Banking Trends of the South Central States

Transcription

1 Banking Trends of the South Central States Zimri Hunt, May 2016

2 Disclaimer Certain information included in this presentation speaks only as of a particular date or dates included in this presentation. The information in the presentation may have become out of date. The Federal Home Loan Bank of Dallas does not undertake an obligation, and disclaims any duty, to update any of the information in this presentation. The risks, uncertainties, and factors that could affect the Federal Home Loan Bank of Dallas and its financial results are discussed more fully in the Federal Home Loan Bank of Dallas reports filed with the Securities and Exchange Commission, which are available on The data, scenarios and valuations provided to you in this presentation are for informational purposes only and are provided as an accommodation and without charge and are not intended for further distribution. The data, scenarios and valuations are estimates only and may not represent the actual or indicative terms at which new (or economically equivalent) transactions could be entered into or the actual or indicative terms at which existing (or economically equivalent) transactions could be prepaid, terminated, liquidated, assigned or unwound. The scenarios and valuations were derived using proprietary pricing models and estimates and assumptions about relevant future market conditions and other matters, all of which are subject to change without notice. The scenarios and valuations were prepared without specific information about your institution s balance sheet composition, hedging strategies or financial assumptions and plans, any of which may affect the relevance of these valuations to your own analysis. The Federal Home Loan Bank of Dallas makes no representations or warranties about the accuracy or suitability of any information in this presentation. This presentation is not intended to constitute legal, accounting, investment or financial advice or the rendering of legal, accounting, consulting, or other professional services of any kind. You should consult with your accountants, counsel, financial representatives, consultants and/or other advisors regarding the extent these scenarios and valuations may be useful to you and with respect to any legal, tax, business and/or financial matters or questions. 1

3 Agenda I. Introduction II. Selected Market Factors Impacting Banks III. Banking Trends IV. FHLB Products 2

4 Introduction to the FHLBank System

5 FHLBank System Overview LA 4

6 FHLBank System Debt Securities FHLBank System Collateral Proceeds Office of Finance FHLBanks Advances Members Own FHLB Capital Stock Procures Funding Office of Finance issues FHLB debt to global investors AAA-rated debt securities Eleven FHLBanks are jointly and severally liable for consolidated obligations FHLB System Eleven FHLBanks Cooperatives owned by members Government-sponsored enterprises Investors / Dealers (GSEs) organized under an act of Congress (Federal Home Loan Bank Act of 1932) Regulated by the Federal Housing Finance Authority Serves members & communities Stable source of funding to support residential mortgage lending & related community investment Services that enhance liquidity, assist in asset/liability management, and enable more effective interest rate risk management Grants and favorably priced advance programs targeted specifically to the needs of low- to moderate-income 5 communities The Bank s primary goal is to provide credit and other services to help members fund housing, promote small business and small agri-business growth, and support economic and community development loans in their communities. Source of Graphics: Nounproject.com

7 Gross Domestic Product (GDP) U.S. Housing Market Employment Commodities Selected Market Factors Impacting Banking

8 Gross Domestic Product (GDP) Size of the Economy Total dollar value of all goods and services produced over a specific time period GDP for US = $17.2 trillion for 2014* * Source: US Bureau of Economic Analysis (BEA) 7

9 What was Louisiana s Gross Domestic Product (GDP) and which country s GDP was closest to Louisiana s? 1) Ireland 2) New Zealand 3) Costa Rica 4) Bulgaria GDP? Source: US Bureau of Economic Analysis (BEA), CIA The World Factbook, Worldbank 8

10 What country s Gross Domestic Product (GDP) is closest to Louisiana s GDP for 2014? 1) Ireland ~$250 Billion 2) New Zealand ~$186 Billion 3) Costa Rica ~$74 Billion 4) Bulgaria ~$132 Billion Ireland Entity Population GDP Republic of Ireland ~4.61 million ~$250 Billion Louisiana ~4.65 million ~$252 Billion Source: US Bureau of Economic Analysis (BEA), CIA The World Factbook, Worldbank, U.S. Census, Central Statistics Office Ireland ( 9

11 Louisiana Gross Domestic Product 5 Yr Chg 1.1% Government 10% 37% $251.7 Billion 2014 GDP 53% 5 Yr Chg 1.9% Goods Services 3.0% 5 Yr Chg Louisiana GDP ranked 23 rd in U.S. From 2010 to 2014: 2% Compounded Annual Growth Rate (CAGR) Growth in primarily financial, insurance, and real estate related services (+3.0%), and primarily construction goods (+0.8%) Decline in mining (-1.5%), manufacturing (-1.2%), and government (-1.1%) Source: US Bureau of Economic Analysis 10

12 U.S. Housing Market Trends 11

13 U.S. Housing Market Supply Past year: 4½ - 6 months of supply 7.8 Months 6.1 Months Avg 4.4 Months Source: US Bureau of Census, Federal Reserve Bank of St. Louis 12

14 Housing Price Index Housing Prices: Initial Peak to 4Q15 Louisiana Index Time Initial Peak (100) Trough (94) 2007* 2011* 2015 Current Increase Decrease (111) Top Ten Increase Top Ten Decrease Peak to Peak to # State 4Q15 # State 4Q15 1 DC 40.7% 1 NV -27.7% 2 ND 36.2% 2 FL -20.9% 3 CO 32.4% 3 AZ -18.5% 4 TX 29.2% 4 CA -18.0% 5 SD 17.0% 5 RI -16.7% 6 OK 15.8% 6 CT -16.0% 7 NE 13.6% 7 MD -15.2% 8 WV 12.5% 8 NJ -14.3% 9 LA 11.0% 9 DE -13.4% 10 IA 10.5% 10 IL -12.9% *For Approximately 70% Source: Federal Housing Finance Agency 13

15 Housing Price Indices, Louisiana Metros Initial Peak to 4Q15 Shreveport-Bossier City: 6.1% Monroe: 10.4% Alexandria 7.7% Baton Rouge: 5.4% Lafayette: 8.9% Lake Charles: 16.9% Hammond: 6.3% Houma-Thibodaux: 6.5% New Orleans-Metairie: 2.8% Source: Federal Housing Finance Agency, All Transactions, Metro 14

16 Increased 2014 Renter Household Formation in Metro Areas Bossier: 681 Rapides: 478 East Baton Rouge: 2,308 Tangipahoa: 409 Calcasieu: 956 Lafayette: 1,291 Ascension: 744 Orleans: 1,602 Terrebonne: 954 Lafourche: 519 Source: US Census. Renter household formation calculated as renter units occupied paying rent minus renter units occupied paying rent from prior period. 15

17 Louisiana Population Age Composition Millennials Boomers 28.0% 27.0% 27.7% 26.1% 20.9% 21.7% 18.0% 19.7% 5.4% 5.5% <19 Years Old Years Old Years Old Years Old >75 Years Old Source: US Census/American FactFinder. Data shown for the state of Louisiana. 16

18 Mortgage Rate (%) 30-Year vs. 15-Year Mortgage Rates Year (left) Year (left) Rate Spread (bps) Year Rate Spread (bps, right) Source: Federal Reserve Bank of St. Louis 17

19 Rate (%) Effective Fed Funds Rate Source: Federal Reserve Bank of St. Louis, FOMC 18

20 March 2016 FOMC Dot Plot and Projection Inflation Source: March 2016 FOMC SEP 19

21 Employment

22 Unemployment Rate Global Financial Crisis 8 Hurricane Katrina 8% U.S. 6 Louisiana 6% 4 2% 2 0 Mar Sep Mar Sep Mar Sep Mar Sep Mar Sep Mar Sep Mar Sep Mar Sep Mar Sep Mar Sep Mar Sep Mar Sep Mar Sep Mar Sep Mar Sep Mar Sep Louisiana Source: BLS. Seasonally-adjusted. US 21

23 Comparison: Peak State Unemployment in 4Q 2010 v 4Q 2015 December 2010 December % Source: BLS. Table numbers seasonally adjusted. Dec-10 Dec-15 Chg Louisiana Arkansas Mississippi New Mexico Texas US

24 State Unemployment Rates December 2015 U.S. = 5.0% LA Source: BLS. Seasonally-adjusted. 23

25 Unemployment Rates December 2015 U.S. = 5.0% 1.1% 0.8% Source: BLS. Table numbers seasonally adjusted. Compared Dec-15 with US Louisiana Arkansas Mississippi New Mexico 6.8 Dec Compared 1.8 with 1.6US.. Texas Louisiana US Arkansas Mississippi New Mexico Texas US

26 Unemployment Rates December 2015 U.S. = 5.0% 1.1% 0.8% 0.3% AR TX 0.4% Source: BLS. Table numbers seasonally adjusted. Compared Louisiana Dec-15 Dec Compared with US with 0.8US.. Arkansas Louisiana Mississippi Arkansas New Mississippi Mexico Texas New Mexico US Texas US % 25 MS

27 State Unemployment Rates 12-Month Change, December 2015 LA Source: BLS. Seasonally-adjusted. 26

28 State Unemployment Rates by County 12-Month Change, December % Source: BLS. Table numbers seasonally adjusted. Dec-14 Dec-15 Chg Louisiana Arkansas Mississippi New Mexico Dec Dec Chg 0.2 Texas Louisiana US Arkansas Mississippi New Mexico Texas US

29 Employment Change in Natural Resources and Mining Source: BLS 28

30 Oil and Gas Extraction & Employment Highest Employment Concentration Oil & Gas Extraction Industry Significant Shale Plays in Louisiana & Surrounding States Note: Does not include all shale plays such as Tuscaloosa (LA) & Barnett (TX) Source: BLS, US Census, EIA 29

31 State Unemployment Rates by County 12-Month Change, December % 0.9% AR TX 0.1% Source: BLS. Table numbers seasonally adjusted. Dec-14 Dec-15 Chg Louisiana Dec Dec Chg Arkansas Louisiana Mississippi Arkansas New Mississippi Mexico Texas New Mexico US Texas US % 30 MS

32 Commodities 31

33 Louisiana Oil & Gas Wells Gas Wells Oil Wells North Louisiana South Louisiana Source: U.S. Energy Information Administration (EIA) 32

34 Louisiana Oil & Gas Natural Gas Selected Petroleum LNG Import/Export Terminals Source: EIA 33

35 Rig Count Louisiana Rig Count Offshore, South LA Offshore, South LA Inland Water, South LA Land, South LA Land, North LA Land, North LA Source: Baker Hughes 34

36 Rig Count Significant Regional Shale Plays Rig Count Permian (TX & NM) 200 Haynesville (LA, AR & TX) Eagle Ford (TX) Source: EIA 35

37 Total Production Thousand barrels/day Mcf/day Production per Rig bbl/d Mcf/d Significant Regional Shale Plays Production Crude 6,000 Natural Gas 900 Eagle Ford Permian Haynesville ,000 Haynesville 4,000 3,000 2,000 Eagle Ford 1,000 Permian ,500 12,000 2,000 1,500 Permian 10,000 8,000 Haynesville 1,000 Eagle Ford 6,000 4,000 Permian Source: EIA Haynesville Eagle Ford 2,

38 Jan-07 Oct-07 Jul-08 Apr-09 Jan-10 Oct-10 Jul-11 Apr-12 Jan-13 Oct-13 Jul-14 Apr-15 Jan-16 USD/MMBtu Natural Gas and West Texas Intermediate (WTI) Prices $16 Natural Gas (NG1) $160 West Texas Intermediate (WTI) $12 $120 $8 $80 $4 $40 $ $- Source: Bloomberg WTI (price/barrel, left axis) 37

39 WTI versus U.S. Dollar (2005 Current) WTI (CL1) U.S. Dollar (DXY) 38

40 What do you think the price of oil will be in one year? Less than $30 per Barrel $30 - $45 per Barrel $45 - $60 per Barrel Greater than $60 per Barrel $160 $120 $80 $40? $0 Jan-07 Oct-07 Jul-08 Apr-09 Jan-10 Oct-10 Jul-11 Apr-12 Jan-13 Oct-13 Jul-14 Apr-15 Jan-16 Source: Baker Hughes, Bloomberg, EIA WTI (price/barrel, left axis) 39

41 EIA expects WTI prices to remain below $40/barrel until mid-2017 but the market-implied confidence band is wide Source: EIA 40

42 Louisiana s Top Seven Agricultural Commodities Louisiana Arkansas Mississippi Texas Soybeans Broilers Corn Rice (8th) (15th) Cane for Sugar Cattle & Calves All other animals and products (15th) (17th) (12th) Louisiana s top seven comprise 84% of total agricultural commodity receipts, and bordering states also specialize in these. Source: USDA, Top cash receipt by state,

43 USD/bu USD/cwt Stronger USD Weaker USD Selected Commodity Prices $1,800 $20 60 Soybeans $1,500 $15 Rice 70 $1, $900 $10 $600 Corn 90 $300 $5 USD (right axis) 100 $0 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Source: Bloomberg $0 Jan-12 Jan-13 Jan-14 Jan-15 Jan

44 Commercial Banking Trends

45 Commercial Banks Chartered in Louisiana and Adjacent States Commercial Banks (count) Size LA AR MS TX $0MM~$1B $1B~$5B $5B~$20B >$20BN 1 3 Grand Total Commercial Banks Total Assets (in $B) Size LA AR MS NM TX $0MM~$1B $1B~$5B $5B~$20B >$20BN Grand Total ($B) $ 65.7 $ 75.0 $ 83.3 $ 13.4 $ Source: Call report data from SNL 44

46 $ Billions Louisiana Commercial Bank Assets Continued to Grow Total Assets Compounded Annual Asset Growth Rate $700 12% LA, 11.9% $600 10% AR, 9.8% $500 8% TX, 8.8% $400 $300 $200 TX MS 6% 4% U.S. Commercial Banks, 5.1% MS, 4.5% $100 AR 2% $ LA 0% MS total assets include Whitney CAGR compounded annual growth rate for bank assets using 2005 as the base year for calculation. Source: Call report data from SNL 45

47 Commercial Banking Trends: Loans

48 $ Billions Commercial Banks Loan Growth $400 Total Loans and Leases Growth 16% Loans and Leases Compounded Annual Growth Rate $350 14% LA, 13.6% $300 12% $250 10% AR, 9.7% $200 $150 $100 $50 TX MS AR 8% 6% 4% 2% TX, 8.5% MS, 4.9% U.S., 4.6% $ LA 0% CAGR compounded annual growth rate for bank assets using 2005 as the base year for calculation. Source: Call report data from SNL 47

49 $ Billions $ Billions Louisiana Commercial Banks Loans and Leases $50 $40 $30 $20 $10 $- Louisiana Commercial Banks Total Loans and Leases CAGR: 13.6% Louisiana Total Loans and Leases by Asset Size Group $20 CAGR: 7.1% CAGR: 20.0% CAGR: 22.3% $15 $10 $5 $ $0MM~$1B $1B~$5B $5B~$20B CAGR of total loans and leases for all US commercial banks with assets less than $1B was 6%, $1B-$5B was 8.7%, $5B-$20B was 8.4% and for commercial banks with assets greater than $20B was 8.4%. CAGR compounded annual growth rate for bank assets using 2005 as the base year for calculation. Source: Call report data from SNL LA 48

50 Loan Composition of Louisiana versus U.S. Commercial Banks 7.9% 6.4% 6.9% Ag Multifamily Consumer 3.2% 1.1% 3.0% 4.7% Other Construction 6.5% 3.2% 9.2% 17.0% C&I 22.2% US, 71% 24.2% 24.5% 1-4 Family LA, 77% CRE 29.6% 30.3% US Commercial Banks Assets < $20B Louisiana Source: Call report data from SNL 49

51 CAGR % CAGR % $ Billions CAGR % Louisiana Commercial Banks Loan Trends by Type $40 $35 $30 $25 $20 $15 $10 $5 Louisiana Loan Composition Commercial and Industrial (C&I) 1-4 Family Loans Commercial Real Estate (CRE) $ % 12% 8% 4% 0% Commercial and Industrial (C&I) Louisiana, 16.1% US < $20BN, 8.4% % Commercial Real Estate Loans Louisiana, 14.8% 16% 1-4 Family Mortgage Loans 12% 12% Louisiana, 11.8% 8% 4% US < $20B, 10.0% 8% 4% US <$20B, 7.0% 0% 0% Source: Call report data from SNL, U.S. Bank metrics are for institutions with less than $20 billion in assets. 50

52 NPL to Loans % Commercial Banks Non-Performing Loans (NPL) to Loans Ratio NPL to Loans % NPL to Loans % 4% 3% 2% 1% 0% AR, 2.3% US, 1.7% MS, 1.7% LA, 1.5% TX, 0.9% % Louisiana By Asset Size 4% US by Asset Size 3% 2% $1B~$5B, 1.7% 3% 2% $0MM~$1B, 1.7% 1% $0MM~$1B, 1.5% 1% $1B~$5B, 1.4% 0% Non-Performing Loans (NPL) to Loans ratio Nonaccrual and restructured loans as a percent of total loans and leases. Excludes IBERIABANK Source: Call report data from SNL 0%

53 Commercial Banking Trends: Deposits

54 $ Billions Commercial Banks Total Deposits $500 Total Deposits 14% Deposits Compounded Annual Growth Rate (CAGR) $400 12% LA, 11.8% 10% AR, 9.7% $300 TX 8% TX, 9.1% $200 6% US, 6.5% $100 $- MS AR LA % 2% 0% MS, 4.7% CAGR compounded annual growth rate for bank assets using 2005 as the base year for calculation. Source: Call report data from SNL 53

55 $ Billions $ Billions Louisiana Commercial Banks Deposits $60 Louisiana Commercial Banks Total Deposits CAGR: 11.8% $40 $20 $ $25 $20 $15 $10 $5 $- Louisiana Deposits by Asset Size Group CAGR: 6.0% CAGR: 17.9% CAGR: 22.0% $0MM~$1B $1B~$5B $5B~$20B LA CAGR of deposits for all US commercial banks with assets less than $1B was 6.1%, $1B-$5B was 9.3%, $5B-$20B was 10.6% and for commercial banks with assets greater than $20B was 10.1%. Source: Call report data from SNL 54

56 Loan to Deposit Ratio % Commercial Banks Loan to Deposit 90% 85% 80% 75% 70% 65% 60% US, 75.2% AR, 72.9% LA, 72.5% MS, 70.4% TX, 63.8% 55% 50% Source: Call report data from SNL 55

57 $ Millions $ Millions $ Millions Commercial Banks Net Income $1,000 CAGR: 12.3% CAGR: 10.2% CAGR: 2.5% $5,000 CAGR: 5.7% $750 $4,000 $500 $250 $3,000 $2,000 CAGR: $1, % $ LA AR MS NM $- TX 15 Louisiana Net Income by Asset Size Group $350 $300 $250 $200 $150 $100 $50 $- CAGR: 7% CAGR: 22.1% CAGR: 19.3% $0MM~$1B $1B~$5B $5B~$20B CAGR of net income for all US commercial banks with assets less than $1B was 4.2%, $1B-$5B was 6.0%, $5B-$20B was 7.7% and for commercial banks with assets greater than $20B was 6.74%. CAGR compounded annual growth rate for bank assets using 2005 as the base year for calculation. 56 * $5B ~ $20B represents income from IBERIABANK; spike was performance from 2009 Source: Call report data from SNL LA

58 Commercial Banking Trends: Performance

59 ROAE % NIM % ROAA % Commercial Banks Net Interest Margin (NIM), ROAA, ROAE 5.0% Net Interest Margin (NIM) ROAA% TX, 1.21 LA, 1.10 US, 1.12 AR, 0.97 MS, % % LA, 4.0% AR, 3.9% MS, 3.9% ROAE % US, 3.7% % TX, 3.6% 10 5 LA, TX, 9.90 US, 8.74 MS, 8.42 AR, % Source: Call report data from SNL

60 Commercial Banks Yield on Loans & Cost of Funds 9.0% Yield on Loans 9.0% Cost of Funds 8.0% 8.0% 7.0% 6.0% 5.0% 4.0% LA, 5.8% TX, 5.7% AR, 5.6% MS, 5.6% US, 5.3% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 3.0% 2.0% 1.0% AR 0.50% LA 0.42% MS 0.41% TX 0.34% US 0.45% 0.0% % Source: Call report data from SNL 59

61 More Efficient Less Efficient Efficiency Ratio % Commercial Banks Efficiency 74% 72% 70% 68% 66% MS, 70.7% US, 69.3% AR, 69.0% LA, 67.9% TX, 67.1% 64% 62% 60% Efficiency Ratio: Noninterest expense, less amortization of intangible assets, divided by net interest income on a fully taxable equivalent basis and noninterest income. Source: Call report data from SNL 60

62 Risk Based Capital 17% 16% 15% 14% 13% TX, 14.32% AR, 14.30% US, 13.98% LA, 13.79% MS, 13.35% 12% Aggregates include currently defunct, merged or institutions that moved out of state. Source: Call report data from SNL 61

63 Thrift Trends Savings Banks and Saving and Loan Associations

64 Thrifts Chartered in Louisiana and Adjacent States Thrifts (Count) Asset Size LA AR MS TX $0MM~$1B $1B~$5B 3 > $5B 1 Grand Total Thrifts Total Assets (in $B) Asset Size LA AR MS TX $0MM~$1B $1B~$5B 6.32 > $5B Grand Total $ 4.16 $ 0.08 $ 0.50 $ Thrift refers to Savings Banks and Savings and Loan Associations. Source: Call report data from SNL 63

65 $ Billions CAGR % Louisiana Thrift Assets $5 Total Assets Thrifts Assets < $1B 3.5% Compounded Annual Asset Growth Rate Thrifts Assets < $1B US, 3.1% $4 3.0% 2.5% LA, 2.6% $3 2.0% $2 1.5% $1 Louisiana $ % 0.5% 0.0% -0.5% CAGR compounded annual growth rate for bank assets using 2005 as the base year for calculation. Source: Call report data from SNL 64

66 $ Billions CAGR % Thrifts Loans $4 Total Loans Thrifts Assets < $1B 5% Thrifts Loans Growth Assets < $1B LA, 4.9% $3 4% US, 3.3% US Assets <$1B, 3.3% $2 3% 2% $1 Louisiana $ % 0% Loan Composition 19.9% 5.6% 5.1% Consumer Other C&I Multifamily Construction CRE 5.0% 10.8% 20.9% 58.0% 1-4 Family 57.0% US Thrifts Assets < $1B LA Source: Call report data from SNL Loan Category US Thrifts Louisiana Difference 1-4 Family 58.0% 57.0% -1% CRE 0.6% 20.9% 20% Construction 5.1% 10.8% 6% C&I 5.6% 5.0% -1% Consumer 19.9% 2.9% -17% Multifamily 5.6% 2.2% -3% Other 5.13% 1.13% -4% Total 100.0% 100.0% 0% 65

67 Loan to Deposit Ratio % $ Billions CAGR % Thrifts Total Deposits and Loan to Deposit Ratio $4 $3 Deposits Thrift Assets <$1B 4% 4% 3% Thrifts Deposits Growth Assets <$1B US, 3.4% $2 3% 2% LA, 2.5% $1 Louisiana $ % 1% 1% 0% -1% Average Loan to Deposit Ratio 100 LA, US, 83 US Assets < $B, ,015 CAGR compounded annual growth rate for bank assets using 2005 as the base year for calculation. Source: Call report data from SNL 66

68 $ Millions CAGR % Thrifts Net Income $30 Net Income 10% Net Income Growth Assets <$1B LA, 7.6% $25 5% US, Assets < 3.3% $B, $20 $15 0% % $10 $5 Louisiana $ % -15% Source: Call report data from SNL 67

69 Thrifts NIM, ROAA, ROAE, Efficiency 4% ROAA % 8% ROAE % 3% 6% US, 5.3% US Assets < $B, 5.3% 2% US, 1.4% US Assets < $B, 1.4% 4% LA, 5.1% 1% LA, 0.7% 2% 0% % % 4% Net Interest Margin % LA, 3.7% 100% 80% Efficiency Ratio % US, 82.3% US Assets < $B, 82.3% 3% US, 3.3% 60% LA, 76.7% 2% 40% 1% 20% 0% Source: Call report data from SNL 0%

70 Thrifts Yield, Cost of Funds, and Risk Based Capital 8% Yield on Loans and Leases % 8% Cost of Funds % 6% 4% LA, 5.5% US, 4.8% 6% 4% 2% 0% 2% % 40% 30% 20% Risk Based Capital % LA, 33.2% US, 30.0% LA, 0.8% US, 0.7% 10% 0% Source: Call report data from SNL

71 FHLB Dallas Products Summary

72 FHLB Dallas Product Matrix Advances CIP/EDP Letters of Credit Products Community Investment Products AHP SNAP, HAVEN HELP MPF FHLB Dallas has a range of products that helps member financial institutions improve their liquidity position, risk management, and social goals. 71

73 FHLB Dallas Advance Offerings Can Be Customized Strategies Enhance liquidity Fund growth and/or seasonal needs Assist in asset/liability management Matched-funding Plug maturity gaps Manage interest rate risk Support community investment initiatives Other Bullet Amortizing Principal FHLB Advances Fixed-Term Callable Overnight to 30yr Term Rate Fixed Floating Structured FHLB DN LIBOR Advances can be structured with other options and/or features (prepay, caps, callable, swaps, etc.) 72

74 Balance ($) Selected FHLB Dallas Advance Products & Strategies Symmetrical Prepayment Advance Fee Credit Provides flexibility and potential benefits when prepaying advances in a rising rate environment Ability to prepay below par and earn credit Fixed-rate, fixed-term and amortizing Discount Note Floating Rate Advance Origination Date Prepay? Rates No change Rates Rate Reset Dates (+13 Weeks) Prepay? Maturity Date Floating Rate Advance linked to FHLB Discount Notes Primary rate resets: 8-week, 13-week, 26-week Maturity 1 10 years Ability to prepay without fee on each reset date with 2 business days advance notice Forward-Starting Advance Lock in a rate today for an advance that settles in the future Prepare for deposit outflows due to increasing rates Replace brokered CD funds with more competitively priced Bank funds Prepare for loan growth Expander Advance $ Expander Option Date Expanded Advance Time Maturity Lock-in access to future funding at today s rate Replace higher cost funding or deposit runoff, or fund future loan growth Ability to exercise the expander option in whole or in part, but may not exceed the expander amount Fixed-rate, fixed-term non-amortizing; minimum of $1 million; terms: 1 10 years Laddered Funding Strategy Amortizing vs. Laddering Maturity (in Years) Create a virtual amortizing structure by originating a series of small advances with different maturities Ability to secure long-term liquidity while mitigating interest rate risk by creating decision points at each advance maturity Simple to originate, structure, and manage Provides the ability to protect spreads, profitability, and competitiveness Capped Floating Rate, Non-Amortizing Advance R a t e s Enhanced NIM Capped Advance Better manage interest rate risk and control funding costs in a rising rate environment Manage the re-pricing and basis risk of a loan or investment portfolio with a cap tied to 1- or 3-month LIBOR 73

75 FHLB Dallas Direct Standby Letter of Credit (LOC) FHLB LOCs Provide Benefits to Members and Public Unit Depositors FHLB Dallas Submit Letter of Credit Application Member Bank Deposit Public Unit Funds Beneficiary (Public Unit Depositor) LOCs as Collateral Issue Letter of Credit Benefits to Public Unit Depositors: Low cost and easy to manage Values are fixed and defined, not subject to fluctuations Transform illiquid assets to a source of liquidity (Use blanket lien or loan collateral to collateralize public unit deposits) Payment on presentment without court action Fixed and defined values High credit quality (Aaa / AA+) FHLB Dallas LOCs provide a low-cost, easily manageable method of securing public unit deposits without the administrative cost of pledged securities. 74

76 Mortgage Partnership Finance Program In 1997, the Mortgage Partnership Finance (MPF ) Program was created as an alternative to traditional GSE mortgage purchase and securitization programs 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 9 of 11 FHLBanks participate in the MPF Program As the MPF Provider, FHLB Chicago provides administrative and operational support for participating FHLBanks and Members Fund 15- to 30-year conventional conforming and government-guaranteed fixed-rate mortgage loans secured by owner-occupied 1-4 family residential and single family 2 nd homes no ARMs Loans credit-enhanced to double-a equivalent Participating Financial Institutions (PFIs) originate, close, sell and/or, if desired, service fixed-rate residential mortgage loans The FHLBank manages the liquidity, interest rate and pre-payment risks of the loans while the PFI manages the credit risk of the loans Traditional risk sharing products require the PFI to share the credit risk associated with the residential mortgage loans with its FHLBank Source: FHLB Office of Finance and 75

77 Product Benefits for the Member Best Execution Pricing Relinquish Unwanted Risks Access best execution pricing from FHLB Note rate ranges and extensions give Member flexibility Lock loans online via empf or call the Helpdesk Best Execution Pricing Relinquish Unwanted Risks Selling under MPF efficiently transfers: Interest rate risk Prepayment risk Dedicated Helpdesk for Members Fund Loans More Quickly and Easily Choose funding date online via empf Receive funds the next day Send the custody documents in one week Fund Loans More Quickly and Easily Retain Relationships and Processes Retain Relationships and Processes Member controls the opento-close file flow: Member underwrites, funds, and closes each loan on own terms Option to keep or release the servicing rights Member chooses how to manage borrower relationships 76

78 Questions? 77

79 Primary Contacts Thank you Zimri Hunt Director Member Solutions (214) * Member Services Desk 844.FHL.BANK Kevin Kogucz Senior Sales Manager (214) * Russ Guess Sales Manager (214) * * Or toll-free at 844.FHL.BANK 78

80 Appendix: Selected Advances Products & Strategies

81 Symmetrical Prepayment Advance Value of Advance Borrowing for the Member Increases Rates Decrease Prepay credit Rates Increase Prepay fee Decreases The Symmetrical Prepayment feature provides flexibility and potential benefits when advances are prepaid in a rising-rate environment, and only costs one extra basis point in the borrowing rate. 80

82 Why have the Symmetrical Prepayment feature? Liquidity and flexibility Example: Deposit run-off is slower than scenario; unwind advances at a profit Cost-effective Good feature to have in a rising-rate environment Structure Fixed-rate, Fixed-term or Principal Amortizing Maturity Terms: 1 10 years Minimum Size: $1 million The Symmetrical Prepayment feature provides flexibility and potential benefits when prepaying advances in a rising rate environment. 81

83 Discount Notes (DN)-Linked Advance Structure principal payments down as and when needed Principal FHLB ADVANCES Call the borrowing partially or fully on any reset date Term Rate DN: A market based rate which is historically lower than LIBOR Prepay? Prepay? Origination Date Rate Reset Dates (+13 Weeks) Maturity Date 82

84 Discount Note Floating Rate Advance Structures 8 Week 13 Week 26 Week Rate Resets Every 8 Weeks Every 13 Weeks Every 26 Weeks Maturity Terms 1 to 10 years Minimum Initial Transaction Size None Settlement One day following the origination Availability Prepayments without Fee Contact Member Services at FHL.BANK by 9:30 a.m. CT, Tuesdays and Thursdays* Full or partial prepay on each reset day with at least 2 business days advance notice *If a holiday falls on a Tuesday or Thursday, FHLBanks Office of Finance discount note auctions are typically held on the preceding business day in which funding requests will be accepted. Also, if an auction does not occur or discount notes are not issued on any given determination date, the auction rate for that date will be the estimated rate at which the Bank could have issued such discount notes as calculated by the Bank in its sole discretion. 83

85 Forward-Starting Advance Originate Advance (Lock-in Rate) Settle Advance (Funds Dispersed) Forward-Starting Advance Advance Matures (Pay Off Advance) Prepare for future deposit outflows due to increasing rates Replace brokered CD funds with more competitively priced FHLB Dallas funds Prepare for loan growth Match-fund and hedge against future rate increases Manage the impact of rising rate scenarios on net interest margin Lock-in value in an historically low-rate and a flat-yield curve environment Lock-in rates today to renew future maturing advances Structure: Fixed-rate, fixed-term and principal-amortizing (PRAM); settlement available for up to 3 years; no minimum size up to 10 years, $5 million minimum when a) terms beyond 10 years b) includes symmetrical prepayment feature Take advantage of the current low-interest rate environment by locking in a rate today for an advance that settles in the future. 84

86 Expander Advance Lock-in access to future funding at today s rate Ability to exercise the expander option in whole or in part of the expander amount Structure: Fixed-rate, fixed-term nonamortizing, minimum size: $1 million, maturity terms: 1 Year 10 Years Replace higher cost funding or deposit runoff Fund future loan growth or mortgage extension Support interest rate risk management strategies Same Rate $ Expander Option Original Advance Expander Option Date (3 Months 5 Years) Maturity (1 10 Years) 85

87 Balance ($) Laddered Advance Funding Strategy Manage risk of a fixed-rate loan portfolio in a rising-rate environment using Laddered advances strategy. How it works Create a virtual amortizing structure by originating a series of small advances with different maturities Ability to secure long-term liquidity while mitigating interest rate risk by creating decision points at each advance maturity Principal and interest due at maturity Optional prepayment Benefits Simple to originate, structure, and manage Provides the ability to protect spreads, profitability, and competitiveness Align liability and risk appetites Laddering Advances Long Term Advance Maturity (in Years) 86

88 Funding for Expected Prepay Environment Mortgages have both amortization and prepayments driving the outstanding balances Funding for the Base Case Prepay Environment Funding for the Faster Prepay Environment Funding for the Slower Prepay Environment We need to make a choice of prepayment profile to use laddered funding 87

89 Funding for Base and Lower Prepay Environment Outstanding Balance $ Time If the prepayment profile is slower, then 88

90 Funding for Base and Lower Prepay Environment Outstanding Balance $100 Expander 2 5 Time Use the option to expand the outstanding balance of the Expander advance 89