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FEDERAL RESERVE BANK OF PHILADELPHIA | ANNUAL REPORT 2014
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2014 STATEMENT OF AUDITOR INDEPENDENCEFEDERAL RESERVE BANK OF PHILADELPHIA
The Federal Reserve Board engaged Deloitte & Touche LLP (D&T) to audit the 2014 combined and individual financial state-ments of the Reserve Banks and Maiden Lane LLC.1
In 2014, D&T also conducted audits of internal controls over financial reporting for each of the Reserve Banks. Fees for D&T’s services totaled $7 million, of which $0.4 million was for the audit of Maiden Lane LLC. To ensure auditor indepen-dence, the Board requires that D&T be independent in all matters relating to the audits. Specifically, D&T 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 2014, the Bank did not engage D&T for any non-audit services.
1 In addition, D&T audited the Office of Employee Benefits of the Federal Reserve System (OEB), the Retirement Plan for Employees of the Federal Reserve System (System Plan), and the Thrift Plan for Employees of the Federal Reserve System (Thrift Plan). The System Plan and the Thrift Plan provide retirement benefits to employees of the Board, the Federal Reserve Banks, the OEB, and the Consumer Financial Protection Bureau.
FEDERAL RESERVE BANK OF PHILADELPHIA | ANNUAL REPORT 2014
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FEDERAL RESERVE BANK OF PHILADELPHIA | ANNUAL REPORT 2014
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FINANCIAL STATEMENT CONTENTS
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING 34
INDEPENDENT AUDITORS’ REPORT 35
ABBREVIATIONS 38
FINANCIAL STATEMENTS
STATEMENTS OF CONDITION AS OF DECEMBER 31, 2014, AND DECEMBER 31, 2013 39
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2014, AND DECEMBER 31, 2013 40
STATEMENTS OF CHANGES IN CAPITAL FOR THE YEARS ENDED DECEMBER 31, 2014, AND DECEMBER 31, 2013 41
NOTES TO FINANCIAL STATEMENTS 42
FEDERAL RESERVE BANK OF PHILADELPHIA | ANNUAL REPORT 2014
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MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
FEDERAL RESERVE BANK OF PHILADELPHIA | ANNUAL REPORT 2014
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INDEPENDENT AUDITORS’ REPORT
Internal Control — Integrated Framework (2013)
FEDERAL RESERVE BANK OF PHILADELPHIA | ANNUAL REPORT 2014
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Internal Control — Integrated Framework (2013) .
INDEPENDENT AUDITORS’ REPORT — PAGE 2
FEDERAL RESERVE BANK OF PHILADELPHIA | ANNUAL REPORT 2014
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Financial Accounting Manual for Federal Reserve Banks,
INDEPENDENT AUDITORS’ REPORT — PAGE 3
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ABBREVIATIONS
ACH Automated clearinghouse
ASC AccountingStandardsCodification
ASU AccountingStandardsUpdate
BEP BenefitEqualizationRetirementPlan
Bureau BureauofConsumerFinancialProtection
FAM Financial Accounting Manual for Federal Reserve Banks
FASB FinancialAccountingStandardsBoard
FOMC FederalOpenMarketCommittee
FRBA FederalReserveBankofAtlanta
FRBNY FederalReserveBankofNewYork
GAAP AccountingprinciplesgenerallyacceptedintheUnitedStatesofAmerica
GSE Government-sponsoredenterprise
IMF InternationalMonetaryFund
MBS Mortgage-backedsecurities
SDR Specialdrawingrights
SERP SupplementalRetirementPlanforSelectOfficersoftheFederalReserveBanks
SOMA SystemOpenMarketAccount
TBA Tobeannounced
TDF TermDepositFacility
FEDERAL RESERVE BANK OF PHILADELPHIA | ANNUAL REPORT 2014
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2014 2013
ASSETS
Goldcertificates $ 338 $ 397Specialdrawingrightscertificates 210 210Coin 122 123 Loanstodepositoryinstitutions 7 -SystemOpenMarketAccount: Treasurysecurities,net(ofwhich$267and$497islentasof December31,2014and2013,respectively) 62,198 68,363 Government-sponsoredenterprisedebtsecurities,net(ofwhich $15and$32islentasofDecember31,2014and2013,respectively) 958 1,713 Federalagencyandgovernment-sponsoredenterprisemortgage-backed securities,net 42,861 44,442 Foreigncurrencydenominatedinvestments,net 1,571 1,835 Centralbankliquidityswaps 115 21 Accruedinterestreceivable 619 685 Otherassets 1 -Bankpremisesandequipment,net 90 87Otherassets 29 28
Total assets $ 109,119 $ 117,904 LIABILITIES AND CAPITAL
FederalReservenotesoutstanding,net $ 41,512 $ 36,063SystemOpenMarketAccount: Securitiessoldunderagreementstorepurchase 12,214 9,154 Otherliabilities 20 39Deposits: Depositoryinstitutions 47,897 48,568 Otherdeposits 28 21Interestpayabletodepositoryinstitutions 2 2Accruedbenefitcosts 121 104AccruedremittancestotheTreasury 7 84Interdistrictsettlementaccount 4,108 19,721Otherliabilities 16 12
Total liabilities 105,925 113,768 Capitalpaid-in 1,597 2,068Surplus(includingaccumulatedothercomprehensivelossof$25and$14at December31,2014and2013,respectively) 1,597 2,068
Total capital 3,194 4,136
Total liabilities and capital $ 109,119 $ 117,904
Theaccompanyingnotesareanintegralpartofthesefinancialstatements.
STATEMENTS OF CONDITIONFEDERAL RESERVE BANK OF PHILADELPHIA
AsofDecember31,2014andDecember31,2013(inmillions)
FEDERAL RESERVE BANK OF PHILADELPHIA | ANNUAL REPORT 2014
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STATEMENTS OF INCOME AND COMPREHENSIVE INCOMEFEDERAL RESERVE BANK OF PHILADELPHIA
FortheyearsendedDecember31,2014andDecember31,2013(inmillions)
2014 2013
INTEREST INCOME SystemOpenMarketAccount: Treasurysecurities,net $ 1,589 $ 1,549 Government-sponsoredenterprisedebtsecurities,net 40 66 Federalagencyandgovernment-sponsoredenterprise mortgage-backedsecurities,net 1,296 1,098 Foreigncurrencydenominatedinvestments,net 6 8 Centralbankliquidityswaps - 2
Totalinterestincome 2,931 2,723 INTEREST EXPENSE SystemOpenMarketAccount: Securitiessoldunderagreementstorepurchase 3 2Deposits: Depositoryinstitutions 146 99 TermDepositFacility 11 1
Totalinterestexpense 160 102
Netinterestincome 2,771 2,621 NON-INTEREST LOSS SystemOpenMarketAccount: Federalagencyandgovernment-sponsoredenterprise mortgage-backedsecuritiesgains,net 2 1 Foreigncurrencytranslationlosses,net (218) (98) Other - 1Compensationreceivedforservicecostsprovided 3 4Reimbursableservicestogovernmentagencies 44 39Other 3 3
Totalnon-interestloss (166) (50) OPERATING EXPENSES Salariesandbenefits 133 124Occupancy 15 16Equipment 7 7Other 47 51Assessments: BoardofGovernorsoperatingexpensesandcurrencycosts 78 81 BureauofConsumerFinancialProtection 42 43
Totaloperatingexpenses 322 322 NetincomebeforeprovidingforremittancestotheTreasury 2,283 2,249EarningsremittancestotheTreasury 2,625 2,189
Net(loss)income (342) 60 Changeinpriorservicecostsrelatedtobenefitplans 1 -Changeinactuarial(losses)gainsrelatedtobenefitplans (12) 19
Totalothercomprehensive(loss)income (11) 19
Comprehensive (loss) income $ (353) $ 79
Theaccompanyingnotesareanintegralpartofthesefinancialstatements.
FEDERAL RESERVE BANK OF PHILADELPHIA | ANNUAL REPORT 2014
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STATEMENTS OF CHANGES IN CAPITALFEDERAL RESERVE BANK OF PHILADELPHIA
FortheyearsendedDecember31,2014andDecember31,2013(inmillions,exceptsharedata)
Theaccompanyingnotesareanintegralpartofthesefinancialstatements.
Surplus Accumulated other Capital Netincome comprehensive Totalsurplus Totalcapital paid-in retained income(loss) BalanceatDecember31,2012 (42,324,391shares) $ 2,116 $ 2,149 $ (33) $ 2,116 $ 4,232
Netchangeincapitalstockredeemed (958,630shares) (48) - - - (48) Comprehensiveincome: Netincome - 60 - 60 60 Othercomprehensiveincome - - 19 19 19 Dividendsoncapitalstock - (127) - (127) (127)
Netchangeincapital (48) (67) 19 (48) (96)
BalanceatDecember31,2013 (41,365,761shares) $ 2,068 $ 2,082 $ (14) $ 2,068 $ 4,136
Netchangeincapitalstockredeemed (9,433,205shares) (471) - - - (471) Comprehensiveincome: Netloss - (342) - (342) (342) Othercomprehensiveloss - - (11) (11) (11) Dividendsoncapitalstock - (118) - (118) (118)
Netchangeincapital (471) (460) (11) (471) (942)
BalanceatDecember31,2014 (31,932,556shares) $ 1,597 $ 1,622 $ (25) $ 1,597 $ 3,194
NOTES TO FINANCIAL STATEMENTS
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1. STRUCTURETheFederalReserveBankofPhiladelphia(Bank)ispartoftheFederalReserveSystem(System)andisoneofthe12FederalReserveBanks(ReserveBanks)createdbyCongressundertheFederalReserveActof1913(FederalReserveAct),whiches-tablishedthecentralbankoftheUnitedStates.TheReserveBanksarecharteredbythefederalgovernmentandpossessauniquesetofgovernmental,corporate,andcentralbankcharacteristics.TheBankservestheThirdFederalReserveDistrict,whichincludesDelawareandportionsofNewJerseyandPennsylvania.
InaccordancewiththeFederalReserveAct,supervisionandcontroloftheBankisexercisedbyaboardofdirectors.TheFed-eralReserveActspecifiesthecompositionoftheboardofdirectorsforeachoftheReserveBanks.Eachboardiscomposedofninemembersservingthree-yearterms:threedirectors, includingthosedesignatedaschairmananddeputychairman,areappointedbytheBoardofGovernorsoftheFederalReserveSystem(BoardofGovernors)torepresentthepublic,andsixdirectorsareelectedbymemberbanks.BanksthataremembersoftheSystemincludeallnationally-charteredbanksandanystate-charteredbanksthatapplyandareapprovedformembership.Memberbanksaredividedintothreeclassesaccordingtosize.Memberbanksineachclasselectonedirectorrepresentingmemberbanksandonerepresentingthepublic.Inanyelectionofdirectors,eachmemberbankreceivesonevote,regardlessofthenumberofsharesofReserveBankstockitholds.
Inadditiontothe12ReserveBanks,theSystemalsoconsists,inpart,oftheBoardofGovernorsandtheFederalOpenMar-ketCommittee(FOMC).TheBoardofGovernors,anindependentfederalagency,ischargedbytheFederalReserveActwithanumberofspecificduties,includinggeneralsupervisionovertheReserveBanks.TheFOMCiscomposedofmembersoftheBoardofGovernors,thepresidentoftheFederalReserveBankofNewYork(FRBNY),and,onarotatingbasis,fourotherReserveBankpresidents.
2. OPERATIONS AND SERVICESTheReserveBanksperformavarietyofservicesandoperations.Thesefunctionsincludeparticipatinginformulatingandcon-ductingmonetarypolicy;participatinginthepaymentsystem,includingtransfersoffunds,automatedclearinghouse(ACH)operations,andcheckcollection;distributingcoinandcurrency;performingfiscalagencyfunctionsfortheU.S.DepartmentoftheTreasury(Treasury),certainfederalagencies,andotherentities;servingasthefederalgovernment’sbank;providingshort-termloanstodepositoryinstitutions;providingloanstoparticipantsinprogramsorfacilitieswithbroad-basedeligibilityinunusualandexigentcircumstances;servingconsumersandcommunitiesbyprovidingeducationalmaterialsandinforma-tion regardingfinancial consumerprotection rights and lawsand informationon communitydevelopmentprogramsandactivities;andsupervisingbankholdingcompanies,statememberbanks,savingsandloanholdingcompanies,U.S.officesofforeignbankingorganizations,anddesignatedfinancialmarketutilitiespursuanttoauthoritydelegatedbytheBoardofGov-ernors.Certainservicesareprovidedtoforeignandinternationalmonetaryauthorities,primarilybytheFRBNY. TheFOMC,inconductingmonetarypolicy,establishespolicyregardingdomesticopenmarketoperations,overseestheseop-erations,andissuesauthorizationsanddirectivestotheFRBNYtoexecutetransactions.TheFOMCauthorizesanddirectstheFRBNYtoconductoperationsindomesticmarkets,includingthedirectpurchaseandsaleofTreasurysecurities,government-sponsoredenterprise(GSE)debtsecurities,andfederalagencyandGSEmortgage-backedsecurities(MBS);thepurchaseofthesesecuritiesunderagreementstoresell;andthesaleofthesesecuritiesunderagreementstorepurchase.TheFRBNYholdstheresultingsecuritiesandagreementsinaportfolioknownastheSystemOpenMarketAccount(SOMA).TheFRBNYisauthorizedanddirectedtolendtheTreasurysecuritiesandGSEdebtsecuritiesthatareheldintheSOMA.
NOTES TO FINANCIAL STATEMENTS
FEDERAL RESERVE BANK OF PHILADELPHIA | ANNUAL REPORT 2014
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TobepreparedtocounterdisorderlyconditionsinforeignexchangemarketsortomeetotherneedsspecifiedbytheFOMCtocarryouttheSystem’scentralbankresponsibilities,theFOMChasauthorizedanddirectedtheFRBNYtoexecutespotandforwardforeignexchangetransactionsin14foreigncurrencies,toholdbalancesinthosecurrencies,andtoinvestsuchforeigncurrencyholdings,whilemaintainingadequateliquidity.TheFRBNYholdsthesesecuritiesandobligationsintheSOMA.TheFOMChasalsoauthorizedtheFRBNYtomaintainreciprocalcurrencyarrangementswiththeBankofCanadaandtheBankofMexicointhemaximumamountsof$2billionand$3billion,respectively,andtowarehouseforeigncurrenciesfortheTrea-suryandtheExchangeStabilizationFundinthemaximumamountof$5billion.
Becauseoftheglobalcharacterofbankfundingmarkets,theSystemhasattimescoordinatedwithothercentralbankstopro-videliquidity.TheFOMCauthorizedanddirectedtheFRBNYtoestablishU.S.dollarliquidityandreciprocalforeigncurrencyliquidityswaplineswiththeBankofCanada,theBankofEngland,theEuropeanCentralBank,theBankofJapan,andtheSwissNationalBank.TheFRBNYholdsamountsoutstandingundertheseswaplinesintheSOMA.Theseswaplines,whichwereoriginallyestablishedastemporaryarrangements,wereconvertedtostandingarrangementsonOctober31,2013,andwillremaininplaceuntilfurthernotice.
AlthoughtheReserveBanksareseparatelegalentities,theycollaborateonthedeliveryofcertainservicestoachievegreaterefficiencyandeffectiveness.ThiscollaborationtakestheformofcentralizedoperationsandproductorfunctionofficesthathaveresponsibilityforthedeliveryofcertainservicesonbehalfoftheReserveBanks.VariousoperationalandmanagementmodelsareusedandaresupportedbyserviceagreementsbetweentheReserveBanks.Insomecases,costsincurredbyaReserveBankforservicesprovidedtootherReserveBanksarenotshared;inothercases,theReserveBanksarereimbursedforcostsincurredinprovidingservicestootherReserveBanks.MajorservicesprovidedbytheBankonbehalfoftheSystemforwhich thecostswerenot reimbursedbytheotherReserveBanks includeCollateralManagementSystem,GroupwareLeadershipCenter,andVideoConferencingNetwork.
3. SIGNIFICANT ACCOUNTING POLICIESAccountingprinciplesforentitieswiththeuniquepowersandresponsibilitiesofthenation’scentralbankhavenotbeenfor-mulatedbyaccountingstandard-settingbodies.TheBoardofGovernorshasdevelopedspecializedaccountingprinciplesandpracticesthatitconsiderstobeappropriateforthenatureandfunctionofacentralbank.TheseaccountingprinciplesandpracticesaredocumentedintheFinancial Accounting Manual for Federal Reserve Banks(FAM),whichisissuedbytheBoardofGovernors.TheReserveBanksarerequiredtoadoptandapplyaccountingpoliciesandpracticesthatareconsistentwiththeFAM.ThefinancialstatementshavebeenpreparedinaccordancewiththeFAM.
LimiteddifferencesexistbetweentheaccountingprinciplesandpracticesintheFAMandaccountingprinciplesgenerallyac-ceptedintheUnitedStatesofAmerica(GAAP),duetotheuniquenatureoftheBank’spowersandresponsibilitiesaspartofthenation’scentralbankandgiventheSystem’suniqueresponsibilitytoconductmonetarypolicy.TheprimarydifferencesarethepresentationofallSOMAsecuritiesholdingsatamortizedcost,adjustedforcreditimpairment,ifany,therecordingofallSOMAsecuritiesonasettlement-datebasis,andtheuseofstraight-lineamortizationforTreasurysecurities,GSEdebtsecurities,andforeigncurrencydenominated investments. Amortizedcost, ratherthanthefairvaluepresentation,moreappropriatelyreflectsthefinancialpositionassociatedwiththeBank’ssecuritiesholdingsgiventheSystem’suniqueresponsi-bilitytoconductmonetarypolicy.Althoughtheapplicationoffairvaluemeasurementstothesecuritiesholdingsmayresultinvaluessubstantiallygreaterorlessthantheircarryingvalues,theseunrealizedchangesinvaluehavenodirecteffectonthequantityofreservesavailabletothebankingsystemorontheabilityoftheReserveBanks,asthecentralbank,tomeettheirfinancialobligationsandresponsibilities.BoththedomesticandforeigncomponentsoftheSOMAportfoliomayinvolve
NOTES TO FINANCIAL STATEMENTS
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transactionsthatresultingainsorlosseswhenholdingsaresoldbeforematurity.Decisionsregardingsecuritiesandforeigncurrencytransactions,includingtheirpurchaseandsale,aremotivatedbymonetarypolicyobjectivesratherthanprofit.Ac-cordingly,fairvalues,earnings,andgainsorlossesresultingfromthesaleofsuchsecuritiesandcurrenciesareincidentaltoopenmarketoperationsanddonotmotivatedecisionsrelatedtopolicyoropenmarketactivities.Accountingforthesesecu-ritiesonasettlement-datebasis,ratherthanthetrade-datebasisrequiredbyGAAP,betterreflectsthetimingofthetransac-tion’seffectonthequantityofreservesinthebankingsystem.ThecostbasesofTreasurysecurities,GSEdebtsecurities,andforeigngovernmentdebtinstrumentsareadjustedforamortizationofpremiumsoraccretionofdiscountsonastraight-linebasis,ratherthanusingtheinterestmethodrequiredbyGAAP.
Inaddition,theBankdoesnotpresentaStatementofCashFlowsasrequiredbyGAAPbecausetheliquidityandcashpositionoftheBankarenotaprimaryconcerngiventheReserveBank’suniquepowersandresponsibilitiesasacentralbank.OtherinformationregardingtheBank’sactivitiesisprovidedin,ormaybederivedfrom,theStatementsofCondition,IncomeandComprehensiveIncome,andChangesinCapital,andtheaccompanyingnotestothefinancialstatements.Otherthanthosedescribedabove,therearenosignificantdifferencesbetweenthepoliciesoutlinedintheFAMandGAAP.
PreparingthefinancialstatementsinconformitywiththeFAMrequiresmanagementtomakecertainestimatesandassump-tionsthataffectthereportedamountsofassetsandliabilities,thedisclosureofcontingentassetsandliabilitiesatthedateofthefinancialstatements,andthereportedamountsofincomeandexpensesduringthereportingperiod.Actualresultscoulddifferfromthoseestimates.
In2014,thedescriptionofcertainlineitemspresentedintheStatementsofConditionandtheStatementsofIncomeandComprehensiveIncomehavebeenrevisedtobetterreflectthenatureoftheseitems.Amountsrelatedtotheselineitemswerenotchangedfromtheprioryear,onlythenomenclatureforthelineitemwasrevised,asfurthernotedbelow:
• Theline item“SystemOpenMarketAccount:Other investments”hasbeenrevisedintheStatementsofConditionto“SystemOpenMarketAccount:Otherassets.”
• Thelineitem“SystemOpenMarketAccount:Foreigncurrencydenominatedassets,net”hasbeenrevisedintheState-mentsofIncomeandComprehensiveIncometo“SystemOpenMarketAccount:Foreigncurrencydenominatedinvest-ments,net.”
CertainamountsrelatingtotheprioryearhavebeenreclassifiedintheStatementsofIncomeandComprehensiveIncometoconformtothecurrentyearpresentation.$1millionpreviouslyreportedfortheyearendedDecember31,2013as“Non-interestloss:Other”hasbeenreclassifiedintoanewlinetitled“Non-interestloss:SystemOpenMarketAccount:Other.” Significantaccountsandaccountingpoliciesareexplainedbelow.
a. ConsolidationTheDodd-FrankWallStreetReformandConsumerProtectionActof2010(Dodd-FrankAct)establishedtheBureauofCon-sumerFinancialProtection(Bureau)asanindependentbureauwithintheSystemthathassupervisoryauthorityoversomeinstitutionspreviouslysupervisedbytheReserveBanksinconnectionwiththoseinstitutions’compliancewithconsumerpro-tectionstatutes.Section1017oftheDodd-FrankActprovidesthatthefinancialstatementsoftheBureauarenottobecon-solidatedwiththoseoftheBoardofGovernorsortheSystem.TheBoardofGovernorsfundstheBureauthroughassessments
NOTES TO FINANCIAL STATEMENTS
FEDERAL RESERVE BANK OF PHILADELPHIA | ANNUAL REPORT 2014
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ontheReserveBanksasrequiredbytheDodd-FrankAct.TheReserveBanksreviewedthelawandevaluatedthedesignofandtheirrelationshiptotheBureauanddeterminedthatitshouldnotbeconsolidatedintheBank’sfinancialstatements.
b. Gold and Special Drawing Rights CertificatesTheSecretaryoftheTreasuryisauthorizedtoissuegoldcertificatestotheReserveBanks.Uponauthorization,theReserveBanksacquiregoldcertificatesbycreditingequivalentamountsindollarstotheaccountestablishedfortheTreasury.ThegoldcertificatesheldbytheReserveBanksarerequiredtobebackedbythegoldownedbytheTreasury.TheTreasurymayreac-quirethegoldcertificatesatanytime,andtheReserveBanksmustdeliverthemtotheTreasury.Atsuchtime,theTreasury’saccountischarged,andtheReserveBanks’goldcertificateaccountsarereduced.Thevalueofgoldforpurposesofbackingthegoldcertificatesissetbylawat$422/9perfinetroyounce.GoldcertificatesarerecordedbytheBanksatoriginalcost.TheBoardofGovernorsallocatesthegoldcertificatesamongtheReserveBanksonceayearbasedoneachReserveBank’saverageFederalReservenotesoutstandingduringtheprecedingtwelvemonths.
Specialdrawingrights(SDR)areissuedbytheInternationalMonetaryFund(IMF)toitsmembersinproportiontoeachmem-ber’squota inthe IMFatthetimeof issuance. SDRsserveasasupplementto internationalmonetaryreservesandmaybetransferredfromonenationalmonetaryauthoritytoanother.UnderthelawprovidingforU.S.participationintheSDRsystem,theSecretaryoftheTreasuryisauthorizedtoissueSDRcertificatestotheReserveBanks.WhenSDRcertificatesareissuedtotheReserveBanks,equivalentamountsinU.S.dollarsarecreditedtotheaccountestablishedfortheTreasuryandtheReserveBanks’SDRcertificateaccountsareincreased.TheReserveBanksarerequiredtopurchaseSDRcertificates,atthedirectionoftheTreasury,forthepurposeoffinancingSDRacquisitionsorforfinancingexchange-stabilizationoperations.AtthetimeSDRcertificatetransactionsoccur,theBoardofGovernorsallocatestheSDRcertificatesamongtheReserveBanksbaseduponeachReserveBank’sFederalReservenotesoutstandingattheendoftheprecedingcalendaryear.SDRcertifi-catesarerecordedbytheBanksatoriginalcost.TherewerenoSDRcertificatetransactionsduringtheyearsendedDecember31,2014and2013.
c. CoinTheamountreportedascoinintheStatementsofConditionrepresentsthefacevalueofallUnitedStatescoinheldbytheBank.TheBankbuyscoinatfacevaluefromtheU.S.Mintinordertofilldepositoryinstitutionorders.
d. Loans Loanstodepositoryinstitutionsarereportedattheiroutstandingprincipalbalancesandinterestincomeisrecognizedonanaccrualbasis.
LoansareimpairedwhencurrentinformationandeventsindicatethatitisprobablethattheBankwillnotreceivetheprinci-palandinterestthataredueinaccordancewiththecontractualtermsoftheloanagreement.Impairedloansareevaluatedtodeterminewhetheranallowanceforloanlossisrequired.TheBankhasdevelopedproceduresforassessingtheadequacyofanyallowanceforloanlossesusingallavailableinformationtoidentifyincurredlosses.Thisassessmentincludesmonitor-inginformationobtainedfrombankingsupervisors,borrowers,andothersourcestoassessthecreditconditionofthebor-rowersand,asappropriate,evaluatingcollateralvalues.Generally,theBankwoulddiscontinuerecognizinginterestincomeon impaired loansuntiltheborrower’srepaymentperformancedemonstratesprincipaland interestwouldbereceived inaccordancewiththetermsoftheloanagreement.IftheBankdiscontinuesrecordinginterestonanimpairedloan,cashpay-mentsarefirstappliedtoprincipaluntiltheloanbalanceisreducedtozero;subsequentpaymentsareappliedasrecoveriesofamountspreviouslydeemeduncollectible,ifany,andthenasinterestincome.
NOTES TO FINANCIAL STATEMENTS
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e. Securities Purchased Under Agreements to Resell, Securities Sold Under Agreements to Repurchase, and Securities LendingTheFRBNYmayengageinpurchasesofsecuritieswithprimarydealersunderagreementstoresell(repurchasetransactions).Theserepurchasetransactionsaretypicallysettledthroughatri-partyarrangement.Inatri-partyarrangement,twocom-mercialcustodialbanksmanagethecollateralclearing,settlement,pricing,andpledging,andprovidecashandsecuritiescustodialservicesforandonbehalfoftheFRBNYandcounterparty.ThecollateralpledgedmustexceedtheprincipalamountofthetransactionbyamargindeterminedbytheFRBNYforeachclassandmaturityofacceptablecollateral.Collateraldes-ignatedbytheFRBNYasacceptableunderrepurchasetransactionsprimarilyincludesTreasurysecurities(includingTreasuryInflation-ProtectedSecurities,SeparateTradingofRegisteredInterestandPrincipalofSecuritiesTreasurysecurities,andTrea-suryFloatingRateNotes);directobligationsofseveralfederalandGSE-relatedagencies,includingFederalNationalMortgageAssociation, FederalHome LoanMortgageCorporation, and FederalHome LoanBanks; andpass-through federal agencyandGSEMBS.Therepurchasetransactionsareaccountedforasfinancingtransactionswiththeassociatedinterestincomerecognizedoverthelifeofthetransaction.Thesetransactionsarereportedattheircontractualamountsas“SystemOpenMarketAccount:Securitiespurchasedunderagreementstoresell”andtherelatedaccruedinterestreceivableisreportedasacomponentof“SystemOpenMarketAccount:Accruedinterestreceivable”intheStatementsofCondition.
TheFRBNYmayengageinsalesofsecuritiesunderagreementstorepurchasewithprimarydealersandwithasetofexpandedcounterpartieswhich includesbanks, savingsassociations,GSEs,anddomesticmoneymarket funds (Overnightand termreverserepurchaseagreements).Thesereverserepurchasetransactionsaresettledthroughatri-partyarrangement,similarto repurchase transactions. Reverse repurchase transactionsmayalsobeexecutedwith foreignofficialand internationalaccountholdersaspartofaserviceoffering.ReverserepurchaseagreementsarecollateralizedbyapledgeofanamountofTreasurysecurities,GSEdebtsecurities,orfederalagencyandGSEMBSthatareheldintheSOMA.Reverserepurchasetransactionsareaccountedforasfinancingtransactions,andtheassociatedinterestexpenseisrecognizedoverthelifeofthetransaction.Thesetransactionsarereportedattheircontractualamountsas“SystemOpenMarketAccount:Securitiessoldunderagreementstorepurchase”andtherelatedaccruedinterestpayableisreportedasacomponentof“SystemOpenMarketAccount:Otherliabilities”intheStatementsofCondition.
TreasurysecuritiesandGSEdebtsecuritiesheldintheSOMAmaybelenttoprimarydealers,typicallyovernight,tofacilitatetheeffectivefunctioningofthedomesticsecuritiesmarkets.Theamortizedcostbasisofsecuritieslentcontinuestobere-portedas“SystemOpenMarketAccount:Treasurysecurities,net”and“SystemOpenMarketAccount:Government-spon-soredenterprisedebtsecurities,net,”asappropriate,intheStatementsofCondition.SecuritieslendingtransactionsarefullycollateralizedbyTreasurysecuritiesbasedonthefairvaluesofthesecuritieslentincreasedbyamargindeterminedbytheFRBNY.TheFRBNY chargestheprimarydealerafeeforborrowingsecurities,andthesefeesarereportedasacomponentof“Non-interestloss:SystemOpenMarketAccount:Other”intheStatementsofIncomeandComprehensiveIncome.
Activity related to securitiespurchasedunderagreements to resell, securities soldunderagreements to repurchase,andsecuritieslendingisallocatedtoeachoftheReserveBanksonapercentagebasisderivedfromanannualsettlementoftheinterdistrictsettlementaccountthatoccursinthesecondquarterofeachyear.
f. Treasury Securities, Government-Sponsored Enterprise Debt Securities, Federal Agency and Government-Sponsored Enterprise Mortgage-Backed Securities, Foreign Currency Denominated Investments, and Warehousing Agreements InterestincomeonTreasurysecurities,GSEdebtsecurities,andforeigncurrencydenominatedinvestmentsincludedintheSOMAisaccruedusingthestraight-linemethod.InterestincomeonfederalagencyandGSEMBSisaccruedusingtheinter-estmethodand includes amortizationofpremiums, accretionofdiscounts, andgainsor losses associatedwithprincipal
NOTES TO FINANCIAL STATEMENTS
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paydowns.PremiumsanddiscountsrelatedtofederalagencyandGSEMBSareamortizedoraccretedoverthetermofthesecurity to statedmaturity,and theamortizationofpremiumsandaccretionofdiscountsareacceleratedwhenprincipalpaymentsarereceived.Gainsandlossesresultingfromsalesofsecuritiesaredeterminedbyspecificissuebasedonaveragecost.Treasurysecurities,GSEdebtsecurities,andfederalagencyandGSEMBSarereportednetofpremiumsanddiscountsintheStatementsofConditionandinterestincomeonthosesecuritiesisreportednetoftheamortizationofpremiumsandaccretionofdiscountsintheStatementsofIncomeandComprehensiveIncome.
InadditiontooutrightpurchasesoffederalagencyandGSEMBSthatareheldintheSOMA,theFRBNYentersintodollarrolltransactions(dollarrolls),whichprimarilyinvolveaninitialtransactiontopurchaseorsell“tobeannounced”(TBA)MBSfordeliveryinthecurrentmonthcombinedwithasimultaneousagreementtosellorpurchaseTBAMBSonaspecifiedfuturedate.DuringtheyearsendedDecember31,2014and2013,theFRBNY executeddollarrollstofacilitatesettlementofout-standingpurchasesoffederalagencyandGSEMBS.TheFRBNY accountsfordollarrollsaspurchasesorsalesonasettlement-datebasis.Inaddition,TBAMBStransactionsmaybepairedofforassignedpriortosettlement.Netgains(losses)resultingfromtheseMBStransactionsarereportedas“Non-interestloss:SystemOpenMarketAccount:Federalagencyandgovern-ment-sponsoredenterprisemortgage-backedsecuritiesgains,net”intheStatementsofIncomeandComprehensiveIncome.
Foreigncurrencydenominatedinvestments,whichcanincludeforeigncurrencydeposits,securitiespurchasedunderagree-mentstoresell,andgovernmentdebtinstruments,arerevalueddailyatcurrentforeigncurrencymarketexchangeratesinordertoreporttheseassetsinU.S.dollars.Foreigncurrencytranslationgainsandlossesthatresultfromthedailyrevaluationofforeigncurrencydenominatedinvestmentsarereportedas“Non-interestloss:SystemOpenMarketAccount:Foreigncur-rencytranslationlosses,net”intheStatementsofIncomeandComprehensiveIncome.
BecausetheFRBNYentersintocommitmentstobuyTreasurysecurities,federalagencyandGSEMBS,andforeigngovern-mentdebtinstrumentsandrecordstherelatedsecuritiesonasettlement-datebasisinaccordancewiththeFAM,therelatedoutstandingcommitmentsarenotreflectedintheStatementsofCondition.
ActivityrelatedtoTreasurysecurities,GSEdebtsecurities,andfederalagencyandGSEMBS, includingthepremiums,dis-counts,andrealizedgainsandlosses,isallocatedtoeachReserveBankonapercentagebasisderivedfromanannualsettle-mentoftheinterdistrictsettlementaccountthatoccursinthesecondquarterofeachyear.Activityrelatedtoforeigncur-rencydenominatedinvestments,includingthepremiums,discounts,andrealizedandunrealizedgainsandlosses,isallocatedtoeachReserveBankbasedontheratioofeachReserveBank’scapitalandsurplustotheReserveBanks’aggregatecapitalandsurplusattheprecedingDecember31.
WarehousingisanarrangementunderwhichtheFOMChasapprovedtheexchange,attherequestoftheTreasury,ofU.S.dol-larsforforeigncurrenciesheldbytheTreasuryoveralimitedperiod.ThepurposeofthewarehousingfacilityistosupplementtheU.S.dollarresourcesoftheTreasuryforfinancingpurchasesofforeigncurrenciesandrelatedinternationaloperations.Warehousingagreementsarevalueddailyatcurrentmarketexchangerates.ActivityrelatedtotheseagreementsisallocatedtoeachReserveBankbasedontheratioofeachReserveBank’scapitalandsurplustotheReserveBanks’aggregatecapitalandsurplusattheprecedingDecember31.
g. Central Bank Liquidity SwapsCentralbankliquidityswaps,whicharetransactedbetweentheFRBNYandaforeigncentralbank,canbestructuredaseitherU.S.dollarorforeigncurrencyliquidityswaparrangements.
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Centralbankliquidityswapsactivity,includingtherelatedincomeandexpense,isallocatedtoeachReserveBankbasedontheratioofeachReserveBank’scapitalandsurplustotheReserveBanks’aggregatecapitalandsurplusattheprecedingDe-cember31.Theforeigncurrencyamountsassociatedwiththesecentralbankliquidityswaparrangementsarerevalueddailyatcurrentforeigncurrencymarketexchangerates.
U.S. dollar liquidity swaps AttheinitiationofeachU.S.dollarliquidityswaptransaction,theforeigncentralbanktransfersaspecifiedamountofitscur-rencytoarestrictedaccountfortheFRBNY inexchangeforU.S.dollarsattheprevailingmarketexchangerate.Concurrentwiththistransaction,theFRBNY andtheforeigncentralbankagreetoasecondtransactionthatobligatestheforeigncentralbanktoreturntheU.S.dollarsandtheFRBNYtoreturntheforeigncurrencyonaspecifiedfuturedateatthesameexchangerateastheinitialtransaction.TheBank’sallocatedportionoftheforeigncurrencyamountsthattheFRBNY acquiresarere-portedas“SystemOpenMarketAccount:Centralbankliquidityswaps”intheStatementsofCondition.BecausetheswaptransactionwillbeunwoundatthesameU.S.dollaramountandexchangeratethatwereusedintheinitialtransaction,therecordedvalueoftheforeigncurrencyamountsisnotaffectedbychangesinthemarketexchangerate.
TheforeigncentralbankcompensatestheFRBNY basedontheamountoutstandingandtherateundertheswapagreement.TheBank’sallocatedportionoftheamountofcompensationreceivedduringthetermofthe swaptransactionisreportedas“Interestincome:SystemOpenMarketAccount:Centralbankliquidityswaps”intheStatementsofIncomeandComprehensiveIncome.
Foreign currency liquidity swaps ThestructureofforeigncurrencyliquidityswaptransactionsinvolvesthetransferbytheFRBNY,attheprevailingmarketex-changerate,ofaspecifiedamountofU.S.dollarstoanaccountfortheforeigncentralbankinexchangeforitscurrency.TheforeigncurrencyamountsthattheFRBNYreceivesarerecordedasaliability.
h. Bank Premises, Equipment, and SoftwareBankpremisesandequipmentarestatedatcostlessaccumulateddepreciation.Depreciationiscalculatedonastraight-linebasisovertheestimatedusefullivesoftheassets,whichrangefrom2to50years.Majoralterations,renovations,andim-provementsarecapitalizedatcostasadditionstotheassetaccountsandaredepreciatedovertheremainingusefullifeoftheassetor,ifappropriate,overtheuniqueusefullifeofthealteration,renovation,orimprovement.Maintenance,repairs,andminorreplacementsarechargedtooperatingexpenseintheyearincurred.
Costsincurredtoacquiresoftwarearecapitalizedbasedonthepurchaseprice.Costsincurredduringtheapplicationdevelop-mentstagetodevelopinternal-usesoftwarearecapitalizedbasedonthecostofdirectservicesandmaterialsassociatedwithdesigning,coding,installing,andtestingthesoftware.Capitalizedsoftwarecostsareamortizedonastraight-linebasisovertheestimatedusefullivesofthesoftwareapplications,whichgenerallyrangefromtwotofiveyears.Maintenancecostsandminorreplacementsrelatedtosoftwarearechargedtooperatingexpenseintheyearincurred.
Capitalizedassets, includingsoftware,buildings, leasehold improvements, furniture,andequipment,are impairedandanadjustmentisrecordedwheneventsorchangesincircumstancesindicatethatthecarryingamountofassetsorassetgroupsisnotrecoverableandsignificantlyexceedstheassets’fairvalue.
i. Interdistrict Settlement AccountEachReserveBankaggregatesthepaymentsduetoorfromotherReserveBanks.Thesepaymentsresultfromtransactions
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betweentheReserveBanksandtransactionsthatinvolvedepositoryinstitutionaccountsheldbyotherReserveBanks,suchasFedwirefundsandsecuritiestransfersandcheckandACHtransactions.ThecumulativenetamountduetoorfromtheotherReserveBanksisreflectedinthe“Interdistrictsettlementaccount”intheStatementsofCondition.
Anannualsettlementoftheinterdistrictsettlementaccountoccursinthesecondquarterofeachyear.Asaresultofthean-nualsettlement,thebalanceineachBank’sinterdistrictsettlementaccountisadjustedbyanamountequaltotheaveragebalanceintheaccountduringtheprevioustwelve-monthperiodendedMarch31.AnequalandoffsettingadjustmentismadetoeachBank’sallocatedportionofSOMAassetsandliabilities.
j. Federal Reserve NotesFederalReservenotesarethecirculatingcurrencyoftheUnitedStates.Thesenotes,whichareidentifiedasissuedtoaspe-cificReserveBank,mustbefullycollateralized.AlloftheBank’sassetsareeligibletobepledgedascollateral.Thecollateralvalueisequaltothebookvalueofthecollateraltenderedwiththeexceptionofsecurities,forwhichthecollateralvalueisequaltotheparvalueofthesecuritiestendered.Theparvalueofsecuritiessoldunderagreementstorepurchaseisdeductedfromtheeligiblecollateralvalue.
TheBoardofGovernorsmay,atanytime,calluponaReserveBankforadditionalsecuritytoadequatelycollateralizeoutstand-ingFederalReservenotes.TosatisfytheobligationtoprovidesufficientcollateralforoutstandingFederalReservenotes,theReserveBankshaveenteredintoanagreementthatprovidesforcertainassetsoftheReserveBankstobejointlypledgedascollateralfortheFederalReservenotesissuedtoallReserveBanks.Intheeventthatthiscollateralisinsufficient,theFederalReserveActprovidesthatFederalReservenotesbecomeafirstandparamountlienonalltheassetsoftheReserveBanks.Finally,FederalReservenotesareobligationsoftheUnitedStatesgovernment.
“FederalReservenotesoutstanding,net”intheStatementsofConditionrepresentstheBank’sFederalReservenotesoutstand-ing,reducedbytheBank’scurrencyholdingsof$4,940millionand$5,920millionatDecember31,2014and2013,respectively.
AtDecember31,2014and2013,allFederalReservenotesoutstanding,reducedbytheReserveBank’scurrencyholdings,werefullycollateralized.AtDecember31,2014,allgoldcertificates,allspecialdrawingrightscertificates,and$1,282billionofdomesticsecuritiesheldintheSOMAwerepledgedascollateral.AtDecember31,2014,noinvestmentsdenominatedinforeigncurrencieswerepledgedascollateral.
k. DepositsDepository InstitutionsDepositoryinstitutions’depositsrepresent thereserveandservice-relatedbalancesintheaccountsthatdepositoryinstitu-tionsholdattheBank.TheinterestratespaidonrequiredreservebalancesandexcessbalancesaredeterminedbytheBoardofGovernors,basedonanFOMC-establishedtargetrangeforthefederalfundsrate.Interestpayableisreportedasacompo-nentof“Interestpayabletodepositoryinstitutions”intheStatementsofCondition.
TheTermDepositFacility(TDF)consistsofdepositswithspecificmaturitiesheldbyeligibleinstitutionsattheReserveBanks.TheReserveBankspayinterestonthesedepositsatinterestratesdeterminedbyauction.Interestpayableisreportedasacomponentof“Interestpayabletodepositoryinstitutions”intheStatementsofCondition.TherewerenodepositsheldbytheBankundertheTDFatDecember31,2014and2013.
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OtherOtherdeposits include theBank’sallocatedportionof foreigncentralbankand foreigngovernmentdepositsheldat theFRBNY.OtherdepositsalsoincludecashcollateralheldbytheBank.
l. Capital Paid-inTheFederalReserveActrequiresthateachmemberbanksubscribetothecapitalstockoftheReserveBankinanamountequaltosixpercentofthecapitalandsurplusofthememberbank.Thesesharesarenonvoting,withaparvalueof$100,andmaynotbetransferredorhypothecated.Asamemberbank’scapitalandsurpluschanges,itsholdingsofReserveBankstockmustbeadjusted.Currently,onlyone-halfofthesubscriptionispaidin,andtheremainderissubjecttocall.AmemberbankisliableforReserveBankliabilitiesuptotwicetheparvalueofstocksubscribedbyit.
Bylaw,eachReserveBankisrequiredtopayeachmemberbankanannualdividendofsixpercentonthepaid-incapitalstock.Thiscumulativedividendispaidsemiannually.
m. SurplusTheBoardofGovernorsrequirestheReserveBankstomaintainasurplusequaltotheamountofcapitalpaid-in.Onadailybasis,surplusisadjustedtoequatethebalancetocapitalpaid-in.Accumulatedothercomprehensiveincomeisreportedasacomponentof“Surplus”intheStatementsofConditionandtheStatementsofChangesinCapital.AdditionalinformationregardingtheclassificationsofaccumulatedothercomprehensiveincomeisprovidedinNotes9and10.
n. Remittances to the TreasuryTheBoardofGovernorsrequirestheReserveBankstotransferexcessearningstotheTreasuryasinterestonFederalReservenotesafterprovidingforthecostsofoperations,paymentofdividends,andreservationofanamountnecessarytoequatesurpluswithcapitalpaid-in.Currently,remittancestotheTreasuryaremadeonaweeklybasis.Thisamountisreportedas“EarningsremittancestotheTreasury” intheStatementsof IncomeandComprehensive Income. The amount due to the Treasuryisreportedas“AccruedremittancestotheTreasury”intheStatementsofCondition.SeeNote12foradditionalin-formationonearningsremittancestotheTreasury.
Ifearningsduringtheyeararenotsufficienttoprovideforthecostsofoperations,paymentofdividends,andequatingsurplusandcapitalpaid-in,remittancestotheTreasuryaresuspended.AdeferredassetisrecordedthatrepresentstheamountofnetearningsaReserveBankwillneedtorealizebeforeremittancestotheTreasuryresume.Thisdeferredassetisperiodicallyreviewedforimpairment.
o. Income and Costs Related to Treasury ServicesWhendirectedbytheSecretaryoftheTreasury,theBankisrequiredbytheFederalReserveActtoserveasfiscalagentanddepositaryoftheUnitedStatesGovernment.Bystatute,theTreasuryhasappropriationstopayfortheseservices.DuringtheyearsendedDecember31,2014and2013,theBankwasreimbursedforsubstantiallyallservicesprovidedtotheTreasuryasitsfiscalagent.
TheBankseeksreimbursementfromtheTreasuryandothergovernmentagenciesonbehalfofallReserveBanksofcostsofperformingfiscalagencyfunctions.EachReserveBanktransfersitsTreasuryreimbursementreceivabletotheBank.There-imbursementreceivableisreportedin“Otherassets”andtotaled$2millionforeachoftheyearsendedDecember31,2014and2013.TherewasnocostofunreimbursedTreasuryservicesatDecember31,2014.ThecostofunreimbursedTreasury
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servicesisreportedin“Otherexpense”andwasimmaterialatDecember31,2013.
p. Compensation Received for Service Costs Provided TheFederalReserveBankofAtlanta(FRBA)hasoverall responsibility formanagingtheReserveBanks’provisionofcheckandACHservicestodepositoryinstitutions,theFRBNYhasoverallresponsibilityformanagingtheReserveBanks’provisionofFedwirefundsandsecuritiesservices,andtheFederalReserveBankofChicagohasoverallresponsibilityformanagingtheReserveBanks’provisionofelectronicaccessservicestodepositoryinstitutions.TheReserveBankthathasoverallresponsi-bilityformanagingtheseservicesrecognizestherelatedtotalSystemrevenueinitsStatementsofIncomeandComprehensiveIncome.TheBankiscompensatedforcostsincurredtoprovidetheseservicesbytheReserveBanksresponsibleformanagingtheseservicesandreportsthiscompensationas“Non-interestloss:Compensationreceivedforservicecostsprovided”initsStatementsofIncomeandComprehensiveIncome.
q. AssessmentsTheBoardofGovernorsassessestheReserveBankstofunditsoperationsandtheoperationsoftheBureau.Theseassess-mentsareallocatedtoeachReserveBankbasedoneachReserveBank’scapitalandsurplusbalances.TheBoardofGovernorsalsoassesseseachReserveBankforexpensesrelatedtoproducing,issuing,andretiringFederalReservenotesbasedoneachReserveBank’sshareofthenumberofnotescomprisingtheSystem’snetliabilityforFederalReservenotesonDecember31oftheprioryear.
TheDodd-FrankActrequiresthat,afterthetransferofitsresponsibilitiestotheBureauonJuly21,2011,theBoardofGover-norsfundtheBureauinanamountnottoexceedafixedpercentageofthetotaloperatingexpensesoftheSystemasreportedintheBoardofGovernors’2009annualreport,whichtotaled$4.98billion.After2013,theamountwillbeadjustedannuallyinaccordancewiththeprovisionsoftheDodd-FrankAct.ThepercentageoftotaloperatingexpensesoftheSystemfortheyearsendedDecember31,2014and2013was12.22percent($608.4million)and12percent($597.6million),respectively.TheBank’sassessment forBureau funding is reportedas“Assessments:BureauofConsumerFinancialProtection” in theStatementsofIncomeandComprehensiveIncome.
r. TaxesTheReserveBanksareexemptfromfederal,state,andlocaltaxes,exceptfortaxesonrealproperty.TheBank’srealpropertytaxeswere$1millionand$2millionfortheyearsendedDecember31,2014and2013,respectively,andarereportedasacomponentof“Operatingexpenses:Occupancy”intheStatementsofIncomeandComprehensiveIncome.
s. Restructuring ChargesTheReserveBanksrecognizerestructuringchargesforexitordisposalcostsincurredaspartoftheclosureofbusinessactivi-tiesinaparticularlocation,therelocationofbusinessactivitiesfromonelocationtoanother,orafundamentalreorganizationthataffectsthenatureofoperations.Restructuringchargesmayincludecostsassociatedwithemployeeseparations,con-tractterminations,andassetimpairments.ExpensesarerecognizedintheperiodinwhichtheBankcommitstoaformalizedrestructuringplanorexecutesthespecificactionscontemplatedintheplanandallcriteriaforfinancialstatementrecognitionhavebeenmet.
In2014,theTreasuryannouncedplanstoconsolidatetheprovisionofsubstantiallyallfiscalagentservicesfortheU.S.Trea-suryattheFederalReserveBankofCleveland,theFederalReserveBankofKansasCity,theFRBNY,andtheFederalReserveBankofSt.Louis.Theimplementationplanassociatedwiththisconsolidationisexpectedtobecompletedin2018.
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Note11describestheBank’srestructuringinitiativesandprovidesinformationaboutthecostsandliabilitiesassociatedwithemployeeseparationsandcontractterminations.Costsandliabilitiesassociatedwithenhancedpensionbenefitsinconnec-tionwiththerestructuringactivitiesforalloftheReserveBanksarerecordedonthebooksoftheFRBNY.
t. Recently Issued Accounting StandardsInApril2014,theFinancialAccountingStandardsBoard(FASB)issuedAccountingStandardsUpdate(ASU)2014-08,Presenta-tion of Financial Statements(Topic205)and Property, Plant, and Equipment (Topic360):Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.Thisupdatechangestherequirementsforreportingdiscontinuedoperations,whichmayincludeacomponentofanentityoragroupofcomponentsofanentity,orabusinessornonprofitactivity.ThisupdateiseffectivefortheBankfortheyearendingDecember31,2015,andisnotexpectedtohaveamaterialeffectontheBank’sfinancialstatements.
InMay2014,theFASBissuedASU2014-09,Revenue from Contracts with Customers(Topic606).ThisupdatewasissuedtocreatecommonrevenuerecognitionguidanceforU.S.GAAPandInternationalFinancialReportingStandards.Theguidanceisapplicabletoallcontractsforthetransferofgoodsorservicesregardlessofindustryortypeoftransaction.Thisupdaterequiresrecognitionofrevenueinamannerthatreflectstheconsiderationthattheentityexpectstoreceiveinreturnforthetransferofgoodsorservicestocustomers.ThisupdateiseffectivefortheBankfortheyearendingDecember31,2018,andisnotexpectedtohaveamaterialeffectontheBank’sfinancialstatements.
InJune2014,theFASBissuedASU2014-11,Transfer and Servicing (Topic860): Repurchase-to-Maturity Transactions, Repur-chase Financings, and Disclosures. Thisupdaterequireschangesintheaccountingforrepurchasetomaturitytransactionsandrepurchasefinancingtransactions.Additionally,thisupdateprovidesguidanceforthedisclosuresforcertaintransfersoffinancialassetsaccountedforassales,wherethetransferorretainssubstantiallyalloftheexposuretoeconomicreturnonthetransferredfinancialasset;andrepurchaseagreements,securitieslendingtransactions,andrepurchasetomaturitytransac-tionsthatareaccountedforassecuredborrowings.ThisupdateiseffectivefortheBankfortheyearendingDecember31,2015,andisnotexpectedtohaveamaterialeffectontheBank’sfinancialstatements.
4. LOANS Loans to Depository InstitutionsTheBankoffersprimary,secondary,andseasonalloanstoeligibleborrowers,andeachprogramhasitsowninterestrate.In-terest is accrued using theapplicableinterestrateestablishedatleastevery14daysbytheBank’sboardofdirectors,subjecttoreviewanddeterminationbytheBoardofGovernors.Primaryandsecondaryloansareextendedonashort-termbasis,typicallyovernight,whereasseasonalloansmaybeextendedforaperiodofuptoninemonths.
Primary,secondary,andseasonalloansarecollateralizedtothesatisfactionoftheBanktoreducecreditrisk.Assetseligibletocollateralizetheseloansincludeconsumer,business,andrealestateloans;Treasurysecurities;GSEdebtsecurities;foreignsovereigndebt;municipal,corporate,andstateandlocalgovernmentobligations;asset-backedsecurities;corporatebonds;commercialpaper;andbank-issuedassets,suchascertificatesofdeposit,banknotes,anddepositnotes.Collateralisas-signedalendingvaluethatisdeemedappropriatebytheBank,whichistypicallyfairvaluereducedbyamargin.Loanstodepositoryinstitutionsaremonitoreddailytoensurethatborrowerscontinuetomeeteligibilityrequirementsforthesepro-grams.Ifaborrowernolongerqualifiesfortheseprograms,theBankwillgenerallyrequestfullrepaymentoftheoutstandingloanor,forprimaryorseasonalloans,mayconverttheloantoasecondarycreditloan.Collaterallevelsarerevieweddailyagainstoutstandingobligations,andborrowersthatnolongerhavesufficientcollateraltosupportoutstandingloansarere-
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quiredtoprovideadditionalcollateralortomakepartialorfullrepayment.
TheloanstodepositoryinstitutionsoutstandingasofDecember31,2014was$7millionwithremainingmaturitywithin15days.TheBankhadnoloansoutstandingasofDecember31,2013.
AtDecember31,2014and2013,theBankdidnothaveanyloansthatwereimpaired,restructured,pastdue,oronnon-ac-crualstatus,andnoallowanceforloanlosseswasrequired.TherewerenoimpairedloansduringtheyearsendedDecember31,2014and2013.
5. SYSTEM OPEN MARKET ACCOUNTa. Domestic Securities HoldingsTheFRBNY conductsdomesticopenmarketoperationsand,onbehalfoftheReserveBanks,holdstheresultingsecuritiesintheSOMA.
DuringtheyearsendedDecember31,2014and2013,theFRBNYcontinuedthepurchaseofTreasurysecuritiesandfederalagencyandGSEMBSunderthelarge-scaleassetpurchaseprogramsauthorizedbytheFOMC.InSeptember2011,theFOMCannouncedthattheFederalReservewouldreinvestprincipalpaymentsfromtheSOMAportfolioholdingsofGSEdebtsecuri-tiesandfederalagencyandGSEMBSinfederalagencyandGSEMBS.InJune2012,theFOMCannouncedthatitwouldcon-tinuethisreinvestmentpolicy.InSeptember2012,theFOMCannouncedthattheFederalReservewouldpurchaseadditionalfederalagencyandGSEMBSatapaceof$40billionpermonth.InDecember2012,theFOMCannouncedthattheFederalReservewouldalsopurchase longer-termTreasurysecurities initiallyatapaceof$45billionpermonthafter itsprogramtoextendtheaveragematurityofitsholdingsofTreasurysecuritieswascompletedin2012.InDecember2013,theFOMCannouncedthat itwouldslowthepaceof itsadditionalassetpurchases. InOctober2014,theFOMCconcludeditsassetpurchaseprogramwhilemaintainingitsexistingpolicyofreinvestingprincipalpaymentsfromitsholdingsofagencydebtandagencymortgage-backedsecuritiesinagencymortgage-backedsecuritiesandofrollingovermaturingTreasurysecuritiesatauction.
TheBank’sallocatedshareofactivityrelatedtodomesticopenmarketoperationswas2.396percentand2.897percentatDecember31,2014and2013,respectively.
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TheBank’sallocatedshareofTreasurysecurities,GSEdebtsecurities,andfederalagencyandGSEMBS,net,excludingaccruedinterest,heldintheSOMAatDecember31wasasfollows(inmillions): 2014 Par Unamortized Unaccreted Totalamortized premiums discounts cost Notes $ 39,168 $ 663 $ (185) $ 39,646Bonds 19,799 2,985 (232) 22,552 TotalTreasurysecurities $ 58,967 $ 3,648 $ (417) $ 62,198 GSEdebtsecurities $ 927 $ 31 $ - $ 958 FederalagencyandGSEMBS $ 41,609 $ 1,275 $ (23) $ 42,861
2013 Par Unamortized Unaccreted Totalamortized premiums discounts cost
Notes $ 42,518 $ 967 $ (165) $ 43,320Bonds 21,480 3,724 (161) 25,043
TotalTreasurysecurities $ 63,998 $ 4,691 $ (326) $ 68,363 GSEdebtsecurities $ 1,658 $ 55 $ - $ 1,713
FederalagencyandGSEMBS $ 43,176 $ 1,297 $ (31) $ 44,442 TheFRBNYentersintotransactionsforthepurchaseofsecuritiesunderagreementstoresellandtransactionstosellsecuritiesunderagreementstorepurchaseaspartofitsmonetarypolicyactivities.Theseoperationsareforthepurposeoffurtheras-sessingtheappropriatestructureofsuchoperationsinsupportingtheimplementationofmonetarypolicyduringnormaliza-tion.Inaddition,transactionstosellsecuritiesunderagreementstorepurchaseareenteredintoaspartofaserviceofferingtoforeignofficialandinternationalaccountholders.
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TherewerenomaterialtransactionsrelatedtosecuritiespurchasedunderagreementstoresellduringtheyearsendedDe-cember31,2014and2013.Financial informationrelatedtosecuritiessoldunderagreementstorepurchasefortheyearsendedDecember31wasasfollows(inmillions):
Securitiespledgedascollateral,atDecember31,2014and2013,consistedsolelyofTreasurysecurities.
AllocatedtotheBank TotalSOMA
2014 2013 2014 2013 Overnightandtermreverserepurchaseagreements: Contractamountoutstanding,endofyear $ 9,504 $ 5,730 $ 396,705 $197,755 Averagedailyamountoutstanding,duringtheyear 3,238 121 130,281 4,161 Maximumbalanceoutstanding,duringtheyear 9,504 5,730 396,705 197,755 Securitiespledged(parvalue),endofyear 8,750 5,448 365,235 188,028 Securitiespledged(marketvalue),endofyear 9,548 5,700 398,540 196,726
Foreignofficialandinternationalaccounts: Contractamountoutstanding,endofyear $ 2,710 $ 3,424 $ 113,132 $118,169 Averagedailyamountoutstanding,duringtheyear 2,602 2,876 102,968 95,520 Maximumbalanceoutstanding,duringtheyear 3,424 3,543 122,232 118,169 Securitiespledged(parvalue),endofyear 2,596 3,547 108,355 122,424 Securitiespledged(marketvalue),endofyear 2,710 3,424 113,132 118,175 Totalcontractamountoutstanding,endofyear $ 12,214 $ 9,154 $ 509,837 $315,924
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TheremainingmaturitydistributionofTreasurysecurities,GSEdebtsecurities,federalagencyandGSEMBSboughtoutright,andsecuritiessoldunderagreementstorepurchasethatwereallocatedtotheBankatDecember31,2014and2013wasasfollows(inmillions):
Within 16days 91days Over1year Over5years Over10 15days to90days to1year to5years to10years years Total
December31,2014: Treasurysecurities(parvalue) $ - $ - $ 84 $26,662 $16,449 $15,772 $ 58,967 GSEdebtsecurities(parvalue) 26 17 94 733 - 57 927 FederalagencyandGSEMBS(parvalue)1 - - - - 155 41,454 41,609 Securitiessoldunderagreements torepurchase(contractamount) 12,214 - - - - - 12,214 December31,2013: Treasurysecurities(parvalue) $ - $ 9 $ 5 $22,117 $25,054 $16,813 $ 63,998 GSEdebtsecurities(parvalue) 67 219 251 1,051 2 68 1,658 FederalagencyandGSEMBS (parvalue)1 - - - - 74 43,102 43,176 Securitiessoldunderagreements torepurchase(contractamount) 9,154 - - - - - 9,154 1TheparamountshownforfederalagencyandGSEMBSistheremainingprincipalbalanceofthesecurities. FederalagencyandGSEMBSarereportedatstatedmaturityinthetableabove.Theestimatedweightedaveragelifeofthesesecurities,whichdiffersfromthestatedmaturityprimarilybecauseitfactorsinscheduledpaymentsandprepaymentassump-tions,wasapproximately5.7and6.5yearsasofDecember31,2014and2013,respectively.
TheamortizedcostandparvalueofTreasurysecuritiesandGSEdebtsecuritiesthatwereloanedfromtheSOMAundersecu-ritieslendingagreements,atDecember31wereasfollows(inmillions):
AllocatedtotheBank TotalSOMA
2014 2013 2014 2013
Treasurysecurities(amortizedcost) $ 267 $ 497 $ 11,144 $ 17,153Treasurysecurities(parvalue) 242 448 10,105 15,447GSEdebtsecurities(amortizedcost) 15 32 633 1,099GSEdebtsecurities(parvalue) 15 31 616 1,055
TheFRBNYentersintocommitmentstobuyandsellTreasurysecuritiesandrecordstherelatedsecuritiesonasettlement-datebasis.AsofDecember31,2014,therewerenooutstandingcommitments.
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TheFRBNYentersintocommitmentstobuyandsellfederalagencyandGSEMBSandrecordstherelatedsecuritiesonaset-tlement-datebasis.AsofDecember31,2014,thetotalpurchasepriceofthefederalagencyandGSEMBSunderoutstandingpurchasecommitmentswas$28,692million,noneofwhichwasrelatedtodollarrolls. ThetotalpurchasepriceofoutstandingpurchasecommitmentsallocatedtotheBankwas$687million,noneofwhichwasrelatedtodollarrolls.AsofDecember31,2014,therewerenooutstandingsalescommitmentsforfederalagencyandGSEMBS.Thesecommitments,whichhadcon-tractualsettlementdatesextendingthroughJanuary2015,areprincipallyforthepurchaseofTBAMBSforwhichthenumberandidentityofthepoolsthatwillbedeliveredtofulfillthecommitmentareunknownatthetimeofthetrade.Thesecommit-mentsaresubjecttovaryingdegreesofoff-balance-sheetmarketriskandcounterpartycreditriskthatresultfromtheirfuturesettlement.TheFRBNYrequiresthepostingofcashcollateralforMBScommitmentsaspartofitsriskmanagementpracticesusedtomitigatethecounterpartycreditrisk.
Otherassetsconsistsprimarilyofcashandshort-terminvestmentsrelatedtothefederalagencyandGSEMBSportfolio.Oth-erliabilities,whichareprimarilyrelatedtofederalagencyandGSEMBSpurchasesandsales,includestheFRBNY’sobligationtoreturncashmarginpostedbycounterpartiesascollateralundercommitmentstopurchaseandsellfederalagencyandGSEMBS.Inaddition,otherliabilitiesincludeobligationsthatarisefromthefailureofasellertodeliverMBStotheFRBNYonthesettlementdate.AlthoughtheFRBNYhasownershipofandrecordsitsinvestmentsintheMBSasofthecontractualsettle-mentdate,itisnotobligatedtomakepaymentuntilthesecuritiesaredelivered,andtheamountincludedinotherliabilitiesrepresentstheFRBNY’sobligationtopayforthesecuritieswhendelivered.TheamountofotherassetsandotherliabilitiesallocatedtotheBankandheldintheSOMAatDecember31wasasfollows(inmillions):
AllocatedtotheBank TotalSOMA
2014 2013 2014 2013
Otherassets: MBSportfoliorelatedcashandshortterminvestments $ 1 $ - $ 28 $ 1 Other - - 1 1
Totalotherassets $ 1 $ - $ 29 $ 2
Otherliabilities: Cashmargin $ 19 $ 38 $ 793 $ 1,320 ObligationsfromMBStransactionfails 1 1 30 11 Other - - 7 -
Totalotherliabilities $ 20 $ 39 $ 830 $ 1,331
Accruedinterestreceivableondomesticsecuritiesholdingswas$25,561millionand$23,405millionasofDecember31,2014and2013,respectively,ofwhich$613millionand$678million,respectively,wasallocatedtotheBank.Theseamountsarereportedasacomponentof“SystemOpenMarketAccount:Accruedinterestreceivable”intheStatementsofCondition.
NOTES TO FINANCIAL STATEMENTS
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InformationabouttransactionsrelatedtoTreasurysecurities,GSEdebtsecurities,andfederalagencyandGSEMBSduringtheyearsendedDecember31,2014and2013,issummarizedasfollows(inmillions):
AllocatedtotheBank
Total Federal Treasury GSEdebt agencyand Notes Bonds securities securities GSEMBS BalanceatDecember31,2012 $37,759 $22,049 $59,808 $ 2,627 $ 31,416 Purchases1 10,822 6,235 17,057 - 26,256 Sales1 - - - - - Realizedgains,net2 - - - - - Principalpaymentsandmaturities - - - (586) (8,303) Amortizationofpremiumsandaccretionofdiscounts,net (181) (286) (467) (24) (211) Inflationadjustmentoninflation-indexedsecurities 8 19 27 - - Annualreallocationadjustment3 (5,088) (2,974) (8,062) (304) (4,716)
BalanceatDecember31,2013 $43,320 $25,043 $68,363 $ 1,713 $ 44,442 Purchases1 4,337 2,242 6,579 - 11,948 Sales1 - - - - (1) Realizedgains,net2 - - - - - Principalpaymentsandmaturities (13) - (13) (494) (5,070) Amortizationofpremiumsandaccretionofdiscounts,net (140) (256) (396) (15) (179) Inflationadjustmentoninflation-indexedsecurities 12 33 45 - - Annualreallocationadjustment3 (7,870) (4,510) (12,380) (246) (8,279)
BalanceatDecember31,2014 $39,646 $22,552 $62,198 $ 958 $ 42,861 Year-endedDecember31,2013 Supplementalinformation-parvalueoftransactions: Purchases4 $10,744 $ 5,572 $16,316 $ - $ 25,424 Sales - - - - - Year-endedDecember31,2014 Supplementalinformation-parvalueoftransactions: Purchases4 $ 4,400 $ 2,198 $ 6,598 $ - $ 11,548 Sales - - - - (1) 1Purchasesandsalesmayincludepaymentsandreceiptsrelatedtoprincipal,premiums,discounts,andinflationcompensationadjustmentstothebasisofinflation-indexedsecurities.Theamountreportedassalesincludestherealizedgainsandlossesonsuchtransactions.PurchasesandsalesexcludeMBSTBAtransactionsthataresettledonanetbasis. 2Realizedgains,netoffsettheamountofrealizedgainsandlossesincludedinthereportedsalesamount. 3ReflectstheannualadjustmenttotheBank’sallocatedportionoftherelatedSOMAsecuritiesthatresultsfromtheannualsettlementoftheinterdistrictsettlementaccount,asdiscussedinNote3i. 4Includesinflationcompensation.
NOTES TO FINANCIAL STATEMENTS
FEDERAL RESERVE BANK OF PHILADELPHIA | ANNUAL REPORT 2014
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Total SOMA Total Federal Treasury GSEdebt agencyand Notes Bonds securities securities GSEMBS BalanceatDecember31,2012 $1,142,219 $666,969 $1,809,188 $ 79,479 $ 950,321 Purchases1 358,656 206,208 564,864 - 864,537Sales1 - - - - -Realizedgains,net2 - - - - -Principalpaymentsandmaturities (21) - (21) (19,562) (273,990)Amortizationofpremiumsandaccretionofdiscounts,net (6,024) (9,503) (15,527) (795) (7,008)Inflationadjustmentoninflation-indexedsecurities 285 645 930 - -
BalanceatDecember31,2013 $1,495,115 $864,319 $2,359,434 $ 59,122 $ 1,533,860Purchases1 165,306 85,826 251,132 - 466,384Sales1 - - - - (29)Realizedgains,net2 - - - - -Principalpaymentsandmaturities (475) - (475) (18,544) (203,933)Amortizationofpremiumsandaccretionofdiscounts,net (5,545) (10,132) (15,677) (588) (7,199)Inflationadjustmentoninflation-indexedsecurities 500 1,327 1,827 - -
BalanceatDecember31,2014 $1,654,901 $941,340 $2,596,241 $ 39,990 $ 1,789,083 Year-endedDecember31,2013 Supplementalinformation-parvalueoftransactions: Purchases3 $ 356,766 $184,956 $ 541,722 $ - $ 837,490Sales - - - - - Year-endedDecember31,2014 Supplementalinformation-parvalueoftransactions: Purchases3 $ 167,497 $ 83,739 $ 251,236 $ - $ 450,633Sales - - - - (29)
1Purchasesandsalesmayincludepaymentsandreceiptsrelatedtoprincipal,premiums,discounts,andinflationcompensationadjustmentstothebasisofinflation-indexedsecurities.Theamountreportedassalesincludestherealizedgainsandlossesonsuchtransactions.PurchasesandsalesexcludeMBSTBAtransactionsthataresettledonanetbasis. 2Realizedgains,netoffsettheamountofrealizedgainsandlossesincludedinthereportedsalesamount. 3Includesinflationcompensation.
b. Foreign Currency Denominated Investments TheFRBNYconductsforeigncurrencyoperationsand,onbehalfoftheReserveBanks,holdstheresultingforeigncurrencydenominatedinvestmentsintheSOMA.
TheFRBNY holdsforeigncurrencydepositswithforeigncentralbanksandtheBankforInternationalSettlementsandinvestsinforeigngovernmentdebt instrumentsofGermany,France,andJapan. Theseforeigngovernmentdebt instrumentsare
NOTES TO FINANCIAL STATEMENTS
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backedbythefullfaithandcreditoftheissuingforeigngovernments.Inaddition,theFRBNY entersintotransactionstopur-chaseEuro-denominatedgovernmentdebtsecuritiesunderagreementstoresellforwhichtheacceptedcollateralisthedebtinstrumentsissuedbythegovernmentsofBelgium,France,Germany,Italy,theNetherlands,andSpain,whicharebackedbythefullfaithandcreditofthoseissuinggovernments.
TheBank’sallocatedshareofactivityrelatedtoforeigncurrencyoperationswas7.519percentand7.735percentatDecem-ber31,2014and2013,respectively.
InformationaboutforeigncurrencydenominatedinvestmentsvaluedatamortizedcostandforeigncurrencymarketexchangeratesatDecember31wasasfollows(inmillions):
AllocatedtoBank TotalSOMA 2014 2013 2014 2013
Euro: Foreigncurrencydeposits $ 521 $ 582 $ 6,936 $ 7,530 Securitiespurchasedunderagreementstoresell - 197 - 2,549 Germangovernmentdebtinstruments 187 185 2,494 2,396 Frenchgovernmentdebtinstruments 277 186 3,687 2,397 Japaneseyen: Foreigncurrencydeposits 194 227 2,576 2,927 Japanesegovernmentdebtinstruments 392 458 5,207 5,925
Total $ 1,571 $ 1,835 $ 20,900 $ 23,724
Accruedinterestreceivableonforeigncurrencydenominatedinvestmentswas$83millionand$88millionasofDecember31,2014and2013,respectively,ofwhich$6millionand$7million,respectively,wasallocatedtotheBank.Theseamountsarereportedasacomponentof“SystemOpenMarketAccount:Accruedinterestreceivable”intheStatementsofCondition.
NOTES TO FINANCIAL STATEMENTS
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TheremainingmaturitydistributionofforeigncurrencydenominatedinvestmentsthatwereallocatedtotheBankatDecem-ber31,2014and2013,wasasfollows(inmillions):
Within 16daysto 91daysto Over1year 15days 90days 1year to5years Total
December31,2014: Euro $ 273 $ 211 $ 124 $ 377 $ 985 Japaneseyen 207 30 116 233 586
Total $ 480 $ 241 $ 240 $ 610 $ 1,571 December31,2013: Euro $ 544 $ 140 $ 167 $ 299 $ 1,150 Japaneseyen 241 29 145 270 685
Total $ 785 $ 169 $ 312 $ 569 $ 1,835
TherewerenoforeignexchangecontractsrelatedtoopenmarketoperationsoutstandingasofDecember31,2014.
TheFRBNYenters intocommitmentstobuyforeigngovernmentdebt instrumentsandrecordstherelatedsecuritiesonasettlement-datebasis.AsofDecember31,2014,therewere$137millionofoutstandingcommitmentstopurchaseforeigngovernmentdebtinstruments,ofwhich$10millionwasallocatedtotheBank.ThesesecuritiessettledonJanuary5,2015,andreplacedEuro-denominatedgovernmentdebtinstrumentsheldintheSOMAthatmaturedonthatdate.During2014,therewerepurchasesandmaturitiesofforeigngovernmentdebtinstrumentsof$5,494millionand$3,337million,respec-tively,ofwhich$414millionand$252million,respectively,wereallocatedtotheBank.Therewerenosalesofforeigngovern-mentdebtinstrumentsin2014.
Inconnectionwithitsforeigncurrencyactivities,theFRBNY mayenterintotransactionsthataresubjecttovaryingdegreesofoff-balance-sheetmarketriskandcounterpartycreditriskthatresultfromtheirfuturesettlement.TheFRBNY controls theserisksbyobtainingcreditapprovals,establishingtransactionlimits,receivingcollateralinsomecases,andperformingmonitoringprocedures.
AtDecember31,2014and2013,therewasnobalanceoutstandingundertheauthorizedwarehousingfacility.
TherewerenotransactionsrelatedtotheauthorizedreciprocalcurrencyarrangementswiththeBankofCanadaandtheBankofMexicoduringtheyearsendedDecember31,2014and2013.
ForeigncurrencyworkingbalancesheldandforeignexchangecontractsexecutedbytheBanktofacilitateitsinternationalpaymentsandcurrencytransactionsitmadeonbehalfofforeigncentralbanksandU.S.officialinstitutioncustomerswerenotmaterialasofDecember31,2014and2013.
NOTES TO FINANCIAL STATEMENTS
FEDERAL RESERVE BANK OF PHILADELPHIA | ANNUAL REPORT 2014
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c. Central Bank Liquidity Swaps U.S. Dollar Liquidity Swaps TheBank’sallocatedshareofU.S.dollarliquidityswapswasapproximately7.519percentand7.735percentatDecember31,2014and2013,respectively.
ThetotalforeigncurrencyheldunderU.S.dollarliquidityswapsintheSOMAatDecember31,2014and2013,was$1,528millionand$272million,respectively,ofwhich$115millionand$21million,respectively,wasallocatedtotheBank.
TheremainingmaturitydistributionofU.S.dollarliquidityswapsthatwereallocatedtotheBankatDecember31wasasfol-lows(inmillions):
2014 2013 Within15 Within15days 16daysto days days 90days Total
Euro $ - $ 9 $ 12 $ 21 Japaneseyen 115 - - - Total $ 115 $ 9 $ 12 $ 21
Foreign Currency Liquidity Swaps AtDecember31,2014and2013,therewasnobalanceoutstandingrelatedtoforeigncurrencyliquidityswaps.
d. Fair Value of SOMA Assets and LiabilitiesThefairvalueamountsbelowarepresentedsolely for informationalpurposes. AlthoughthefairvalueofSOMAsecurityholdingscanbesubstantiallygreaterthanorlessthantherecordedvalueatanypointintime,theseunrealizedgainsorlosseshavenoeffectontheabilityoftheReserveBanks,asthecentralbank,tomeettheirfinancialobligationsandresponsibilities.BecauseSOMAsecuritiesarerecordedatamortizedcost,cumulativeunrealizedgains(losses)arenotrecognizedintheState-mentsofConditionandthechangesincumulativeunrealizedgains(losses)arenotrecognizedintheStatementsofIncomeandComprehensiveIncome.
ThefairvalueoftheTreasurysecurities,GSEdebtsecurities,federalagencyandGSEMBS,andforeigngovernmentdebtin-strumentsintheSOMA’sholdingsissubjecttomarketrisk,arisingfrommovementsinmarketvariablessuchasinterestratesandcreditrisk.ThefairvalueoffederalagencyandGSEMBSisalsoaffectedbytheexpectedrateofprepaymentsofmortgageloansunderlyingthesecurities.Thefairvalueofforeigngovernmentdebtinstrumentsisalsoaffectedbycurrencyrisk.BasedonevaluationsperformedasofDecember31,2014,therearenocreditimpairmentsofSOMAsecuritiesholdings.
NOTES TO FINANCIAL STATEMENTS
FEDERAL RESERVE BANK OF PHILADELPHIA | ANNUAL REPORT 2014
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Thefollowingtablepresentstheamortizedcost,fairvalue,andcumulativeunrealizedgains(losses)ontheTreasurysecurities,GSEdebtsecurities,andfederalagencyandGSEMBSheldintheSOMAatDecember31(inmillions):
AllocatedtotheBank 2014 2013 Cumulative Cumulative Amortized unrealized Amortized unrealized cost Fairvalue gains cost Fairvalue gains(losses)
Treasurysecurities: Notes $ 39,646 $ 40,328 $ 682 $ 43,320 $ 43,432 $ 112 Bonds 22,552 25,225 2,673 25,043 24,406 (637)
TotalTreasurysecurities $ 62,198 $ 65,553 $ 3,355 $ 68,363 $ 67,838 $ (525)
GSEdebtsecurities 958 1,018 60 1,713 1,803 90FederalagencyandGSEMBS 42,861 43,615 754 44,442 43,333 (1,109)
TotaldomesticSOMAportfolio securitiesholdings $ 106,017 $ 110,186 $ 4,169 $ 114,518 $ 112,974 $ (1,544) Memorandum-Commitmentsfor: PurchasesofTreasurysecurities $ - $ - $ - $ - $ - $ - PurchasesofFederalagency andGSEMBS 687 690 3 1,720 1,713 (7) SalesofFederalagencyand GSEMBS - - - - - - Total SOMA 2014 2013 Cumulative Cumulative Amortized unrealized Amortized unrealized cost Fairvalue gains cost Fairvalue gains(losses)
Treasurysecurities: Notes $1,654,901 $1,683,377 $ 28,476 $ 1,495,115 $1,499,000 $ 3,885 Bonds 941,340 1,052,916 111,576 864,319 842,336 (21,983)
TotalTreasurysecurities $2,596,241 $2,736,293 $ 140,052 $ 2,359,434 $2,341,336 $ (18,098)GSEdebtsecurities 39,990 42,499 2,509 59,122 62,236 3,114FederalagencyandGSEMBS 1,789,083 1,820,544 31,461 1,533,860 1,495,572 (38,288)
TotaldomesticSOMAportfolio securitiesholdings $ 4,425,314 $4,599,336 $ 174,022 $ 3,952,416 $3,899,144 $ (53,272) Memorandum-Commitmentsfor: PurchasesofTreasurysecurities $ - $ - $ - $ - $ - $ - PurchasesofFederalagency andGSEMBS 28,692 28,803 111 59,350 59,129 (221) SalesofFederalagencyand GSEMBS - - - - - -
NOTES TO FINANCIAL STATEMENTS
FEDERAL RESERVE BANK OF PHILADELPHIA | ANNUAL REPORT 2014
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ThefairvalueofTreasurysecuritiesandGSEdebtsecuritieswasdeterminedusingpricingservicesthatprovidemarketcon-sensuspricesbasedonindicativequotesfromvariousmarketparticipants.ThefairvalueoffederalagencyandGSEMBSwasdeterminedusingapricingservicethatutilizesamodel-basedapproachthatconsidersobservableinputsforsimilarsecurities.
Thecostbasisofsecuritiespurchasedunderagreementstoresell,securitiessoldunderagreementstorepurchase,andotherinvestmentsheldintheSOMAdomesticportfolioapproximatefairvalue.
AtDecember31,2014and2013,thefairvalueofforeigncurrencydenominatedinvestmentswas$20,996millionand$23,802million,respectively,ofwhich$1,579millionand$1,841million,respectively,wasallocatedtotheBank.Thefairvalueofforeigngovernmentdebtinstrumentswasdeterminedusingpricingservicesthatprovidemarketconsensuspricesbasedonindicativequotesfromvariousmarketparticipants.Thefairvalueofforeigncurrencydepositsandsecuritiespurchasedunderagreementstoresellwasdeterminedbyreferencetomarketinterestrates.
ThefollowingtableprovidesadditionalinformationontheamortizedcostandfairvaluesofthefederalagencyandGSEMBSportfolioatDecember31(inmillions):
2014 2013
DistributionofMBSholdingsbycouponrate Amortizedcost Fairvalue Amortizedcost Fairvalue
AllocatedtotheBank: 2.0% $ 306 $ 302 $ 411 $ 392 2.5% 2,746 2,718 3,588 3,432 3.0% 12,297 12,129 15,119 14,032 3.5% 11,531 11,724 10,132 9,804 4.0% 10,255 10,570 6,672 6,696 4.5% 3,734 4,021 5,384 5,664 5.0% 1,570 1,694 2,413 2,549 5.5% 365 393 623 658 6.0% 51 55 88 93 6.5% 6 9 12 13
Total $ 42,861 $ 43,615 $ 44,442 $ 43,333 TotalSOMA: 2.0% $ 12,788 $ 12,618 $ 14,191 $ 13,529 2.5% 114,609 113,468 123,832 118,458 3.0% 513,289 506,280 521,809 484,275 3.5% 481,305 489,390 349,689 338,357 4.0% 428,047 441,204 230,256 231,113 4.5% 155,867 167,844 185,825 195,481 5.0% 65,544 70,719 83,290 87,968 5.5% 15,232 16,414 21,496 22,718 6.0% 2,110 2,287 3,052 3,225 6.5% 292 320 420 448
Total $ 1,789,083 $ 1,820,544 $ 1,533,860 $ 1,495,572
NOTES TO FINANCIAL STATEMENTS
FEDERAL RESERVE BANK OF PHILADELPHIA | ANNUAL REPORT 2014
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Thefollowingtablespresenttherealizedgains(losses)andthechangeinthecumulativeunrealizedgains(losses)relatedtoSOMAdomesticsecuritiesholdingsduringtheyearsendedDecember31,2014and2013(inmillions):
AllocatedtoBank 2014 2013 Changeincumulative unrealizedgains Changeincumulative Realizedgains1 (losses)2 Realizedgains1 unrealizedlosses2
Treasurysecurities $ - $ 4,056 $ - $ (5,286)GSEdebtsecurities - (15) - (71)FederalagencyandGSEMBS 2 1,796 1 (2,396)
Total $ 2 $ 5,837 $ 1 $ (7,753)
Total SOMA 2014 2013
Changeincumulative unrealizedgains Changeincumulative Realizedgains1 (losses)2 Realizedgains1 unrealizedlosses2
Treasurysecurities $ - $ 158,150 $ - $ (183,225)GSEdebtsecurities - (605) - (2,411)FederalagencyandGSEMBS 81 69,749 51 (81,957)
Total $ 81 $ 227,294 $ 51 $ (267,593)
1Realizedgainsarereportedin“Non-interestloss:SystemOpenMarketAccount”intheStatementsofIncomeandComprehensiveIncome. 2BecauseSOMAsecuritiesarerecordedatamoritizedcost,thechangeinthecumulativeunrealizedgains(losses)isnotreportedintheStatementsofIncomeandComprehensiveIncome.
Theamountofchangeincumulativeunrealizedgains(losses)position,net,relatedtoforeigncurrencydenominatedinvest-mentswasagainof$18millionandalossof$90millionfortheyearsendedDecember31,2014and2013,respectively,ofwhich$1millionand$7million,respectively,wereallocatedtotheBank.
AccountingStandardsCodification(ASC)Topic820(ASC820)definesfairvalueasthepricethatwouldbereceivedtosellanassetorpaidtotransferaliabilityinanorderlytransactionbetweenmarketparticipantsatthemeasurementdate.ASC820
NOTES TO FINANCIAL STATEMENTS
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establishesathree-levelfairvaluehierarchythatdistinguishesbetweenassumptionsdevelopedusingmarketdataobtainedfromindependentsources(observableinputs)andtheBank’sassumptionsdevelopedusingthebestinformationavailableinthecircumstances(unobservableinputs).ThethreelevelsestablishedbyASC820aredescribedasfollows:
• Level1–Valuationisbasedonquotedpricesforidenticalinstrumentstradedinactivemarkets.• Level2–Valuation isbasedonquotedpricesforsimilar instruments inactivemarkets,quotedpricesfor identicalor
similar instruments inmarketsthatarenotactive,andmodel-basedvaluationtechniquesforwhichallsignificantas-sumptionsareobservableinthemarket.
• Level3–Valuationisbasedonmodel-basedtechniquesthatusesignificantinputsandassumptionsnotobservableinthemarket.TheseunobservableinputsandassumptionsreflecttheBank’sestimatesofinputsandassumptionsthatmarketparticipantswoulduseinpricingtheassetsandliabilities.Valuationtechniquesincludetheuseofoptionpricingmodels,discountedcashflowmodels,andsimilartechniques.
Treasurysecurities,GSEdebtsecurities,federalagencyandGSEMBS,andforeigngovernmentdebtinstrumentsareclassifiedasLevel2withintheASC820hierarchybecausethefairvaluesarebasedonindicativequotesandotherobservableinputsobtainedfromindependentpricingservices.ThefairvaluehierarchylevelofSOMAfinancialassetsisnotnecessarilyanindi-cationoftheriskassociatedwiththoseassets.
6. BANK PREMISES, EQUIPMENT, AND SOFTWARE
BankpremisesandequipmentatDecember31wereasfollows(inmillions):
2014 2013
Bankpremisesandequipment: Landandlandimprovements $ 8 $ 8 Buildings 119 113 Buildingmachineryandequipment 28 25 Constructioninprogress 1 1 Furnitureandequipment 50 53
Subtotal 206 200 Accumulateddepreciation (116) (113) Bankpremisesandequipment,net $ 90 $ 87 Depreciationexpense,fortheyearsendedDecember31 $ 9 $ 10
NOTES TO FINANCIAL STATEMENTS
FEDERAL RESERVE BANK OF PHILADELPHIA | ANNUAL REPORT 2014
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TheBankleasesspacetooutsidetenantswithremainingleasetermsrangingfrom3to10years.Rentalincomefromsuchleaseswas$2millionforeachoftheyearsendedDecember31,2014and2013,andisreportedasacomponentof“Non-interestloss:Other”intheStatementsofIncomeandComprehensiveIncome.FutureminimumleasepaymentsthattheBankwillreceiveundernoncancelableleaseagreementsinexistenceatDecember31,2014,areasfollows(inmillions):
2015 $ 2 2016 2 2017 2 2018 2 2019 3 Thereafter 4
Total $ 15
TheBankhadcapitalizedsoftwareassets,netofamortization,of$7millionand$6millionatDecember31,2014and2013,respectively.Amortizationexpensewas$2millionforeachoftheyearsendedDecember31,2014and2013.Capitalizedsoftwareassetsarereportedasacomponentof“Otherassets”intheStatementsofConditionandtherelatedamortizationisreportedasacomponentof“Operatingexpenses:Other”intheStatementsofIncomeandComprehensiveIncome.
7. COMMITMENTS AND CONTINGENCIESInconductingitsoperations,theBankentersintocontractualcommitments,normallywithfixedexpirationdatesortermina-tionprovisions,atspecificratesandforspecificpurposes.
AtDecember31,2014,theBankwasobligatedundernoncancelableleasesforpremisesandequipmentwithremainingtermsrangingfrom1toapproximately5years.Theseleasesprovideforincreasedleasepaymentsbaseduponincreasesinrealestatetaxes,operatingcosts,orselectedpriceindexes.
Rentalexpenseunderoperatingleasesforcertainoperatingfacilities,warehouses,anddataprocessingandofficeequipment(includingtaxes,insurance,andmaintenancewhenincludedinrent),netofsubleaserentals,was$1millionforeachoftheyearsendedDecember31,2014and2013.CertainoftheBank’sleaseshaveoptionstorenew. TheBankhasnocapitalleases.
Futureminimumleasepaymentsundernoncancelableoperatingleases,netofsubleaserentals,withremainingtermsofoneyearormore,atDecember31,2014,areasfollows(inthousands):
Operatingleases
2015 $ 457 2016 468 2017 480 2018 492 2019 41
Futureminimumleasepayments $ 1,938
NOTES TO FINANCIAL STATEMENTS
FEDERAL RESERVE BANK OF PHILADELPHIA | ANNUAL REPORT 2014
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AtDecember31,2014,therewerenomaterialunrecordedunconditionalpurchasecommitmentsorobligationsinexcessofoneyear.
UndertheInsuranceAgreementoftheReserveBanks,eachoftheReserveBankshasagreedtobear,onaper-incidentbasis,ashareofcertainlossesinexcessofonepercentofthecapitalpaid-inoftheclaimingReserveBank,upto50percentofthetotalcapitalpaid-inofallReserveBanks.LossesareborneintheratioofaReserveBank’scapitalpaid-intothetotalcapitalpaid-inofallReserveBanksatthebeginningofthecalendaryearinwhichthelossisshared.NoclaimswereoutstandingundertheagreementatDecember31,2014and2013.
TheBankisinvolvedincertainlegalactionsandclaimsarisingintheordinarycourseofbusiness.Althoughitisdifficulttopredicttheultimateoutcomeoftheseactions,inmanagement’sopinion,basedondiscussionswithcounsel,thelegalactionsandclaimswillberesolvedwithoutmaterialadverseeffectonthefinancialpositionorresultsofoperationsoftheBank.
8. RETIREMENT AND THRIFT PLANSRetirement PlansTheBankcurrentlyoffersthreedefinedbenefitretirementplanstoitsemployees,basedonlengthofserviceandlevelofcompensation.SubstantiallyalloftheemployeesoftheReserveBanks,BoardofGovernors,andOfficeofEmployeeBenefitsoftheFederalReserveSystemparticipateintheRetirementPlanforEmployeesoftheFederalReserveSystem(SystemPlan).UndertheDodd-FrankAct,newlyhiredBureauemployeesareeligibletoparticipateintheSystemPlan.Inaddition,employ-eesatcertaincompensationlevelsparticipate intheBenefitEqualizationRetirementPlan(BEP)andcertainReserveBankofficersparticipateintheSupplementalRetirementPlanforSelectOfficersoftheFederalReserveBanks(SERP).
TheFRBNY,onbehalfoftheSystem,recognizesthenetassetornetliabilityandcostsassociatedwiththeSystemPlaninitsconsolidatedfinancialstatements.DuringtheyearsendedDecember31,2014and2013,certaincostsassociatedwiththeSystemPlanwerereimbursedbytheBureau.
TheBank’sprojectedbenefitobligation,fundedstatus,andnetpensionexpensesfortheBEPandtheSERPatDecember31,2014and2013,andfortheyearsthenended,werenotmaterial.
Thrift PlanEmployeesoftheBankparticipateinthedefinedcontributionThriftPlanforEmployeesoftheFederalReserveSystem(ThriftPlan).TheBankmatches100percentofthefirstsixpercentofemployeecontributionsfromthedateofhireandprovidesanautomaticemployercontributionofonepercentofeligiblepay.TheBank’sThriftPlancontributionstotaled$5millionforeachoftheyearsendedDecember31,2014and2013andarereportedasacomponentof“Operatingexpenses:Salariesandbenefits”intheStatementsofIncomeandComprehensiveIncome.
9. POSTRETIREMENT BENEFITS OTHER THAN RETIREMENT PLANS AND POSTEMPLOYMENT BENEFITSPostretirement Benefits Other Than Retirement PlansInadditiontotheBank’sretirementplans,employeeswhohavemetcertainageandlength-of-servicerequirementsareeli-gibleforbothmedicalandlifeinsurancebenefitsduringretirement.
NOTES TO FINANCIAL STATEMENTS
FEDERAL RESERVE BANK OF PHILADELPHIA | ANNUAL REPORT 2014
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TheBankfundsbenefitspayableunderthemedicalandlifeinsuranceplansasdueand,accordingly,hasnoplanassets.Followingisareconciliationofthebeginningandendingbalancesofthebenefitobligation(inmillions):
2014 2013
AccumulatedpostretirementbenefitobligationatJanuary1 $ 91.3 $ 103.6Servicecostbenefitsearnedduringtheperiod 3.0 3.3Interestcostonaccumulatedbenefitobligation 4.5 3.9Netactuarialloss(gain) 13.0 (16.3)Curtailmentloss (0.9) -Contributionsbyplanparticipants 1.9 1.9Benefitspaid (6.6) (5.9)MedicarePartDsubsidies 0.4 0.4Planamendments - 0.4
AccumulatedpostretirementbenefitobligationatDecember31 $ 106.6 $ 91.3
AtDecember31,2014and2013,theweighted-averagediscountrateassumptionsused indevelopingthepostretirementbenefitobligationwere3.96percentand4.79percent,respectively.
Discountratesreflectyieldsavailableonhigh-qualitycorporatebondsthatwouldgeneratethecashflowsnecessarytopaytheplan’sbenefitswhendue.TheSystemPlandiscountrateassumptionsettingconventionusesanunroundedrate.
Followingisareconciliationofthebeginningandendingbalanceoftheplanassets,andtheunfundedpostretirementbenefitobligationandaccruedpostretirementbenefitcosts(inmillions):
2014 2013
FairvalueofplanassetsatJanuary1 $ - $ -Contributionsbytheemployer 4.3 3.6Contributionsbyplanparticipants 1.9 1.9Benefitspaid (6.6) (5.9)MedicarePartDsubsidies 0.4 0.4
FairvalueofplanassetsatDecember31 $ - $ - Unfundedobligationandaccruedpostretirementbenefitcost $ 106.6 $ 91.3 Amountsincludedinaccumulatedothercomprehensivelossareshownbelow: Priorservicecost $ (0.5) $ (1.2)Netactuarialloss (24.7) (13.2)
Totalaccumulatedothercomprehensiveloss $ (25.2) $ (14.4)
NOTES TO FINANCIAL STATEMENTS
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Accruedpostretirementbenefitcostsarereportedasacomponentof“Accruedbenefitcosts”intheStatementsofCondition.
Formeasurementpurposes,theassumedhealth-carecosttrendratesatDecember31areasfollows:
2014 2013
Health-carecosttrendrateassumedfornextyear 6.60% 7.00%Ratetowhichthecosttrendrateisassumedtodecline (theultimatetrendrate) 4.75% 5.00%Yearthattheratereachestheultimatetrendrate 2019 2019
Assumedhealth-carecosttrendrateshaveasignificanteffectontheamountsreportedforhealth-careplans.Aonepercent-agepointchangeinassumedhealth-carecosttrendrateswouldhavethefollowingeffectsfortheyearendedDecember31,2014(inmillions): Onepercentage Onepercentage pointincrease pointdecrease
Effectonaggregateofserviceandinterestcostcomponents ofnetperiodicpostretirementbenefitcosts $ 0.2 $ (0.8)Effectonaccumulatedpostretirementbenefitobligation 2.1 (9.6)
ThefollowingisasummaryofthecomponentsofnetperiodicpostretirementbenefitexpensefortheyearsendedDecember31(inmillions): 2014 2013
Servicecost-benefitsearnedduringtheperiod $ 3.0 $ 3.3Interestcostonaccumulatedbenefitobligation 4.5 3.9Amortizationofpriorservicecost 0.6 0.4Amortizationofnetactuarialloss 0.7 2.9
Totalperiodicexpense 8.8 10.5
Curtailment 0.1 -
Netperiodicpostretirementbenefitexpense $ 8.9 $ 10.5
Estimatedamountsthatwillbeamortizedfromaccumulatedothercomprehensivelossintonetperiodicpostretirementben-efitexpensein2015areshownbelow:
Priorservicecost $ 0.1Netactuarialloss 2.0
Total $ 2.1
NOTES TO FINANCIAL STATEMENTS
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NetpostretirementbenefitcostsareactuariallydeterminedusingaJanuary1measurementdate.AtJanuary1,2014and2013,theweighted-averagediscountrateassumptionsusedtodeterminenetperiodicpostretirementbenefitcostswere4.79percentand3.75percent,respectively.
Netperiodicpostretirementbenefitexpenseisreportedasacomponentof“Operatingexpenses:Salariesandbenefits”intheStatementsofIncomeandComprehensiveIncome.AcurtailmentlossassociatedwithrestructuringprogramsthataredescribedinNote11wasrecognizedinnetincomeintheyearendedDecember31,2014.
TheMedicarePrescriptionDrug,ImprovementandModernizationActof2003establishedaprescriptiondrugbenefitunderMedicare(MedicarePartD)andafederalsubsidytosponsorsofretireehealth-carebenefitplansthatprovidebenefitsthatareatleastactuariallyequivalenttoMedicarePartD.ThebenefitsprovidedundertheBank’splantocertainparticipantsareatleastactuariallyequivalenttotheMedicarePartDprescriptiondrugbenefit.Theestimatedeffectsofthesubsidyarereflectedinactuariallossintheaccumulatedpostretirementbenefitobligationandnetperiodicpostretirementbenefitex-pense.
FederalMedicarePartDsubsidyreceiptswere$408thousandand$331thousandintheyearsendedDecember31,2014and2013,respectively.Expectedreceiptsin2015,relatedtobenefitspaidintheyearsendedDecember31,2014and2013,are$195thousand.
Followingisasummaryofexpectedpostretirementbenefitpayments(inmillions):
Withoutsubsidy Withsubsidy
2015 $ 5.1 $ 4.8 2016 5.4 5.0 2017 5.7 5.2 2018 5.9 5.4 2019 6.2 5.6 2020-2024 33.3 30.1 Total $ 61.6 $ 56.1
Postemployment Benefits TheBankoffersbenefitstoformerorinactiveemployees.PostemploymentbenefitcostsareactuariallydeterminedusingaDecember31measurementdateandincludethecostofprovidingdisability;medical,dental,andvisioninsurance;andsur-vivorincomebenefits.TheaccruedpostemploymentbenefitcostsrecognizedbytheBankatDecember31,2014and2013,were$6.7millionand$7.2million,respectively.Thiscostisincludedasacomponentof“Accruedbenefitcosts”intheState-mentsofCondition.Netperiodicpostemploymentbenefitexpense(credit)includedin2014and2013operatingexpenseswere$0.3millionand$1.6million,respectively,andarerecordedasacomponentof“Operatingexpenses:Salariesandben-efits”intheStatementsofIncomeandComprehensiveIncome.
NOTES TO FINANCIAL STATEMENTS
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10. Accumulated Other Comprehensive Income And Other Comprehensive IncomeFollowingisareconciliationofbeginningandendingbalancesofaccumulatedothercomprehensiveincome(loss)asofDe-cember31(inmillions): 2014 2013
Amount related to Amount related to postretirement postretirement benefitsotherthan benefitsotherthan retirementplans retirementplans
BalanceatJanuary1 $ (14.4) $ (33.5)Changeinfundedstatusofbenefitplans: Priorservicecostsarisingduringtheyear 0.11 (0.4)Amortizationofpriorservicecost 0.62 0.42
Changeinpriorservicecostsrelatedtobenefitplans 0.7 -Netactuarial(loss)gainarisingduringtheyear (12.2)3 16.2Amortizationofnetactuarialloss 0.72 2.92
Changeinactuarial(losses)gainsrelatedtobenefitplans (11.5) 19.1
Changeinfundedstatusofbenefitplans-othercomprehensive(loss)income (10.8) 19.1
BalanceatDecember31 $ (25.2) $ (14.4)
1Netcurtailmentlossduetoaccelerationofpriorservicecostrelatedtobusinessrestructuring.SeeNote11forfurtherinformation.
2Reclassificationisreportedasacomponentof“OperatingExpenses:Salariesandbenefits”intheStatementsofIncomeandComprehensiveIncome.
3Includesanactuarialgainoncurtailmentof$0.8millionrelatedtobusinessrestructuring.SeeNote11forfurtherinformation.
AdditionaldetailregardingtheclassificationofaccumulatedothercomprehensivelossisincludedinNote9.
11. Business Restructuring Charges
In2014,theTreasuryannouncedaplantoconsolidatethenumberofReserveBanksprovidingfiscalagentservicestotheTreasuryfromtentofour.Asaresultofthisinitiative,theGovernmentEntityAccountingandReportingSystemandTreasuryCollateralManagementandMonitoringoperationsperformedbytheBankwillbetransitionedtotheFederalReserveBankofSt.Louisin2015.Additionally,thePostPaymentSystemandTreasurySoftwareQualityAssuranceoperationsperformedbytheBankwilltransitioninphasestotheFederalReserveBankofKansasCityoverthenextseveralyears.TheBankhadnomaterialbusinessrestructuringchargesin2013.
Inyearspriorto2013,theReserveBanksannouncedtheaccelerationoftheircheckrestructuringinitiativestoalignthecheckprocessinginfrastructureandoperationswithdecliningcheckprocessingvolumes.Thenewinfrastructureconsolidatedpa-perandelectroniccheckprocessingattheFRBA.
NOTES TO FINANCIAL STATEMENTS
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Followingisasummaryoffinancialinformationrelatedtotherestructuringplans(inmillions):
2014 restructuringplans Information related to restructuring plans as of December 31, 2014: Totalexpectedcostsrelatedtorestructuringactivity $ 2.9 Expectedcompletiondate June2014 Reconciliation of liability balances: BalanceatDecember31,2013 $ - Employeeseparationcosts 2.1 Adjustments 0.8
BalanceatDecember31,2014 $ 2.9
Employeeseparationcostsareprimarilyseverancecostsfor identifiedstaffreductionsassociatedwiththeannouncedre-structuringplans.Separationcoststhatareprovidedundertermsofongoingbenefitarrangementsarerecordedbasedontheaccumulatedbenefitearnedbytheemployee.Separationcoststhatareprovidedunderthetermsofone-timebenefitarrangementsaregenerallymeasuredbasedontheexpectedbenefitasoftheterminationdateandrecordedratablyovertheperiodtotermination.Restructuringcostsrelatedtoemployeeseparationsarereportedasacomponentof“Operatingexpenses:Salariesandbenefits”intheStatementsofIncomeandComprehensiveIncome. AdjustmentstotheaccruedliabilityareprimarilyduetochangesintheestimatedrestructuringcostsandareshownasacomponentoftheappropriateexpensecategoryintheStatementsofIncomeandComprehensiveIncome.
CostsassociatedwithenhancedpostretirementbenefitsaredisclosedinNote9.
12. DISTRIBUTION OF COMPREHENSIVE INCOMEInaccordancewithBoardpolicy,ReserveBanksremitexcessearnings,afterprovidingfordividendsandtheamountneces-sarytoequatesurpluswithcapitalpaid-in,totheU.S.TreasuryasearningsremittancestotheTreasury.Thefollowingtablepresents thedistributionof theBank’s comprehensive income inaccordancewith theBoard’spolicy for theyearsendedDecember31(inmillions):
2014 2013 Dividendsoncapitalstock $ 118 $ 127Transferfromsurplus-amountrequiredtoequatesurpluswithcapitalpaid-in (471) (48)EarningsremittancestotheTreasury 2,625 2,189
Totaldistribution $ 2,272 $ 2,268
DuringtheyearendedDecember31,2014,theBankrecordedareductionintheamountofcapitalpaid-inandacorrespond-ingreductionofsurplus,whichispresentedintheabovetableas“Transferfromsurplus–amountrequiredtoequatesurplus
NOTES TO FINANCIAL STATEMENTS
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withcapitalpaid-in.”Thereductionofsurplusresultedinanequivalentincreasein“EarningsremittancestotheTreasury”andareductionin“Comprehensiveincome”fortheyearendedDecember31,2014.
13. SUBSEQUENT EVENTSTherewerenosubsequenteventsthatrequireadjustmentstoordisclosuresinthefinancialstatementsasofDecember31,2014.SubsequenteventswereevaluatedthroughMarch11,2015,whichisthedatethatthefinancialstatementswereavail-abletobeissued.
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