10 th Annual GIOA Conference. Las Vegas, NV March 27, 2014

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1 1 th Annual GIOA Conference Las Vegas, NV March 27, 214

2 This is not an offer to sell. FHLBank debt is not an obligation of or guaranteed by the United States and may not be offered or sold in any jurisdiction requiring its registration. No recommendation is made concerning the securities described. Please refer to the offering documents before purchasing these securities. FORWARD-LOOKING STATEMENTS Statements contained in this presentation may be forward-looking statements, including statements describing the objectives, projections, estimates, or future predictions of the FHLBanks and Office of Finance. These statements may use forward-looking terminology, such as anticipates, believes, could, estimates, may, should, will, or their negatives or other variations on these terms. Investors should note that, by their nature, forward-looking statements involve risks or uncertainties. Therefore, the actual results could differ materially from those expressed or implied in these forward-looking statements or could affect the extent to which a particular objective, projection, estimate, or prediction is realized. These forward-looking statements involve risks and uncertainties including, but not limited to, the following: changes in the general economy, employment rates, housing market activity and housing prices, and the size and volatility of the residential mortgage market; volatility of market prices, interest rates, and indices or other factors that could affect the value of investments or collateral held by the FHLBanks resulting from the effects of, and changes in, various monetary or fiscal policies and regulations, including those determined by the Federal Reserve Board and the FDIC, or a decline in liquidity in the financial markets; political events, including legislative, regulatory, judicial, or other developments that affect the FHLBanks, their members, counterparties or investors in the consolidated obligations of the FHLBanks, including changes in the FHLBank Act, housing GSE reform, Finance Agency actions or regulations that affect FHLBank operations, and regulatory oversight; competitive forces, including other sources of funding available to FHLBank members, and other entities borrowing funds in the capital markets; demand for FHLBank advances resulting from changes in FHLBank members deposit flows and credit demands; loss of large members and repayment of advances made to those members due to institutional failures, mergers, consolidations, or withdrawals from membership; changes in domestic and foreign investor demand for consolidated obligations or the terms of interest-rate exchange agreements and similar agreements, including changes in the relative attractiveness of consolidated obligations as compared to other investment opportunities and changes resulting from any modification of credit ratings; the availability, from acceptable counterparties, of derivative financial instruments of the types and in the quantities needed for risk management purposes; the ability to introduce new products and services and successfully manage the risks associated with those products and services, including new types of collateral used to secure advances; and the effect of new accounting guidance, including the development of supporting systems and related internal controls. Investors are encouraged to consider these and other risks and uncertainties that are discussed in periodic combined financial reports and in reports filed by each FHLBank with the Securities and Exchange Commission. None of the FHLBanks or the Office of Finance undertakes any obligation to publicly update or revise any forward-looking statements contained in this presentation, whether as a result of new information, future events, changed circumstances, or any other reason. This data has not been audited and has been prepared for informational purposes only. While it is believed to be correct, accuracy cannot be guaranteed. 2

3 How the System Works Advances Investors FHLBanks Members Collateral Debt Securities Investment Capital Issuance Proceeds Mortgage Lending & Community Investment Dealers Debt Securities Office of Finance Homeowners Issuance Proceeds The twelve regional FHLBanks are linked by: A common mission to support housing A shared safety and soundness regulator (FHFA) A shared responsibility to fully repay all senior unsecured debt obligations All senior unsecured debt securities issued through the Office of Finance ( Consolidated Obligations ) are the joint and several obligations of the entire FHLBank System. Current ratings: S&P: AA+ / A-1+ / stable outlook Moody s: Aaa / P-1 / stable outlook 3

4 Advances Members use Advances Primarily as a Financing Source for Whole Loans Maturity Profile of Advances Collateral Securing Advances* ($ in billions) 1, % 3 Years (right axis) 7% 65% 6% 55% CMBS 2% Agency MBS/CMO 5% Multifamily mortgage loans 9% Commercial real estate loans 11% FHA/VA Loans 1% HEL/HELOC 11% Agency debt <1% Private-label MBS/CMO <1% Other 1% Single-family mortgage loans 59% Q13 5% >5 Years >3 <5 Years >1 <3 Years <1 Year * To institutions with at least $1 billion in advances outstanding Source: 3Q13 Combined Financial Report based on par value, excludes accounting adjustments 4

5 Liquidity & Investments FHLBanks Maintain Contingent Liquidity & Invest in Highly-Rated Securities Liquidity Portfolio $93 billion MBS & Term Investment Portfolio $183 billion Certificates of Deposit 7% Interest Bearing Deposits (1) 1% Commercial Paper 1% FFELP ABS (1) 4% U.S. Treasuries 1% Cash 37% Fed Funds Sold 35% Reverse Repo 19% Private- Label MBS(3) 14% Other (2) 12% GSE/TVA Debt 12% Agency RMBS/ CMBS 57% (1) May include FHLBank members (1) Federal Family Education Loan Program Source: 3Q13 Combined Financial Report - Based on carrying value and subject to rounding 5

6 Mortgage Programs Created as a risk-sharing alternative to the traditional GSE guarantee programs MPF /MPP Outstanding ($ in billions) Members retain a portion of the credit risk and receive fees for doing so, while transferring the interest rate and funding risk to the FHLBanks 12 1 Fund 15- to 3-yr conventional conforming and government-guaranteed fixed-rate mortgage loans secured by 1 to 4 family residential mortgages no ARMs 8 6 Mortgage assets are credit-enhanced by the selling member or mortgage insurer to AA equivalent 4 2 Weighted Average FICO /LTV is 733 and 69.7% for MPF and 75 and 7.9% for MPP at origination (as of 12/31/12) MPF Xtra provides members with a conduit to the secondary mortgage market for eligible loans members are not required to provide credit enhancement and do not receive fees Source: Combined Financial Reports and subject to rounding 6

7 Strong Capital Base 1,2 Capital Tracks Advances ($ in billions) 7 Surplus Capital Reflects Prudent Management 1, Advances Regulatory Capital (right axis) Retained Earnings (right axis) % 6.% 5.% 4.% 3.% 2.% Regulatory Capital Ratio FHFA Capital Classifications: Undercapitalized Significantly Undercapitalized 4.42% 5.92% 6.53% 6.91% 6.69% 6.32% 2.32% Ratio Excess Equates to an $18 billion Regulatory Capital Surplus at 3Q13 1Q8 3Q8 1Q9 3Q9 1Q1 3Q1 1Q11 3Q11 1Q12 3Q12 1Q13 3Q13 Members are required to capitalize all advances, typically at 4. to 5.% of principal borrowed FHLBanks typically repurchase capital stock once the associated advances have been repaid, but have ability to hold capital for up to 5 years 1.%.% Critically Undercapitalized Q13 Minimum Required Regulatory Capital Ratio Ratio Excess FHFA regulation prohibits member stock redemption if it could result in FHLBank undercapitalization Source: Combined Financial Reports and subject to rounding 7

8 Total Debt Outstanding Total Debt Outstanding Reflects Advance Demand from Members 1,4 Globals Bullets/TAPs Floating Rate Notes Callable/Structured Discount Notes 1,2 Advances ($ in billions) 1, * 2 YTD Net Change: ($ in billions) Debt Outstanding Advances Outstanding * *Preliminary & Unaudited Source: FHLBanks Office of Finance by settlement date as of 2/28/14 and subject to rounding 8

9 Term Debt Issuance Issuance is Flexible, Adaptable, & Investor-Driven Issuance Mixture Reflects Shifts in Investor Preference ($ in billions) Reverse Inquiry as a % of Total Coupon Debt Issued Gross Issuance: % 95% 9% 8% 7% % 85% 6% 5% 4% 3% 2% 1% % Globals Bullets/TAPs FRNs Callables/Structured 8% 75% 7% 65% 6% 1Q8 4Q8 3Q9 2Q1 1Q11 4Q11 3Q12 2Q13 Source: FHLBanks Office of Finance by settlement date as of 2/28/14 and subject to rounding 9

10 Term Debt Refunding Shorter Maturities and Callable Refunding Flows Create Continual Opportunities for Investors Scheduled Bond Maturities Projected Calls ($ in billions) ($ in billions) Estimates based on certain rate and volatility assumptions. Actual call activity may differ, and can be affected by a variety of factors including but not limited to shifts in the interest rate environment, the amount of callable debt outstanding, debt refunding costs, FHLBank asset/liability strategy, and the overall funding environment. 15 Syndicated Globals MTNs Parallel Shift -5bps Base Rates as of 3/1/14 15 Parallel Shift +5bps > Mar-14 Apr-14 May-14 Jun-14 Jul-14 Source: FHLBanks Office of Finance and subject to rounding as of 2/28/14 1

11 Discount Notes Discount Notes Outstanding Discount Note Issuance ($ in billions) ($ in billions) WAM in Days (right axis) ,6 1,4 1, Window Auction Overnight Daily Average Outstanding (right axis) , Jan-9 Jan-1 Jan-11 Jan-12 Jan-13 Jan Gross DN Issuance: 1,488 1,194 1,47 1, Source: FHLBanks Office of Finance by settlement date as of 2/28/14 and subject to rounding 11

12 Floating Rate Notes Floating Rate Notes Outstanding ($ in billions) Floating Rate Note Issuance by Index Type (Includes Structured FRNs - $ in billions) 25 3% Gross FRN Issuance: % of Total Bonds Outstanding (right axis) All Outstanding Simple FRNs 25% 2% 15% 1% % Jan-9 Jan-1 Jan-11 Jan-12 Jan-13 Jan-14 5% % of Total Bond Issuance (right axis) % 2% 15% 1% 5% % Fed Funds LIBOR Prime T-Bill Source: FHLBanks Office of Finance by settlement date as of 2/28/14 and subject to rounding 12

13 Callable Bonds Skew Toward Short-lock, Bermudan Structures Reflects Investor Preference Callable Issuance by Lockout Callable Issuance by Option Type Typically issued via auction <3 Months 5% >1 Year 4% American 9% Bermudan 63% 6-12 Months 17% 3-6 Months 29% Canary 3% European 25% Berms, Canaries, and Euros typically issued via investor reverse inquiry Source: FHLBanks Office of Finance by settlement date 3/13 thru 2/14 and subject to rounding 13

14 TAP Program The TAP program is designed to coordinate and standardize the issuance of non-global bullet debt $14 Recent TAP Issuance Cycles ($ in billions by trade date) New TAP securities are created on a quarterly basis and then reopened via daily auction throughout a 9-day cycle $12 $1 >5 Years 2 to 5 Years Up to 2 Years TAPs typically offer liquidityadjusted yield over comparable FHLB Globals and other agency benchmarks $8 $6 $4 TAPs are available to investors through a 2 member dealer bidding group $2 $ May- Jul9 Nov9- Jan1 May- Jul1 Nov1- Jan11 May- Jul11 Nov11- Jan12 May- Jul12 Nov12- Jan13 May- Jul13 Nov13- Jan14 Source: FHLBanks Office of Finance as of 2/28/14 14

15 Global Bonds Mandated Global Bullet Issuance Distribution by Region $5 $45 $4 $35 $3 $25 $2 $15 $1 $5 $ ($ in billions) 2Yr 3Yr 5Yr 7yr 1Yr 3Yr % 9% 8% 7% 6% 5% 4% 3% 2% Other/ Unknown Europe 1% Asia % % 9% 8% 7% 6% 5% 4% 3% 2% 1% Central Banks % Source: FHLBanks Office of Finance as of 2/28/14 & subject to rounding Other may include investors not specified by underwriters US Distribution by Investor Type Other/ Unknown State/Local Pension/Ins Banks Fund Managers

16 Conclusion Key Benefits for Public Sector Investors Safety Liquidity Yield Rated Aaa/P-1 by Moody s, AA+/A-1+ by S&P GSE status / U.S. Treasury backstop Joint / several liability Fully collateralized lending model no credit losses on advances in System history! $18 billion regulatory capital cushion at 3Q13 Highly scalable and diverse funding program - $755 billion outstanding at 2/28/14 spanning multiple product types 68 Approved underwriters Discount Notes and shortterm* coupon debt have averaged approximately 63% of total debt outstanding since 29 $5 billion in Global bonds outstanding FHLBank debt securities generally offer a riskadjusted yield over U.S. Treasuries Flexible, reverse inquiry process allows investors to embed optionality and/or other structural features to increase yield Callable & structured bonds have averaged 23% of total bonds outstanding since 29 * Coupon debt with maturity 397 Days 16