S. Department of Defense and the U.S. Social Security Administration.

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Treasury Check Information System

The development team knew that customizing an accounting module for TCIS would be a huge challenge.
“But it was a vital part of the system and took years
to refine,” said Tom Gibbons, a project manager.

didn’t get their checks. In fact, with one easy click on
the computer, people can see the check and who endorsed it, helping to quickly resolve simple problems
of miscommunication over missing check claims.

Once the major software components were completed, the final hurdle was ensuring that the system would successfully integrate with related applications at Treasury. Integration, testing, data
migration, performance tests, and stress tests all
took months of coordinated effort among the Fed

Completing the Conversion
The final phase required the team to work long hours
and weekends to see their project to completion.
An elaborate plan comprising several hundred steps
was devised and tested five times to prepare for a
smooth conversion.

An elaborate plan comprising several hundred steps was devised
and tested five times to prepare for a smooth conversion.

team, the FMS team, the Fed’s information technology staff, and contractors who operate the Treasury
Web Application Infrastructure (TWAI) on behalf of
the Fed and the Treasury.
Impressive Results
The final results of TCIS were impressive. “There is
just no comparison between the old and new systems,” Gibbons said. “For example, the new system
has more databases online allowing users to have
real-time access rather than waiting one to two days
to get archived data,” he explained.
“You key in a serial number and it pulls in the check
image right then and there,” said Ronald Cymbor, a
director of the Treasury’s Financial Processing Division.
Cymbor adds that this real-time access to files also
benefits agencies because they can quickly research
issues for people who report in person that they

Then on May 24, 2006, the first of 27.5 million
Treasury records were transferred to the new
system. Nearly 40 stakeholders from the Federal
Reserve, government agencies, and vendors saw
it to completion. TCIS was online for business on
June 5, 2006. “Everyone gave us their all. It was a
flawless conversion,” Fanelli said.
Team members agree that the new system will
undergo another real-world stress test when the
U.S. Treasury starts issuing IRS refunds this year.
Then the amount of outgoing checks will nearly
double, and related claims will increase as well.
But even outside of tax season, Philadelphia’s team
is certain the new system will deliver the highest
level of financial integrity. In fact, they are confident
TCIS provides superior standards of reliability to take
us to the next decade.

Federal Reserve Bank of Philadelphia |

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Operating Statistics
Federal Reserve Bank of Philadelphia

In 2006, Philadelphia’s total volume of commercial
checks processed increased 5 percent and the dollar
value of transactions increased 34 percent, as a result
of assuming processing from the East Rutherford
Operations Center in the third quarter. The volume
of U.S. government checks increased 1 percent in
2006 and the dollar value increased 2 percent.
The Philadelphia Reserve Bank continued to be
a major processor of cash in the Federal Reserve
System in 2006. While the volume of currency
processed decreased 5 percent in 2006 because

the Bank processed a greater number of larger
denominations, the actual dollar value of currency
processed increased 7 percent. In 2006, an additional
off-site terminal was opened; therefore, the volume
of coin bags processed on site declined 7 percent.
The processed coin value increased 5 percent as
a result of processing higher denomination coin
bags.
In 2006, both the number and value of loans to
depository institutions were significantly lower than
in the previous year.

SERVICES TO DEPOSITORY INSTITUTIONS

2006

2005

Volume

Dollar Value

Volume

Dollar Value

1,020.3 million checks

$3,019.9 billion

969.0 million checks

$2,256.4 billion

85.9 million checks

$105.4 billion

84.9 million checks

$103.2 billion

Check processing:

Commercial checks

U.S. Government

Cash operations:

Currency processed

2,236.5 million notes

$38.6 billion

2,351.4 million notes

$36.1 billion

Coin paid and received

549.0 thousand bags

$236.8 million

587.8 thousand bags

$225.5 million

75 loans

$86.3 million

110 loans

$823.6 million

Loans to depository
institutions during the year

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Board of Directors
Federal Reserve Bank of Philadelphia

Doris M. Damm
Chairman, Federal Reserve Bank of Philadelphia Board of
Directors. Board member since January 2001. President
and Chief Executive Officer of ACCU Staffing Services.
Director of Our Lady of Lourdes Medical Center. Member
of the Advisory Board and Foundation Board of Rutgers
University School of Business, Camden. Panelist for the
Rutgers Quarterly Economic Outlook Panel. Member of
the Women’s Business Enterprise National Council.

Charles P. Pizzi
Board member since January 2006. Member Budget and
Operations and Research and External Affairs Committees.
President and CEO of Tasty Baking Company. Chairman
of the Allegheny West Foundation. Serves on the Boards
of Drexel University, Independence Blue Cross, Greater
Philadelphia Chamber of Commerce, Philadelphia
Stock Exchange, Brandywine Realty Trust, and Grocery
Manufacturers of America.

John G. Gerlach
Board member since January 2006. Member Audit and
Research and External Affairs Committees. President and
CEO of Pocono Community Bank. Member of the Boards
of Pocono Community Bank, Pocono Mountain Industries,
and the Eastern Monroe Public Library Foundation.

Eugene W. Rogers
Board member since January 2004. Member of Budget
and Operations and Research and External Affairs
Committees. Director and CEO of Newfield Bancorp,
Inc., Director and CEO of Newfield National Bank, and
Director and Vice President of FNBN Investment Corp.
Director of Atlantic Central Bankers Bank. Member of
Kennedy Hospital Advisory Board and New Jersey Bankers
Association. Serves as Chairman of the South Jersey
Community Bankers Association.

William F. Hecht
Deputy Chairman, Federal Reserve Bank of Philadelphia
Board of Directors. Board member since January 2004.
Member Audit and Personnel Committees. Retired
President, Chairman, and CEO of PPL Corporation. Serves
on the Board of Trustees of Lehigh University and of Lehigh
Valley Hospital and Health Network. Serves on the Board
of Directors of Dentsply International and RenaissanceRe
Holdings, Ltd. President of Lehigh Valley Partnership.
Garry L. Maddox
Board member since January 2003. Member Audit
and Personnel Committees. President and CEO of A.
Pomerantz & Company. Founding President of World
Wide Concessions, Inc. Founder and Executive Director
of LPGA Urban Youth Golf Program of Greater Atlantic
City. Founder and President of Youth Golf and Academics
Program. Serves on boards of Boys and Girls Club of
Camden County, Corporate Alliance for Drug Education,
Greater Philadelphia Chamber of Commerce, Fairmount
Park Commission, Neumann College, Philadelphia Sports
Congress, Operation Good Neighbor, and Shippensburg
University.
Director Emeritus of Philadelphia Child
Guidance Center. Member of Board of Governors of
National Adoption Center.

P. Coleman Townsend, Jr.
Board member since January 2002. Member Audit and
Research and External Affairs Committees. Chairman and
CEO of Townsends, Inc. Member of Board of Trustees
of University of Delaware and Winterthur Museum.
Member Winterthur Museum Garden, Collections and
Library Committees. Serves on the Council of Advisors for
Delaware Center of Horticulture and the Advisory Board
for Lehman Art Center - Brooks School. Active participant
on Delaware Art Museum Collections Committee.
Wayne R. Weidner
Board member since January 2005. Member Budget and
Operations and Personnel Committees. Chairman National
Penn Bancshares, Inc. Serves as a director of National
Penn Bancshares, Inc., National Penn Bank, National Penn
Investors Trust Company, Penn 1st Financial Services, and
Hawk Mountain Council Boy Scouts of America.

Federal Reserve Bank of Philadelphia |

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Standing left to right: Eugene Rogers, Wayne Weidner, Coleman Townsend, Garry Maddox, and
John Gerlach. Seated left to right: Charles Pizzi, Doris Damm, and William Hecht.

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2006 Business Advisory Council
Federal Reserve Bank of Philadelphia

Reneé Amoore

Robert L. Gronlund

Kenneth Tuckey

President & CEO

Chairman & CEO

President

The Amoore Group

Wood Mode Inc.

Tuckey Mechanical Services, Inc.

King of Prussia, PA

Kreamer, PA

Carlisle, PA

Daniel Blaschak

Melinda K. Holman

Rodman Ward

Treasurer

President

Blaschak Coal, Inc.

Holman Enterprises

Speakman Company

Mahanoy City, PA

Pennsauken, NJ

Wilmington, DE

Keith Campbell

Eric May

David C. Wenger

Chairman

President & Owner

Retired President & CEO

Mannington Mills, Inc.

Pen-Fern Oil Co., Inc.

Eastern/GPS

Salem, NJ

Dallas, PA

Philadelphia, PA

Standing left to right: Robert Gronlund, David Wenger, Rodman Ward, and Eric May. Seated left to right: Keith
Campbell, Reneé Amoore, and Daniel Blaschak. Not shown: Melinda Holman and Kenneth Tuckey

Federal Reserve Bank of Philadelphia |

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2006 Community Bank Advisory Council
Federal Reserve Bank of Philadelphia

John W. Adonizio

Allan R. Dennison

Michael M. Quick

Chairman

President & CEO

Chairman

Landmark Community Bank

AmeriServ Financial

Susquehanna Patriot Bank

Pittston, PA

Johnstown, PA

Marlton, NJ

Thomas A. Bracken

Mark E. Huntley

Peter C. Zimmerman

Former President & CEO

CEO

President & CEO

Sun National Bank

Delaware National Bank

First National Bank of Newport

Vineland, NJ

Georgetown, DE

Newport, PA

Donna M. Coughey

John T. Parry

President & CEO

First Financial Bank

First National Bank & Trust Co.

Downingtown, PA

Newtown, PA

Standing left to right: Michael Quick, Allan Dennison, John Parry, and Donna Coughey. Seated left to right:
Mark Huntley and Peter Zimmerman. Not shown: John Adonizio and Thomas Bracken

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2006 Credit Union Advisory Council
Federal Reserve Bank of Philadelphia

Maurice Dawkins

Dorothy A. Fox

Larry L. Stoner

President & CEO

American Spirit FCU

NE PA Community FCU

Susquehanna Valley FCU

Newark, DE

Stroudsburg, PA

Camp Hill, PA

Alfreda A. Earnest

Jeff March

Edwin L. Williams

President & CEO

Deepwater Industries FCU

Citadel FCU

Discovery FCU

Deepwater, NJ

Thorndale, PA

Wyomissing, PA

James E. Everhart, Jr.

Larry D. Miller

President & CEO

Louviers FCU

Mennonite Financial FCU

Newark, DE

Lancaster, PA

Standing left to right: Maurice Dawkins, Larry Miller, Jeff March, and Larry Stoner. Seated left to right: Edwin
Williams, Alfreda Earnest, and James Everhart. Not shown: Dorothy Fox

Federal Reserve Bank of Philadelphia |

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Current Officers

Federal Reserve Bank of Philadelphia
Charles I. Plosser
President
William H. Stone, Jr.
First Vice President
Richard W. Lang
Executive Vice President
D. Blake Prichard
Executive Vice President
Michael E. Collins
Senior Vice President and
Lending Officer
Supervision, Regulation and
Credit
Loretta J. Mester
Senior Vice President and
Director of Research
Research
Milissa M. Tadeo
Senior Vice President
Cash Services and Treasury
Services
John G. Bell
Vice President
Financial Statistics
Mitchell S. Berlin
Vice President and
Economist
Research
Robert J. Bucco
Vice President
Wholesale Product Office
Peter P. Burns
Vice President and Director
Payment Cards Center
Theodore M. Crone
Vice President and
Economist
Research
John J. Deibel
Vice President and Chief
Examination Officer
Supervision, Regulation and
Credit
Michael Dotsey
Vice President and Senior
Economic Policy Advisor
Research
Richard A. Elliott
Vice President
Facilities Management,
Records and Document
Services

Donna L. Franco
Vice President and Chief
Financial Officer
Faith P. Goldstein
Vice President
Public Affairs
Mary Ann Hood
Vice President
Human Resources
Arun K. Jain
Vice President
Retail Payments
William W. Lang
Vice President
Supervision, Regulation and
Credit
Edward M. Mahon
Vice President and General
Counsel, Ethics Officer
Alice Kelley Menzano
Vice President
Information Technology
Services
Stephen A. Meyer
Vice President and Senior
Economic Policy Advisor
Research
Mary DeHaven Myers
Vice President and
Community Affairs Officer
Community Affairs
A. Reed Raymond, III
Vice President and Chief
Administrative Officer
Supervision, Regulation and
Credit
Patrick M. Regan
Vice President
Information Technology
Services
Michelle M. Scipione
Vice President
Cash Services
Richard A. Sheaffer
Vice President and General
Auditor
Herbert E. Taylor
Vice President and
Corporate Secretary

Kei-Mu Yi
Vice President and
Economist
Research
John D. Ackley
Assistant Vice President
Treasury Services

Camille M. Ochman
Assistant Vice President
Cash Services
Anthony T. Scafide, Jr.
Assistant Vice President
Customer Relations

Aileen C. Boer
Assistant Vice President
Research

Stephen J. Smith
Assistant Vice President and
Assistant Counsel
Legal

Donna Brenner
Assistant Vice President
Enterprise Risk
Management

Eric A. Sonnheim
Assistant Vice President
Supervision, Regulation and
Credit

Jennifer E. Cardy
Assistant Vice President
Financial Management
Services

C. Danny Spriggs
Assistant Vice President
Protection

Shirley L. Coker
Assistant Vice President
and Counsel
Legal
Cynthia L. Course
Assistant Vice President
Supervision, Regulation and
Credit
Frank J. Doto
Assistant Vice President
Supervision, Regulation and
Credit
Michael T. Doyle
Assistant Vice President and
Technical Services Officer
Information Technology
Services
Suzanne W. Furr
Assistant Vice President and
Assistant General Auditor
Audit
William L. Gaunt
Assistant Vice President
Supervision, Regulation and
Credit
Stephen G. Hart
Assistant Vice President
Human Resources
John P. Kelly
Assistant Vice President
Check Operations

Marie Tkaczyk
Assistant Vice President
Information Technology
Services
Todd Vermilyea
Assistant Vice President
Supervision, Regulation and
Credit
Constance H. Wallgren
Assistant Vice President
Supervision, Regulation and
Credit
Brian Calderwood
IT Services Officer
Information Technology
Services
Maryann T. Connelly
Assistant Counsel
Legal
Gregory Fanelli
Treasury Payments Officer
Retail Payments
Thomas J. Lombardo
Financial Services Industry
Relations Officer
Customer Relations
Wanda Preston
Check Adjustments Officer
Retail Payments
Patrick Turner
IT Services Officer
Information Technology
Services

Elisabeth V. Levins
Vish P. Viswanathan
Assistant Vice President
Vice President and Discount Supervision, Regulation and
Officer
Credit
Supervision, Regulation and
www.philadelphiafed.org | page 31
Credit
Includes promotions through March 2007

Statement of Auditor Independence
The firm engaged by the Board of Governors for
the audits of the individual and combined financial statements of the Reserve Banks for 2006 was
PricewaterhouseCoopers LLP (PwC). Fees for these
services totaled $4.2 million. To ensure auditor independence, the Board of Governors requires that
PwC be independent in all matters relating to the
audit. Specifically, PwC may not perform services
for the Reserve Banks or others that would place
it in a position of auditing its own work, making
management decisions on behalf of the Reserve
Banks, or in any other way impairing its audit independence. In 2006, the Bank did not engage PwC
for any material advisory services.

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Financial Reports Contents
Letter to Directors

Report of Independent Auditors

Statements of Condition

Statements of Income

Statements of Changes in Capital

Notes to Financial Statements

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Letter to Directors
Federal Reserve Bank of Philadelphia

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Report of Independent Auditors
Federal Reserve Bank of Philadelphia

Continued on page 36

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Report of Independent Auditors
Federal Reserve Bank of Philadelphia

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Statements of Condition
Federal Reserve Bank of Philadelphia

As of December 31, 2006 and December 31, 2005 (in millions)

2006
2005
ASSETS

Gold certificates
$
463
$
432
Special drawing rights certificates
83
83
Coin

53
34
Items in process of collection
649
586
U.S. government securities, net 34,021 26,613
Investments denominated in foreign currencies
1,152
473
Accrued interest receivable
292
207
Interdistrict settlement account
836
6,148
Bank premises and equipment, net
81
75
Interest on Federal Reserve notes due from U.S. Treasury
305
29
Other assets
58
103

Total assets
$ 37,993
$ 34,783

LIABILITIES AND CAPITAL

Liabilities:
Federal Reserve notes outstanding, net
$ 31,700
$ 31,296
Securities sold under agreements to repurchase
1,286
1,082
Deposits:

Depository institutions
584
485

Other deposits
3
4
Deferred credit items
718
363
Accrued benefit costs
70
43
Other liabilities
12
22

Total liabilities

Capital:
Capital paid-in
Surplus (including accumulated other comprehensive loss of

$24 million at December 31, 2006)

Total capital

Total liabilities and capital
$
The accompanying notes are an integral part of these financial statements.

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34,373

33,295

1,810

744

1,810

744

3,620
37,993

1,488

$ 34,783

Statements of Income
Federal Reserve Bank of Philadelphia

For the years ended December 31, 2006 and December 31, 2005 (in millions)

2006
Interest income:

Interest on U.S. government securities
$ 1,454
$

Interest on investments denominated in foreign currencies
20

2005
958
7

Total interest income

1,474

Interest expense:

Interest expense on securities sold under agreements to repurchase
56

965

Net interest income

1,418

Other operating income (loss):

Compensation received for services provided
32

Reimbursable services to government agencies
31

Foreign currency gains (losses), net
66

Other income
3

937

Total other operating income (loss)

132

Operating expenses:

Salaries and other benefits
90

Occupancy expense
11

Equipment expense
11

Assessments by the Board of Governors
51

Other expenses
42

Total operating expenses

205

Net income prior to distribution
$ 1,345
$

(15)

Distribution of net income:

Dividends paid to member banks
$
80
$

Transferred to surplus
1,090

Payments to U.S. Treasury as interest on Federal Reserve notes
175

Total distribution

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

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1,345

25
25
(70)
5

81
10
11
34
37
173
749

31
450
268
749

Statements of Changes in Capital
Federal Reserve Bank of Philadelphia

For the years ended December 31, 2006 and December 31, 2005 (in millions)

Surplus

Capital

Paid-In

Accumulated Other

Net Income Comprehensive
Retained

Loss

Total

Surplus

Capital

Balance at January 1, 2005
(5.9 million shares)

$ 294

588

Net change in capital stock

issued (9.0 million shares)

294

Transferred to surplus

450

Balance at December 31, 2005
(14.9 million shares)

744

$ 744

$ 1,488

Net change in capital stock

issued (21.3 million shares) 1,066

Transferred to surplus

Adjustment to initially apply

FASB Statement No. 158

- 1,090
-

- 1,066

- 1,090 1,090
(24)

(24)

Balance at December 31, 2006
(36.2 million shares)

$ 1,810

$ 1,834

$ (24)

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

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$ 1,810

$ 3,620

Notes to Financial Statements
Federal Reserve Bank of Philadelphia

1. Structure
The Federal Reserve Bank of Philadelphia (“Bank”) is
part of the Federal Reserve System (“System”) and
one of the twelve 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 in Philadelphia serves the Third Federal Reserve District,
which includes Delaware and portions of New Jersey
and Pennsylvania.
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 national banks and any
state-chartered banks that apply and are approved
for membership in the System. 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.
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. Operations and Services
The Reserve Banks perform a variety of services
and operations. Functions include participation in
formulating and conducting monetary policy; participation in the payments system, including largedollar transfers of funds, automated clearinghouse
(“ACH”) operations, and check collection; distribution of coin and currency; performance of fiscal agency functions for the U.S. Treasury, certain
federal agencies, and other entities; serving as the
federal government’s bank; provision of short-term
loans to depository institutions; service to the consumer and the community by providing educational
materials and information regarding consumer laws;
and supervision of bank holding companies, state
member banks, and U.S. offices of foreign banking
organizations. The Reserve Banks also provide certain services to foreign central banks, governments,
and international official institutions.
The FOMC, in the conduct of monetary policy, establishes policy regarding domestic open market operations, oversees these operations, and annually issues
authorizations and directives to the FRBNY for its
execution of transactions. The FRBNY is authorized
and directed by the FOMC to conduct operations

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Notes to Financial Statements
Federal Reserve Bank of Philadelphia

in domestic markets, including the direct purchase
and sale of U.S. government securities, the purchase
of securities under agreements to resell, the sale of
securities under agreements to repurchase, and the
lending of U.S. government securities. The FRBNY
executes these open market transactions at the direction of the FOMC and holds the resulting securities, with the exception of securities purchased under agreements to resell, in the portfolio known as
the System Open Market Account (“SOMA”).
In addition to authorizing and directing operations
in the domestic securities market, the FOMC authorizes and directs the FRBNY to execute operations
in foreign markets for major currencies in order to
counter disorderly conditions in exchange markets
or to meet other needs specified by the FOMC in
carrying out the System’s central bank responsibilities. The FRBNY is authorized by the FOMC to hold
balances of, and to execute spot and forward foreign exchange (“FX”) and securities contracts for,
nine foreign currencies and to invest such foreign
currency holdings ensuring adequate liquidity is
maintained. The FRBNY is authorized and directed
by the FOMC to maintain reciprocal currency arrangements (“FX swaps”) with two central banks
and “warehouse” foreign currencies for the U.S.
Treasury and Exchange Stabilization Fund (“ESF”)
through the Reserve Banks. In connection with its
foreign currency activities, the FRBNY may enter into
transactions that contain varying degrees of off-balance-sheet market risk that result from their future
settlement and counter-party credit risk. The FRBNY
controls credit risk by obtaining credit approvals,
establishing transaction limits, and performing daily
monitoring procedures.

Although the Reserve Banks are separate legal entities, in the interests of greater efficiency and effectiveness they collaborate in the delivery of certain
operations and services. The collaboration takes the
form of centralized operations and product or service 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 Bank providing the service and
the other eleven 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 billed for services provided to
them by another Reserve Bank.
Major services provided on behalf of the System by
the Bank, for which the costs were not redistributed to the other Reserve Banks, include Collateral
Management System, Electronic Cash Letter System,
Groupware Leadership Center, Subcommittee on
Credit, Reserves, and Risk Management Administration Office, Treasury Check Information Services Central Business Administration Function, and Treasury
Direct Central Business Administration Function.
During 2005, the Federal Reserve Bank of Atlanta
(“FRBA”) was assigned the overall responsibility for
managing the Reserve Banks’ provision of check
services to depository institutions, and, as a result,
recognizes total System check revenue on its Statements of Income. Because the other eleven Reserve
Banks incur costs to provide check services, a policy
was adopted by the Reserve Banks in 2005 that required that the FRBA compensate the other Reserve
Banks for costs incurred to provide check services.

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Notes to Financial Statements
Federal Reserve Bank of Philadelphia

In 2006 this policy was extended to the ACH services, which are managed by the FRBA, as well as
to Fedwire funds transfer and securities transfer services, which are managed by the FRBNY. The FRBA
and the FRBNY compensate the other Reserve Banks
for the costs incurred to provide these services. This
compensation is reported as a component of “Compensation received for services provided,” and the
Bank would have reported $26 million as compensation received for services provided had this policy
been in place in 2005 for ACH, Fedwire funds transfer, and securities transfer services.

3. Significant Accounting Policies
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, which differ
significantly from those of the private sector. These
accounting principles and practices are documented in the Financial Accounting Manual for Federal
Reserve Banks (“Financial Accounting Manual”),
which is issued by the Board of Governors. All of
the Reserve Banks are required to adopt and apply
accounting policies and practices that are consistent with the Financial Accounting Manual and the
financial statements have been prepared in accordance with the Financial Accounting Manual.
Differences exist between the accounting principles
and practices in the Financial Accounting Manual
and generally accepted accounting principles in the
United States (“GAAP”), primarily due to the unique

nature of the Bank’s powers and responsibilities as
part of the nation’s central bank. The primary difference is the presentation of all securities holdings at
amortized cost, rather than using the fair value presentation required by GAAP. Amortized cost more
appropriately reflects the Bank’s securities holdings
given its unique responsibility to conduct monetary
policy. While the application of current market
prices to the securities holdings may result in values
substantially above or below their carrying values,
these unrealized changes in value would have no
direct effect on the quantity of reserves available to
the banking system or on the prospects for future
Bank earnings or capital. Both the domestic and
foreign components of the SOMA portfolio may involve transactions that result in gains or losses when
holdings are sold prior to maturity. Decisions regarding securities and foreign currency transactions,
including their purchase and sale, are motivated by
monetary policy objectives rather than profit. Accordingly, market values, earnings, and any gains or
losses resulting from the sale of such securities and
currencies are incidental to the open market operations and do not motivate decisions related to policy
or open market activities.
In addition, the Bank has elected not to present a
Statement of Cash Flows because the liquidity and
cash position of the Bank are not a primary concern
given the Bank’s unique powers and responsibilities. A Statement of Cash Flows, therefore, would
not provide any additional meaningful information.
Other information regarding the Bank’s activities is
provided in, or may be derived from, the Statements
of Condition, Income, and Changes in Capital.
There are no other significant differences between

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Notes to Financial Statements
Federal Reserve Bank of Philadelphia

the policies outlined in the Financial Accounting
Manual and GAAP.
The preparation of the financial statements in conformity with the Financial Accounting Manual 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. Unique accounts and significant accounting policies are explained below.
a. Gold and Special Drawing Rights Certificates
The Secretary of the U.S. Treasury is authorized to
issue gold and special drawing rights (“SDR”) certificates to the Reserve Banks.
Payment for the gold certificates by the Reserve
Banks is made by crediting equivalent amounts in
dollars into the account established for the U.S. Treasury. The gold certificates held by the Reserve Banks
are required to be backed by the gold of the U.S.
Treasury. The U.S. Treasury may reacquire the gold
certificates at any time and the Reserve Banks must
deliver them to the U.S. Treasury. At such time, the
U.S. 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 a fine troy ounce.
The Board of Governors allocates the gold certificates among Reserve Banks once a year based on
the average Federal Reserve notes outstanding in
each Reserve Bank.

SDR certificates are issued by the International Monetary Fund (“Fund”) to its members in proportion
to each member’s quota in the Fund at the time of
issuance. SDR certificates serve as a supplement to
international monetary reserves and may be transferred from one national monetary authority to another. Under the law providing for United States
participation in the SDR system, the Secretary of
the U.S. Treasury is authorized to issue SDR certificates somewhat like gold certificates, to the Reserve
Banks. When SDR certificates are issued to the Reserve Banks, equivalent amounts in dollars are credited to the account established for the U.S. Treasury,
and the Reserve Banks’ SDR certificate accounts are
increased. The Reserve Banks are required to purchase SDR certificates, at the direction of the U.S.
Treasury, for the purpose of financing SDR acquisitions or for financing exchange stabilization operations. At the time SDR transactions occur, the Board
of Governors allocates SDR certificate transactions
among Reserve Banks based upon each Reserve
Bank’s Federal Reserve notes outstanding at the end
of the preceding year. There were no SDR transactions in 2006 or 2005.
b. Loans to Depository Institutions
Depository institutions that maintain reservable
transaction accounts or nonpersonal time deposits, as defined in regulations issued by the Board of
Governors, have borrowing privileges at the discretion of the Reserve Bank. Borrowers execute certain
lending agreements and deposit sufficient collateral
before credit is extended. Outstanding loans are
evaluated for collectibility, and currently all are considered collectible and fully collateralized. If loans
were ever deemed to be uncollectible, an appropri-

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Notes to Financial Statements
Federal Reserve Bank of Philadelphia

ate reserve would be established. Interest is accrued
using the applicable discount rate established at least
every fourteen days by the Board of Directors of the
Reserve Bank, subject to review and determination
by the Board of Governors. Loans to depository institutions are reported as “Other Assets.”
c. U.S. Government Securities and Investments
Denominated in Foreign Currencies
U.S. government securities and investments denominated in foreign currencies comprising the SOMA
are recorded at cost, on a settlement-date basis, and
adjusted for amortization of premiums or accretion
of discounts on a straight-line basis. Interest income
is accrued on a straight-line basis. Gains and losses
resulting from sales of securities are determined
by specific issues based on average cost. Foreigncurrency-denominated assets are revalued daily at
current foreign currency market exchange rates in
order to report these assets in U.S. dollars. Realized and unrealized gains and losses on investments
denominated in foreign currencies are reported as
“Foreign currency gains (losses), net” in the Statements of Income.
Activity related to U.S. government securities, including the premiums, discounts, and realized and
unrealized gains and losses, is allocated to each
Reserve Bank on a percentage basis derived from
an annual settlement of interdistrict clearings that
occurs in April of each year. The settlement also
equalizes Reserve Bank gold certificate holdings to
Federal Reserve notes outstanding in each District.
Activity related to investments denominated in foreign currencies is allocated to each Reserve Bank
based on the ratio of each Reserve Bank’s capital

and surplus to aggregate capital and surplus at the
preceding December 31.
d. Securities Sold Under Agreements to Repurchase and Securities Lending
Securities sold under agreements to repurchase are
accounted for as financing transactions and the associated interest expense is recognized over the life
of the transaction. These transactions are reported
in the Statements of Condition at their contractual
amounts and the related accrued interest payable is
reported as a component of “Other liabilities”.
U.S. government securities held in the SOMA are
lent to U.S. government securities dealers in order
to facilitate the effective functioning of the domestic securities market. Securities-lending transactions
are fully collateralized by other U.S. government securities and the collateral taken is in excess of the
market value of the securities loaned. The FRBNY
charges the dealer a fee for borrowing securities
and the fees are reported as a component of “Other
income”.
Activity related to securities sold under agreements
to repurchase and securities lending is allocated to
each of the Reserve Banks on a percentage basis
derived from the annual settlement of interdistrict
clearings. Securities purchased under agreements
to resell are allocated to FRBNY and not allocated to
the other Reserve Banks.
e. FX Swap Arrangements and Warehousing
Agreements
FX swap arrangements are contractual agreements
between two parties, the FRBNY and an authorized

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Federal Reserve Bank of Philadelphia

foreign central bank, to exchange specified currencies, at a specified price, on a specified date. The
parties agree to exchange their currencies up to a
prearranged maximum amount and for an agreedupon period of time (up to twelve months), at an
agreed-upon interest rate. These arrangements give
the FOMC temporary access to the foreign currencies
it may need to intervene to support the dollar and
give the authorized foreign central bank temporary
access to dollars it may need to support its own currency. Drawings under the FX swap arrangements
can be initiated by either party acting as drawer, and
must be agreed to by the drawee party. The FX
swap arrangements are structured so that the party
initiating the transaction bears the exchange rate
risk upon maturity. The FRBNY will generally invest
the foreign currency received under an FX swap arrangement in interest-bearing instruments.

gains and losses resulting from the daily revaluation
are allocated to FRBNY and not allocated to the other Reserve Banks.
f. 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 two to fifty
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.

Warehousing is an arrangement under which the
FOMC agrees to exchange, at the request of the
U.S. Treasury, U.S. dollars for foreign currencies held
by the U.S. Treasury or ESF over a limited period of
time. The purpose of the warehousing facility is to
supplement the U.S. dollar resources of the U.S.
Treasury and ESF for financing purchases of foreign
currencies and related international operations.

Costs incurred for software during the application
development stage, either developed internally or
acquired for internal use, are capitalized based on
the cost of direct services and materials associated
with designing, coding, installing, or testing software. Capitalized software costs are amortized on
a straight-line basis over the estimated useful lives
of the software applications, which range from two
to five years. Maintenance costs related to software
are charged to expense in the year incurred.

FX swap arrangements and warehousing agreements are revalued daily at current market exchange
rates. Activity related to these agreements, with the
exception of the unrealized gains and losses resulting from the daily revaluation, is allocated to each
Reserve Bank based on the ratio of each Reserve
Bank’s capital and surplus to aggregate capital and
surplus at the preceding December 31. Unrealized

Capitalized assets including software, buildings,
leasehold improvements, furniture, and equipment
are impaired when events or changes in circumstances indicate that the carrying amount of assets
or asset groups is not recoverable and significantly
exceeds their fair value.

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Notes to Financial Statements
Federal Reserve Bank of Philadelphia

g. Interdistrict Settlement Account
At the close of business each day, each Reserve
Bank assembles the payments due to or from other
Reserve Banks. These payments result from transactions between Reserve Banks and transactions that
involve depository institution accounts held by other
Reserve Banks, such as Fedwire funds transfer, check
collection, security transfer, and ACH operations.
The cumulative net amount due to or from the other
Reserve Banks is reflected in the “Interdistrict settlement account” in the Statements of Condition.
h. Federal Reserve Notes
Federal Reserve notes are the circulating currency of
the United States. These notes are issued through
the various Federal Reserve agents (the chairman
of the board of directors of each Reserve Bank and
their designees) to the Reserve Banks upon deposit
with such agents of specified classes of collateral security, typically U.S. government securities. These
notes are identified as issued to a specific Reserve
Bank. The Federal Reserve Act provides that the collateral security tendered by the Reserve Bank to the
Federal Reserve agent must be at least equal to the
sum of the notes applied for by such Reserve Bank.
Assets eligible to be pledged as collateral security
include all of the Bank’s assets. 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 pledged
for securities sold under agreements to repurchase
is deducted.

The Board of Governors may, at any time, call upon
a Reserve Bank for additional security to adequately
collateralize the 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 and are backed by the full faith
and credit 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 currency issued to the Bank but not in circulation, of
$6,957 million and $6,130 million at December 31,
2006 and 2005, respectively.
i. Items in Process of Collection and Deferred
Credit Items
“Items in process of collection” in the Statements
of Condition 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” are the counterpart liability to items
in process of collection, and the amounts in this account arise from deferring credit for deposited items
until the amounts are collected. The balances in
both accounts can vary significantly.

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Federal Reserve Bank of Philadelphia

j. 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 6 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 onehalf of the subscription is paid-in and the remainder
is subject to call. By law, each Reserve Bank is required to pay each member bank an annual dividend
of 6 percent on the paid-in capital stock. This cumulative dividend is paid semiannually. A member
bank is liable for Reserve Bank liabilities up to twice
the par value of stock subscribed by it.
k. Surplus
The Board of Governors requires the Reserve Banks
to maintain a surplus equal to the amount of capital paid-in as of December 31 of each year. This
amount is intended to provide additional capital and
reduce the possibility that the Reserve Banks would
be required to call on member banks for additional
capital.
Accumulated other comprehensive income is reported as a component of surplus in the Statements
of Condition and the Statements of Changes in
Capital. The balance of accumulated other comprehensive income is comprised of expenses, gains, and
losses related to defined benefit pension plans and
other postretirement benefit plans that, under accounting principles, are included in comprehensive
income but excluded from net income. Additional
information regarding the classifications of accu-

mulated other comprehensive income is provided in
Notes 9 and 10.
l. Interest on Federal Reserve Notes
The Board of Governors requires the Reserve Banks
to transfer excess earnings to the U.S. 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. This amount is reported
as a component of “Payments to U.S. Treasury as
interest on Federal Reserve notes” in the Statements
of Income and is reported as a liability in the Statements of Condition. Weekly payments to the U.S.
Treasury may vary significantly.
In the event of losses or an increase in capital paidin at a Reserve Bank, payments to the U.S. Treasury
are suspended and earnings are retained until the
surplus is equal to the capital paid-in. In the event
of a decrease in capital paid-in, the excess surplus,
after equating capital paid-in and surplus at December 31, is distributed to the U.S. Treasury in the following year.
m. Income and Costs Related to U.S. Treasury
Services
The Bank is required by the Federal Reserve Act to
serve as fiscal agent and depository of the United
States. By statute, the Department of the Treasury
is permitted, but not required, to pay for these services.
The Treasury and other government agencies reimbursement process for all Reserve Banks is centralized at the Bank. Each Reserve Bank transfers

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Notes to Financial Statements
Federal Reserve Bank of Philadelphia

its Treasury reimbursement receivable to the Bank.
The reimbursement receivable is reported in “Other
assets” and totaled $29 million and $67 million at
December 31, 2006 and 2005, respectively. The
cost of unreimbursed Treasury services is reported in
“Other expense” and was immaterial at December
31, 2006 and 2005.
n. Assessments by the Board of Governors
The Board of Governors assesses the Reserve Banks
to fund its operations based on each Reserve Bank’s
capital and surplus balances as of December 31 of
the previous year. The Board of Governors also assesses each Reserve Bank for the expenses incurred
for the U.S. Treasury to issue and retire 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 previous year.
o. 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 $2 million for
each of the years ended December 31, 2006 and
2005 and are reported as a component of “Occupancy expense”.
p. Restructuring Charges
In 2003, the Reserve Banks began the restructuring of several operations, primarily check, cash, and
U.S. Treasury services. The restructuring included
streamlining the management and support structures, reducing staff, decreasing the number of pro-

ity in some locations. These restructuring activities
continued in 2004 through 2006.
q. Implementation of FASB Statement No. 158,
Employers’ Accounting for Defined Benefit
Pension and Other Postretirement Plans
The Bank initially applied the provisions of FASB
Statement No. 158, Employers’ Accounting for
Defined Benefit Pension and Other Postretirement
Plans, at December 31, 2006. This accounting
standard requires recognition of the overfunded or
underfunded status of a defined benefit postretirement plan in the Statements of Condition, and recognition of changes in the funded status in the years
in which the changes occur through comprehensive
income. The transition rules for implementing the
standard require applying the provisions as of the
end of the year of initial implementation with no
retrospective application. The incremental effects on
the line items in the Statement of Condition at December 31, 2006, were as follows (in millions):

Before
After

Application
Application

of Statement
of Statement

158
Adjustments
158

Accrued
benefit costs
46
24
70
Total
liabilities
$34,349
$24

Surplus

$34,373

1,834

(24)

1,810

Total capital $3,644

$(24)

$3,620

cessing locations, and increasing processing capac-

Federal Reserve Bank of Philadelphia |

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Notes to Financial Statements
Federal Reserve Bank of Philadelphia

4. U.S. Government Securities, Securities Sold Under Agreements to Repurchase, and Securities Lending
The FRBNY, on behalf of the Reserve Banks, holds
securities bought outright in the SOMA. The Bank’s
allocated share of SOMA balances was approximately 4.342 percent and 3.547 percent at December 31, 2006 and 2005, respectively.
The Bank’s allocated share of U.S. Government securities, net, held in the SOMA at December 31, was
as follows (in millions):

2006
2005
Par value:
U.S. government:
Bills
$ 12,027
$ 9,623
Notes 17,469 13,484
Bonds
4,321
3,293

Total par value

33,817

26,400

Unamortized premiums
Unaccreted discounts

378
(174)

313
(100)

Total allocated
to the Bank

$ 34,021

$ 26,613

At December 31, 2006 and 2005, the fair value of
the U.S. government securities allocated to the Bank,
excluding accrued interest, was $34,555 million and
$27,226 million, respectively, as determined by reference to quoted prices for identical securities.
The total of the U.S. government securities, net, held
in the SOMA was $783,619 million and $750,202

million at December 31, 2006 and 2005, respectively. At December 31, 2006 and 2005, the fair value
of the U.S. government securities held in the SOMA,
excluding accrued interest, was $795,900 million
and $767,472 million, respectively, as determined by
reference to quoted prices for identical securities.
Although the fair value of security holdings can be
substantially greater or less than the carrying value
at any point in time, these unrealized gains or losses
have no effect on the ability of a Reserve Bank, as
a central bank, to meet its financial obligations and
responsibilities, and should not be misunderstood as
representing a risk to the Reserve Banks, their shareholders, or the public. The fair value is presented
solely for informational purposes.
At December 31, 2006 and 2005, the total contract
amount of securities sold under agreements to repurchase was $29,615 million and $30,505 million,
respectively, of which $1,286 million and $1,082
million were allocated to the Bank. The total par
value of the SOMA securities that were pledged for
securities sold under agreements to repurchase at
December 31, 2006 and 2005 was $29,676 million
and $30,559 million, respectively, of which $1,288
million and $1,084 million was allocated to the
Bank. The contract amount for securities sold under
agreements to repurchase approximates fair value.
The maturity distribution of U.S. government securities bought outright and securities sold under
agreements to repurchase, that were allocated to
the Bank at December 31, 2006, was as follows (in
millions):

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Notes to Financial Statements
Federal Reserve Bank of Philadelphia

Securities

Sold Under

U.S.
Agreements to

Government Repurchase

Securities
(Contract

(Par Value)
amount)
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
Over 10 years

Total allocated
to the Bank

1,762 $
7,854
8,037
9,733
2,937
3,494

$ 33,817

1,286
1,286

At December 31, 2006 and 2005, U.S. government
securities with par values of $6,855 million and
$3,776 million, respectively, were loaned from the
SOMA, of which $298 million and $134 million, respectively, were allocated to the Bank.

5. Investments Denominated in
Foreign Currencies
The FRBNY, on behalf of the Reserve Banks, holds
foreign currency deposits with foreign central banks
and with the Bank for International Settlements and
invests in foreign government debt instruments.
Foreign government debt instruments held include
both securities bought outright and securities purchased under agreements to resell. These investments are guaranteed as to principal and interest by
the issuing foreign governments.
The Bank’s allocated share of investments denominated in foreign currencies was approximately 5.626
percent and 2.497 percent at December 31, 2006
and 2005, respectively.

The Bank’s allocated share of investments denominated in foreign currencies, including accrued interest, valued at foreign currency market exchange
rates at December 31, was as follows (in millions):

2006
2005
European Union Euro:
Foreign currency deposits $ 351
$ 136
Securities purchased
under agreements to resell
125
48
Government debt
instruments
229
89
Japanese Yen:
Foreign currency deposits
146
Government debt
instruments
301
Total allocated
to the Bank

$ 1,152

65
135

$ 473

At December 31, 2006 and 2005, the fair value of
investments denominated in foreign currencies, including accrued interest, allocated to the Bank was
$1,150 million and $474 million, respectively. The
fair value of government debt instruments was determined by reference to quoted prices for identical
securities. The cost basis of foreign currency deposits and securities purchased under agreements to
resell, adjusted for accrued interest, approximates
fair value. Similar to the U.S. government securities discussed in Note 4, unrealized gains or losses
have no effect on the ability of a Reserve Bank, as
a central bank, to meet its financial obligations and
responsibilities.
Total System investments denominated in foreign
currencies were $20,482 million and $18,928 mil-

Federal Reserve Bank of Philadelphia |

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Notes to Financial Statements
Federal Reserve Bank of Philadelphia

lion at December 31, 2006 and 2005, respectively.
At December 31, 2006 and 2005, the fair value of
the total System investments denominated in foreign
currencies, including accrued interest, was $20,434
million and $18,965 million, respectively.

6. Bank Premises, Equipment, and
Software

The maturity distribution of investments denominated in foreign currencies that were allocated to
the Bank at December 31, 2006, was as follows (in
millions):

European Japanese
Euro
Yen

Within 15 days
$
16 days to 90 days
91 days to 1 year
Over 1 year to 5 years

245 $ 147 $
134
68
137 124
189 108

Total
392
202
261
297

Total allocated

to the Bank
$ 705 $ 447 $ 1,152

At December 31, 2006 and 2005, there were no
material open foreign exchange contracts.
At December 31, 2006 and 2005, the warehousing
facility was $5,000 million, with no balance outstanding.

A summary of bank premises and equipment at December 31 is as follows (in millions):
2006

2005

Bank premises and
equipment:
Land
$
3
$
Buildings
84
Building machinery
and equipment
13
Construction

in progress
1
Furniture and equipment
68
Subtotal
Accumulated depreciation
Bank premises and
equipment, net

Depreciation expense,
for the year ended
December 31

169
(88)

3
78
12
1
66
160
(85)

The Bank leases space to an outside tenant with a
remaining lease term of 4 years. Rental income from
such leases was $1 million for each of the years ended December 31, 2006 and 2005 and is reported as
a component of “Other income”. Future minimum
lease payments that the Bank will receive under the
noncancelable lease agreement in existence at December 31, 2006, are as follows (in millions):

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Notes to Financial Statements
Federal Reserve Bank of Philadelphia

2007
$
2008
2009
2010

1
1
1
1

Total

The Bank has capitalized software assets, net of
amortization, of $8 million and $10 million at December 31, 2006 and 2005, respectively. Amortization expense was $3 million and $1 million for
the years ended December 31, 2006 and 2005, respectively. Capitalized software assets are reported
as a component of “Other assets” and the related
amortization is reported as a component of “Other
expenses”.
Assets impaired as a result of the Bank’s restructuring
plan or the Bank’s decision to increase efficiency included equipment. Asset impairment losses of $466
thousand for the period ending December 31, 2005
were determined using fair values based on quoted
market values or other valuation techniques and are
reported as a component of “Other expenses”. The
Bank had no impairment losses in 2006.

7. Commitments and Contingencies
At December 31, 2006, the Bank was obligated
under noncancelable leases for premises and equipment with remaining terms ranging from 1 to approximately 3 years. These leases provide for increased rental payments based upon increases in
real estate taxes, operating costs, or selected price
indices.

Rental expense under operating leases for certain
operating facilities, warehouses, and data processing 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, 2006 and 2005. Certain of
the Bank’s leases have options to renew. The Bank
has no capital leases.
Future minimum rental payments under noncancelable operating leases with terms of one year or
more, at December 31, 2006 were not material.
At December 31, 2006, the Bank, acting on behalf
of the Reserve Banks, had a contractual commitment extending through the year 2008 with a remaining amount of $4 million which is included as
a component of “Other assets” in the Statement of
Condition. This commitment represents software licenses and maintenance. The 2007 fixed payment
under this commitment is $2 million.
Under the Insurance Agreement of the Federal Reserve Banks, each of the Reserve Banks has agreed
to bear, on a per incident basis, a pro rata share of
losses in excess of one 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 that a Reserve Bank’s capital
paid-in bears 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, 2006 or
2005.
The Bank is involved in certain legal actions and

Federal Reserve Bank of Philadelphia |

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Notes to Financial Statements
Federal Reserve Bank of Philadelphia

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 aforementioned
litigation and claims will be resolved without material adverse effect on the financial position or results
of operations of the Bank.

8. Retirement and Thrift Plans
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 Bank’s employees participate in the Retirement Plan for Employees of the Federal Reserve System (“System Plan”). Employees at certain compensation levels participate in the Benefit Equalization
Retirement Plan (“BEP”) and certain Reserve Bank
officers participate in the Supplemental Employee
Retirement Plan (“SERP”).
The System Plan is a multi-employer plan with contributions funded by the participating employers. Participating employers are the Federal Reserve Banks,
the Board of Governors, and the Office of Employee
Benefits of the Federal Reserve Employee Benefits
System. No separate accounting is maintained of
assets contributed by the participating employers.
The FRBNY acts as a sponsor of the System Plan and
the costs associated with the Plan are not redistributed to other participating employers.

Thrift Plan
Employees of the Bank may also participate in the
defined contribution Thrift Plan for Employees of the
Federal Reserve System (“Thrift Plan”). The Bank’s
Thrift Plan contributions totaled $3 million for each
of the years ended December 31, 2006 and 2005
and are reported as a component of “Salaries and
other benefits” in the Statements of Income. The
Bank matches employee contributions based on a
specified formula. For the years ended December
31, 2006 and 2005, the Bank matched 80 percent
on the first 6 percent of employee contributions for
employees with less than five years of service and
100 percent on the first 6 percent of employee contributions for employees with five or more years of
service.

9. Postretirement Benefits Other Than
Pensions and Postemployment Benefits
Postretirement Benefits other than Pensions
In addition to the Bank’s retirement plans, employees who have met certain age and length-of-service
requirements are eligible for both medical benefits
and life insurance coverage during retirement.
The Bank funds benefits payable under the medical
and life insurance plans as due and, accordingly, has
no plan assets.

The Bank’s projected benefit obligation, funded status, and net pension expenses for the BEP and the
SERP at December 31, 2006 and 2005, and for the
years then ended, were not material.

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Notes to Financial Statements
Federal Reserve Bank of Philadelphia

Following is a reconciliation of beginning and ending balances of the benefit obligation (in millions):

2006

Accumulated postretirement

benefit obligation

at January 1
$
Service cost-benefits earned

during the period
Interest cost on accumulated

benefit obligation
Actuarial loss
Contributions by plan

participants
Benefits paid
Plan amendments

46.2

2005

$ 41.9

1.4

1.0

2.8
15.2

2.4
3.2

1.0
(3.3)
(0.2)

1.0
(3.3)
-

Accumulated postretirement

benefit obligation

at December 31
$ 63.1

2006

Fair value of plan assets

at January 1
$
-
$ Contributions by the

employer
2.3 2.3
Contributions by plan

participants
1.0 1.0
Benefits paid (3.3) (3.3)
Fair value of plan assets

at December 31
$
-
$

Unfunded postretirement
benefit obligation
$ 63.1
$ 46.2
Unrecognized prior service cost 6.2
Unrecognized net actuarial loss (15.3)
Accrued postretirement benefit cost

$ 46.2

At December 31, 2006 and 2005, the weighted-average discount rate assumptions used in developing the postretirement benefit obligation were 5.75
percent and 5.50 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.
Following is a reconciliation of the beginning and
ending balance of the plan assets, the unfunded
postretirement benefit obligation, and the accrued
postretirement benefit costs (in millions):

2005

$ 37.1

Amounts included in accumulated other comprehensive loss are shown below (in millions):
Prior service cost
$ 5.0
Net actuarial loss (28.8)
Total accumulated other

comprehensive loss
$ (23.8)
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:

2006

Health care cost trend rate

assumed for next year
9.00%
Rate to which the cost trend

rate is assumed to decline

(the ultimate trend rate) 5.00%
Year that the rate reaches the

ultimate trend rate
2012

Federal Reserve Bank of Philadelphia |

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2005

9.00%

5.00%
2011

Notes to Financial Statements
Federal Reserve Bank of Philadelphia

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, 2006
(in millions):

One
One

Percentage Percentage

Point
Point

Increase
Decrease

Estimated amounts that will be amortized from
accumulated other comprehensive loss into net
periodic postretirement benefit expense in 2007
are shown below (in millions):

Effect on aggregate of
service and interest
cost components of net
periodic postretirement
benefit costs

Net postretirement benefit costs are actuarially determined using a January 1 measurement date. At
January 1, 2006 and 2005, the weighted-average
discount rate assumptions used to determine net
periodic postretirement benefit costs were 5.50 percent and 5.75 percent, respectively.

0.3

Effect on accumulated
postretirement benefit
obligation

(0.5)

4.5

2006

2005

Service cost-benefits
earned during the period
$ 1.4 $ 1.0
Interest cost on
accumulated benefit
obligation
2.8
2.4
Amortization of prior
service cost (1.3) (1.3)
Recognized net actuarial
loss
1.6
1.0

Total periodic expense

Net periodic postretirement
benefit expense

4.5
4.5

(1.3)
3.2

1.9

(6.4)

The following is a summary of the components of
net periodic postretirement benefit expense for the
years ended December 31 (in millions):

Prior service cost

Net actuarial loss

Total

3.1
3.1

Net periodic postretirement benefit expense is reported as a component of “Salaries and other benefits” in the Statements of 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, retroactive to
January 1, 2004, are reflected in actuarial loss in the
accumulated postretirement benefit obligation.
There were no receipts of federal Medicare subsidies
in the year ended December 31, 2006. Expected

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Notes to Financial Statements
Federal Reserve Bank of Philadelphia

receipts in the year ending December 31, 2007, related to payments made in the year ended December 31, 2006, are $.3 million.
Following is a summary of expected postretirement
benefit payments (in millions):

Without
Subsidy
2007
$
2008
2009
2010
2011
2012-2016

Total

With
Subsidy

3.5
$
3.8
4.0
4.3
4.5
26.3
46.4

3.1
3.3
3.5
3.7
3.9
22.5

$ 40.0

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 and dental
insurance, survivor income, and disability benefits.
The accrued postemployment benefit costs recognized by the Bank at December 31, 2006 and 2005

were $6 million and $5 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 2006
and 2005 operating expenses were $1 million and
$20 thousand, respectively, and are recorded as a
component of “Salaries and other benefits” in the
Statements of Income.

10. accumulated other comprehensive
income

Following is a reconciliation of beginning and ending
balances of accumulated other comprehensive loss
(in millions):

Amount Related
to Postretirement
Benefits other
than Pensions

Balance at December 31, 2005
$
Adjustment to initially apply
FASB Statement No. 158

(24)

Balance at December 31, 2006

(24)

Additional detail regarding the classification of
accumulated other comprehensive loss is included
in Note 9.

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Full text of Annual Report of the Federal Reserve Bank of Philadelphia : Transitions and Accomplishments : 2006 Annual Report

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