Abbreviations

ABS

Asset-backed securities

AIG

American International Group, Inc.

ARM

Adjustable rate mortgage

CDO

Collateralized debt obligation

CMBS

Commercial mortgage-backed securities

FRBNY

Federal Reserve Bank of New York

GSE

Government-sponsored entities

MBS

Mortgage-backed securities

ML

Maiden Lane LLC

ML II

Maiden Lane II LLC

ML III

Maiden Lane III LLC

LLC

Limited liability company

RMBS

Residential mortgage-backed securities

SBA

Small Business Administration

SOMA

System Open Market Account

TALF

Term Asset-Backed Securities Loan Facility

VIE

Variable interest entity

Combined Quarterly Financial Statements

Supplemental Financial Information

(1) Loans

Loans to Depository Institutions

The remaining maturity distribution of loans to depository institutions outstanding as of June 30, 2012, and December 31, 2011, was as follows:

As of June 30, 2012, and December 31, 2011, the Reserve Banks did not have any impaired loans and no allowance for loan losses was required. There were no impaired loans during the period ended June 30, 2012, and year ended December 31, 2011.

Term Asset-Backed Securities Loan Facility (TALF) Loans

The Board of Governors authorized the offering of TALF loans collateralized by newly-issued asset-backed securities (ABS) and legacy commercial mortgage-backed securities (CMBS) until March 31, 2010, and TALF loans collateralized by newly-issued CMBS until June 30, 2010. All TALF loans are recorded at fair value.

The table below presents the fair value of TALF loans by concentration as of June 30, 2012, and December 31, 2011, respectively:

The fair value of TALF loans reported in the Combined Statements of Condition as of June 30, 2012, and December 31, 2011, includes $14 million and $37 million in unrealized gains, respectively.

As of June 30, 2012, and December 31, 2011, no TALF loans were over 90 days past due or on nonaccrual status. Because TALF loans are measured at fair value, an allowance for loan losses was not required.

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(2) System Open Market Account (SOMA) Holdings

Treasury securities, government-sponsored entities (GSE) debt securities, and federal agency and GSE mortgage-backed securities (MBS) are reported at amortized cost in the balance sheet. SOMA portfolio holdings as of June 30, 2012, and December 31, 2011, were as follows:

The following table provides additional information on the amortized cost and fair values of the federal agency and GSE MBS portfolio as of June 30, 2012, and December 31, 2011:

Information about transactions related to Treasury securities, GSE debt securities, and federal agency and GSE MBS during the six months ended June 30, 2012, and during the year ended December 31, 2011, is summarized as follows:

The remaining maturity distribution of Treasury securities, GSE debt securities, federal agency and GSE MBS bought outright, and securities sold under agreements to repurchase as of June 30, 2012, and December 31, 2011, was as follows:

Federal agency and GSE MBS are reported at stated maturity in the table above. The estimated weighted average remaining life of these securities as of June 30, 2012, and December 31, 2011, which differs from the stated maturity primarily because it factors in scheduled payments and prepayment assumptions, was approximately 2.7 years and 2.4 years, respectively.

Foreign currency denominated assets are comprised of foreign currency deposits, securities purchased under agreements to resell, and government debt instruments. The foreign currency denominated assets, including accrued interest, valued at amortized cost and foreign currency market exchange rates as of June 30, 2012, and December 31, 2011, was as follows:

The remaining maturity distribution of foreign currency denominated assets, by currency, as of June 30, 2012, and December 31, 2011, was as follows:

As of June 30, 2012, and December 31, 2011, the fair value of foreign currency denominated assets, including accrued interest, was $25,433 million and $26,116 million, respectively.

In May 2010, U.S. dollar liquidity swap arrangements were re-authorized with the Bank of Canada, the Bank of England, the European Central Bank, the Bank of Japan, and the Swiss National Bank through January 2011. Subsequently, these arrangements were extended through February 1, 2013. There is no specified limit to the amount that may be drawn by the Bank of England, the European Central Bank, the Bank of Japan, and the Swiss National Bank under these swap arrangements; the Bank of Canada may draw up to $30 billion under the swap arrangement with the Federal Reserve Bank of New York (FRBNY). In addition to the central bank liquidity swap arrangements, the Federal Open Market Committee has authorized reciprocal currency arrangements with the Bank of Canada and the Bank of Mexico.

The remaining maturity distribution of U.S. dollar liquidity swaps as of June 30, 2012, and the total U.S. dollar liquidity swaps outstanding as of December 31, 2011, was as follows:

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(3) Consolidated Variable Interest Entities (VIEs)

The combined financial statements include the accounts and results of operations of Maiden Lane LLC (ML), Maiden Lane II LLC (ML II), Maiden Lane III LLC (ML III), and TALF LLC, which are consolidated by the FRBNY. Intercompany balances and transactions are eliminated in consolidation.

Substantially all of the investments held by ML, ML II, ML III, and TALF LLC are recorded at fair value.

The classification of significant assets and liabilities of the consolidated VIEs as of June 30, 2012, and December 31, 2011, was as follows:

To finance the initial acquisition of assets by ML, ML II, and ML III, the FRBNY extended senior loans, and other beneficial interest holders acquired subordinated interests through the contribution of subordinated loans, a deferred purchase price, and equity for ML, ML II, and ML III, respectively.

The TALF LLC, which was formed to purchase from the FRBNY any ABS that might be surrendered by a TALF borrower or claimed by the FRBNY in connection with enforcement rights, has not purchased any ABS collateral from the inception of the program to June 30, 2012. As compensation for the commitment to purchase assets, the FRBNY pays the TALF LLC a put option fee based on the amount of TALF loans extended to eligible borrowers. The Treasury provided initial funding of $100 million to the TALF LLC in the form of a subordinated loan. The TALF LLC invests the fees received from the FRBNY and the funding received from the Treasury in short term investments.

The following table presents the activity related to the senior and subordinated interests from inception to June 30, 2012, and December 31, 2011:

The following table presents information on the rating composition of specific ML, ML II, and ML III portfolio assets as of June 30, 2012, recorded at fair value, as a percentage of aggregate fair value of each VIE's total portfolio assets.

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(4) Federal Reserve Notes

Federal Reserve notes are the circulating currency of the United States. These notes, which are identified as issued to a specific Reserve Bank, must be fully collateralized. All of the Reserve Banks' assets are eligible to be pledged as collateral. As of June 30, 2012, and December 31, 2011, all Federal Reserve notes were fully collateralized.

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(5) Depository Institution Deposits

Depository institution deposits are primarily comprised of required reserve balances, contractual clearing balances, and excess reserve balances. Required reserve balances are those that a depository institution must hold to satisfy its reserve requirement. Contractual clearing balances are those established by a depository institution to provide protection against overdrafts in its account with its Reserve Bank. Excess reserves are those held by the depository institutions in excess of their required reserve balances and contractual clearing balances. The contractual clearing balance program was eliminated on July 12, 2012.

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(6) Treasury Deposits

The Treasury holds deposits at the Reserve Banks in a general account pursuant the Reserve Banks' role as fiscal agents of the United States.

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(7) Capital and Surplus

The Federal Reserve Act requires that each member bank subscribe to the capital stock of the Reserve Bank in an amount equal to 6 percent of the capital and surplus of the member bank. These shares are nonvoting with a par value of $100, and may not be transferred or hypothecated. Currently, only one-half of the subscription is paid in and the remainder is subject to call. By law, each Reserve Bank is required to pay each member bank an annual dividend of 6 percent on paid-in capital stock.

In addition, the Board of Governors requires the Reserve Banks to maintain a surplus equal to the amount of capital paid-in as of December 31 of each year.

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(8) Income and Expense

(A) Loans to Depository Institutions

Interest income on loans includes interest earned on TALF loans and American International Group, Inc. (AIG) credit extensions. Interest income on primary, secondary, and seasonal credit is accrued using the applicable rate established at least every 14 days by the Reserve Banks' boards of directors, subject to review and determination by the Board of Governors. Supplemental information on interest income on loans to depository institutions is as follows:

In addition to TALF LLC net income, the FRBNY records income and expense related to TALF loans in its consolidated financial statements. The following table summarizes the earnings of the TALF program, taken as a whole:

(B) SOMA Holdings

The amount reported as interest income on SOMA portfolio holdings includes the amortization of premiums and discounts. Supplemental information on interest income on SOMA portfolio holdings is as follows:

The average daily balance of securities sold under agreements to repurchase as of June 30, 2012, and June 30, 2011, was $89,573 million and $58,475 million, respectively. The average interest rate on these transactions was 0.1% for each of the six months ended June 30, 2012, and June 30, 2011, respectively.

(C) Consolidated VIEs

The interest income related to the consolidated VIEs is recorded when earned and includes amortization of premiums, accretion of discounts, and paydown gains and losses. Interest expense of the consolidated VIEs is attributable to loans extended by subordinated interest holders; interest expense on loans extended by the FRBNY is eliminated when the VIEs are consolidated in the FRBNY's financial statements. Gains and losses include realized and unrealized gains. Unrealized gains result from the quarterly revaluation of the VIEs portfolio assets. Operating expenses of the consolidated VIEs, which are reported as a component of "Operating expenses" in the Combined Statement of Income, were $18 million and $39 million for the six months ended June 30, 2012, and June 30, 2011, respectively.

The following table summarizes the net income and loss recorded by the FRBNY in its consolidated financial statements for each of the VIEs for the periods ended June 30, 2012, and June 30, 2011:

(D) Depository Institution Deposits

The Reserve Banks pay interest to depository institutions on qualifying balances held at the Reserve Banks. The interest rates paid on required reserve balances and excess balances are determined by the Board of Governors, based on a Federal Open Market Committee-established target range for the effective federal funds rate.

In May 2010, the Reserve Banks commenced the auction of term deposits to be offered through its Term Deposit Facility. The interest rate paid on these deposits is determined by auction.

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