President's Report

September 30, 2003

At the Bank

Investment Portfolio Actions

I reported in several earlier communications that the Home Loan Bank held a portfolio of approximately $1.03 billion of uninsured residential asset-backed investments secured by manufactured housing loans. These bonds, which helped to fulfill our housing finance and community development missions, were rated AAA by at least two of the three primary rating agencies when we purchased them. Four of these issues were subsequently downgraded. One issue was downgraded from AAA to BBB- in two steps between September 2002 and May 2003. Another issue was downgraded from AAA to BBB- in two steps between March 2003 and July 2003. One issue was downgraded from AAA to A- in April 2003, and one issue was downgraded from AAA to AA in May 2003.

After S&P’s downgrades of the bonds, the Bank began a three-phase review of its investment portfolio and risk management procedures to develop prudent measures to minimize the Bank’s costs and risks: 1) review our entire manufactured housing portfolio; 2) review the rest of our investment portfolio; 3) review our risk management policies, practices and procedures.

The first phase is complete and resulted in the sale of all uninsured manufactured housing bonds in our portfolio. In our review, Bank management determined that all of these manufactured housing bonds demonstrated deterioration in creditworthiness and decided to sell these bonds to ensure there would be no further deterioration. The Bank now has no uninsured exposure to the manufactured housing sector. As I reported in my September 24 letter to you, the face amount of the bonds sold was $1.033 billion and the loss on the sale was approximately $183 million. The effect of the transaction will be to reduce net income by approximately $135 million.

As part of the review of the rest of the Bank’s investment portfolio, yesterday we sold four issues of uninsured asset-backed securities backed by residential and business loans. The bonds no longer met the credit standards of the Bank due to recent deterioration in the credit quality of the servicer. The face amount of the securities sold by the Bank, which are still AAA-rated, was $944 million, and the loss on the sale was approximately $6.6 million. The effect of this transaction will be to reduce net income by approximately $5 million.

The rest of our portfolio of mortgage-backed securities and residential asset-backed securities are rated AAA. We are nearing completion of the review of the investment portfolio and expect no significant additional issues.

Upon completion of phases one and two, the Bank will undertake a thorough review of its risk management policies, practices and procedures. Our goal is to ensure our ability to constantly monitor our investment portfolio and to take quick and appropriate actions to minimize risk and to maintain a portfolio of the highest quality.

Dividend Action and Capital Plan

As I reported to you in my letter of September 22, the Board of Directors approved management’s recommendation not to pay a dividend to stockholders in October 2003. While we regret having to take an action as dramatic as not paying a dividend for this quarter, management believes such an action is the quickest way to allow us to build retained earnings and resume paying a dividend.

The Board also approved management’s recommendation to delay the implementation of the Bank’s Capital Plan. The new implementation date has not been determined.

We expect to finish the third quarter with retained earnings in excess of $90 million. As of this writing, our capital to assets ratio is more than 4.65%, well in excess of the 4.0% regulatory minimum.

Rating Agency Actions

On Friday, September 26, Moody's Investors Service affirmed its "Aaa" bank deposit and "Prime-1" short-term deposit ratings of the Federal Home Loan Bank of New York. Also on Friday, Standard & Poor's Ratings Services lowered its long-term counterparty credit rating on the Bank to “AA+” from “AAA”. S&P’s short-term counterparty rating on the Bank remained unchanged at “A-1+”. Also, S&P revised its ratings outlook for the Bank up to “stable” from “negative”. While we are disappointed with S&P’s action, we believe Moody’s decision to affirm our ratings was a positive response to the sale of our uninsured manufactured housing bonds.

We look forward to continued dialogue with S&P and the restoration of the highest possible credit rating.

In Washington

Board Votes For SEC Registration

For more than a year, Bush Administration officials have been asking that we voluntarily register at the SEC. On the merits, there is probably no benefit in layering the HLB with a dual regulatory structure. We have made our case on the merits and were not successful. The decision has been made in Washington that transparency outweighs a number of other factors.

Some of the fiduciary concerns our Bank's Directors have about voluntary SEC registration can be addressed if the government issues a regulation requiring the Banks to register. The Federal Housing Finance Board has voted 5-0 to do just that, and a proposed regulation was published in the Federal Register on September 17. There is a 120-day comment period.

Therefore, our Board has voted to support registration of our stock with the Securities and Exchange Commission, reaffirmed the Bank's commitment to enhanced financial disclosure, and intends to participate in the rule making process.

Board Supports Administration’s Position For World-Class GSE Regulator

Freddie Mac has been in the news a lot recently and that has brought attention to the federal government's regulation of the government sponsored housing enterprises. The regulator of Fannie and Freddie, an independent office in HUD, is directly feeling the winds of change. Support has built quickly and strongly in the Administration and in Congress to restructure this regulator and move it from HUD to the Treasury.

The big question about all of this in Washington was, “What about the Federal Housing Finance Board? Should it be combined with the regulator of Fannie and Freddie and also moved to the Treasury?” Treasury Secretary John Snow and HUD Secretary Mel Martinez ended the suspense when they testified at the House Financial Services Committee on September 10. They recommended that Congress enact legislation to create a new Federal agency in the Treasury Department to regulate the financial activities of the housing related GSEs, including the FHLBs.

But read carefully what Secretary Snow said: "I have not limited myself to one group of housing GSEs. The importance of our housing finance markets requires that all of the housing GSEs be included in a program of world-class supervision. We see the need for this for the Federal Home Loan Banks just as we see it for Fannie Mae and Freddie Mac. We recognize the development of a consensus for action on how to provide that supervisory system for Fannie Mae and Freddie Mac and are ready to work with Congress on a new agency for their supervision. A similar consensus may not exist with regard to the Federal Home Loan Banks, but we look forward to working with Congress, the Home Loan Banks, and other interested parties to achieve resolution of these matters."

So the Administration is clear about where it wants to go, and not sure how it is going to get there. Where is the FHLBNY with regard to the foregoing? After careful consideration and deliberation, our Board has expressed its support for one independent regulator for all the GSEs as called for by the Administration, and called upon the other eleven HLBs and all interested parties to work together to achieve the consensus Secretary Snow said is needed to accomplish this.

Closing Comment

The Board of Directors and the management of the Home Loan Bank are committed to minimizing our costs and risks, maintaining a high-quality investment portfolio and continuing our vital mission: to advance housing opportunities and local community development by maximizing the capacity of our community-based member lenders to serve their markets.

We will continue to keep you informed of our progress.


Alfred A. DelliBovi
President & CEO

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Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
This report may contain forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. These statements are based upon our current expectations and speak only as of the date hereof. These statements may use forward-looking terms, such as “projected,” “expects,” “may,” or their negatives or other variations of these terms. The Bank cautions that, by their nature, forward-looking statements involve risk or uncertainty and that actual results could differ materially from those expressed or implied in these forward-looking statements or could affect the extent to which a particular objective, projection, estimate, or prediction is realized. These forward-looking statements involve risks and uncertainties including, but not limited to, regulatory and accounting rule adjustments or requirements, changes in interest rates, changes in projected business volumes, changes in prepayment speeds on mortgage assets, the cost of our funding, changes in our membership profile, the withdrawal of one or more large members, competitive pressures, shifts in demand for our products, and general economic conditions. We undertake no obligation to revise or update publicly any forward-looking statements for any reason.

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