2015 Member Conference

Transcription

1 2015 Member Conference Make the Loans Your Customers Want Brad Spears, VP/Director, Member Solutions Federal Home Loan Bank of Des Moines

2 AGENDA Who is FHLB Des Moines? How can FHLB Des Moines help you? Make loans your customers want! FHLB DES MOINES 2

3 Who is FHLB Des Moines? FHLB DES MOINES 3

4 WHO IS FHLB DES MOINES? The FHLBank System FHLB DES MOINES 4

5 WHO IS FHLB DES MOINES? FHLB Des Moines Congressionallychartered, privatelyowned, wholesale bank a cooperative Regulated by the Federal Housing Finance Agency Membership composed of commercial banks, savings institutions, credit unions, insurance companies and CDFIs 5

6 WHO IS FHLB DES MOINES? The Vision of The Bank The vision of the Federal Home Loan Bank of Des Moines is to be the preferred financial provider of our members in meeting the housing and economic development needs of the communities we serve together. FHLB DES MOINES 6

7 WHO IS FHLB DES MOINES? FHLB Des Moines Member-owned Cooperative Provides funding solutions and liquidity to 1,500 members Members include banks, credit unions, insurance companies, thrifts and community development financial institutions Supports mortgage lending, economic development and affordable housing FHLB DES MOINES 7

8 WHO IS FHLB DES MOINES? FHLB Des Moines Results Type Quarter Ending 6/30/15 ($ Millions) Assets 118,758 Advances 68,181 Mortgages (net) 7,029 Investments 42,754 Retained Earnings 726 Total Capital 4,985 Net Income 21.0 NIM 0.30% 8

9 WHO IS FHLB DES MOINES? FHLB Des Moines Dividend Rate As of June 30, % 4.00% 3.50% 4.00% 3.50% 3.50% 3.50% 3.50% 3.50% 3.50% 3.50% 3.50% 3.50% 3.50% 3.50% 3.50% 3.50% 3.00% 2.50% 2.00% 1.50% Activity Stock Dividend Membership Stock Dividend 1.00% 0.50% 0.50%0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.00% 1Q Q Q Q Q Q Q Q Q Q Q Q Q Q 2015 Activity Stock Div Membership Stock Div Avg 3 Mth LIBOR Avg Fed Funds Rate 9

10 WHO IS FHLB DES MOINES? How The Money Flows FHLB DES MOINES 10

11 WHO IS FHLB DES MOINES? Partnership Retail Institution You work with your local customers Community is most important part of community financial institutions Cornerstone of strong local community Vital to health of nations economy Consultant, optimist and sounding board You have gained trust of your customers Wholesale Cooperative FHLB Des Moines works with our members Partner to help with your asset/liability mix Respond to your needs for liquidity Preserve community institutions by providing access to global markets We are always working hard to retain your trust and confidence FHLB DES MOINES 11

12 WHO IS FHLB DES MOINES? How? Advances are FHLBank s core business Issue Letters of Credit (LOC) Purchase single-family mortgage loans from members Provide subsidies for affordable housing Offer low-cost funding for community development and affordable housing FHLB DES MOINES 12

13 WHO IS FHLB DES MOINES? How Members Use FHLB Des Moines Liquidity Management Just-in-time funding Re-allocate lower yielding assets Interest Rate Risk Management Control asset/liability mismatches Balance sheet (macro) funding Transaction (match) funding Maintain Profitability and Safety Capital Management Increase capital efficiency Allow capital to determine assets size, not deposits Increase net income/return to ownership (dividends) FHLB DES MOINES 13

14 WHO IS FHLB DES MOINES? Access to FHLB Des Moines is Critical Local economies need a stable source of credit to support job creation and enable stable housing markets Community institutions are financing engines for local economies FHLB Des Moines advances were a critical component of member bank funding for new loans during the credit crunch FHLB DES MOINES 14

15 How Can FHLB Des Moines Help You? FHLB DES MOINES 15

16 HOW CAN FHLB DES MOINES HELP YOU? Advance Products Overnight Advances Short-term Fixed-rate Advances Long-term Fixed-rate Advances Amortizing Advances Member Option Fixed-rate Advances (MOFR) Member Option Variable-rate Advances (MOVR) Convertible Advances (FHLB Des Moines Owned Option) LIBOR Indexed Advances Capped LIBOR Advances Prime Rate Advances Forward Starting Fixed-rate Advances Advance Restructuring Symmetrical Prepayment Feature FHLB DES MOINES 16

17 HOW CAN FHLB DES MOINES HELP YOU? Fixed-Rate Advances Competitively priced alternative to retail time deposits Can be used to match fund a specific asset or pool of assets Allows member to structure advances that are difficult to replicate through retail customer base Can be used to fund investment strategies Terms from 1 to 30 years Minimum advance size $100,000 Eligible for Community Investment Advance (CIA) discounts Available with Symmetrical Prepayment Feature FHLB DES MOINES 17

18 HOW CAN FHLB DES MOINES HELP YOU? Amortizing Advances Maximum maturity 30 years/maximum amortization 30 years Member can choose final maturity, prepayment lockout date, amortization schedule and payment frequency Available with or without the option to prepay in whole or in part without a prepayment fee any time after the lockout Advances of $15 million or greater cannot have the option to prepay without a prepayment fee Minimum advance size $100,000 Eligible for CIA discounts Available with Symmetrical Prepayment Feature FHLB DES MOINES 18

19 HOW CAN FHLB DES MOINES HELP YOU? Forward Starting Fixed-Rate Advance Fixed-rate, fixed-term advances Member-selected forward starting date 30 days to 2 years with no upfront costs Up to 30 years maturity Mandatory advance settlement at the end of the forward starting period Termination/prepayment fees apply both before and after the advance settlement date FHLB DES MOINES 19

20 HOW CAN FHLB DES MOINES HELP YOU? Forward Starting Fixed-Rate Advance Protect against rising rates without adding immediate liquidity Fund loans with delayed disbursements Ex: construction loans No stock or collateral required until the advance settles Manage deposit runoff or uncertainty Replace future maturing FHLB Des Moines advances, brokered CDs or maturing term CDs FHLB DES MOINES 20

21 HOW CAN FHLB DES MOINES HELP YOU? Symmetrical Prepayment Advance Key Features $100,000 minimum advance size Available on advances from 1 to 30 years Available on fixed-rate, amortizing and forward-starting advances No cap on realized gains Potentially no prepayment fee if rates rise to a certain level from origination Negligible premium increase over standard advances FHLB DES MOINES 21

22 HOW CAN FHLB DES MOINES HELP YOU? Symmetrical Prepayment Advance Uses and Benefits Protect the value of a portfolio of long-term assets in a rising rate environment Hedge a mortgage-backed security or other optionable securities Offset losses on securities Achieve potential liability gains in certain rate environments FHLB DES MOINES 22

23 HOW CAN FHLB DES MOINES HELP YOU? 23

24 HOW CAN FHLB DES MOINES HELP YOU? Example of MVE Changes Resulting From Symmetrical Funding as a Hedging Tool Hedging and Funding Newly Originated 15-year Mortgages (Assuming Average Life of Five Years on a Hypothetical $15 million Portfolio) Market Value of Equity Impact ($000) 2,500 2,000 1,500 1, (500) (1,000) (1,500) (2,000) (2,500) Gain on Liability as Rates Rise Hedging the decline in value of the mortgage 15YR MTGE FIXED-RATE FUNDING COMBINED PORTFOLIO 24

25 HOW CAN FHLB DES MOINES HELP YOU? Delayed Amortizing Advance Key Features $100,000 minimum advance size Maximum term of 30 years Amortization delay up to 5 years Only interest is paid during the delay period Fully amortized Available with or without a prepayment option Level principal payments or level payment schedules available FHLB DES MOINES 25

26 HOW CAN FHLB DES MOINES HELP YOU? Delayed Amortizing Advance Uses and Benefits Tailor your funding channels to deliver the loan products your customers demand: Accommodate a front-end construction period Match the duration of an agricultural loan Finance a land or building purchase for an agricultural or commercial customer Control the timing of the cash flows and repayment of the advance. Access advance proceeds on settlement date, but delay principal for up to five years. FHLB DES MOINES 26

27 Make loans your customers want using the blended funding approach! FHLB DES MOINES 27

28 MAKE LOANS YOUR CUSTOMERS WANT Blended Funding Steps Understanding Your Deposit Base This is the largest funding component of your balance sheet - How sensitive are your NMDAs to changes in interest rates? Determining Your Asset Cash Flows Need to fund cashflows, not maturities 15 year loan IS NOT a 15-yr asset Average life of a 15-year loan is roughly 5-7 years Blending in Appropriate Advances Establish and protect spreads Coordinate with asset cashflows Complement your deposit base FHLB DES MOINES 28

29 MAKE LOANS YOUR CUSTOMERS WANT Blended Funding Steps Member provides the following information: 1. Asset Parameters: 1. Asset Amount 2. Note/Loan rate 3. Amortization schedule 4. Term/Balloon 5. Payment Type (monthly, annual, quarterly, semiannual) 6. Principal amortization delay (up to 5 years) 29

30 MAKE LOANS YOUR CUSTOMERS WANT Blended Funding Steps Member provides the following information: 2. Estimate of retail cost of funds over term of the asset (rate can be steadily increased over time) 3. Advance request 1. Term/Amortization schedule 2. Fixed/variable rate 3. Type of ladder (bullet, bullet and amortizing, amortizing only) 4. Advance options (lockouts, puts or calls) 5. Principal Amortization delay(up to 5 years) 6. Prepayment options (prepayment window duration) 30

31 MAKE LOANS YOUR CUSTOMERS WANT Blended Funding Solutions Your institution's VP/Member Solutions will generate scenarios based upon the information provided by the member Funding solutions could involve the use of longer-term fixed rate advances, amortizing advances or a combination of the two Member ultimately selects which funding solution to utilize Allows the member to graphically visualize the cash flow characteristics of the loan and advance structures 31

32 MAKE LOANS YOUR CUSTOMERS WANT Blended Funding Uses Make loans your customers want Evaluate funding scenarios Create funding solutions that meet your risk and return criteria Match fund a single loan or portfolio of loans Discuss scenarios in loan/credit committee meetings It takes just a few minutes for your VP/ Member Solutions to run the models! 32

33 MAKE LOANS YOUR CUSTOMERS WANT Disclaimer All new products/strategies should be evaluated within context of how they impact interest rate risk and your bank balance sheet You must be able to demonstrate that you have the resources, knowledge and experience to handle modeling and management of using such instruments FHLB DES MOINES 33

34 Making Loans your AG and Commercial RE Customers Want

35 MEMBER ISSUES AND SOLUTIONS Margins Compressing?? Holding excess liquidity overnight can result in a negative spread O/N rate=0.25% Average IBD COF =0.33% (Des Moines District 2Q 2015) This results in a negative spread of 8 basis points (bp) guaranteed!! For a 3.5% loan to produce this kind of negative spread, your IBD COF level would have to increase to 3.58% WHICH IS THE RISKIER STRATEGY?? 35

36 MEMBER ISSUES AND SOLUTIONS The Liquidity/IRR Dilemma Loans refinancing? Bonds being called? - Customers desiring long-term fixed rate loans? - Natural reluctance to redeploy funds at these low rates Pass on new loans, or sell them to secondary market? Hold Cash? Guaranteed loss today (to avoid future loss) This has been going on for six years and counting 36

37 MEMBER ISSUES AND SOLUTIONS The Liquidity/IRR Dilemma CNTD What about making and keeping the loans? Results in positive spread today, need to hedge for the future Must balance IRR exposure with spread needs The FHLB of Des Moines has the products, models and staff expertise to help you make the loans your customers want! 37

38 MEMBER ISSUES AND SOLUTIONS The Long-Term Loan Dilemma How do you compete with Farm Credit and other larger regional banks? How do you retain large AG and commercial RE loans when competition is so fierce? The FHLB Des Moines Solutions/Strategies group is on the case helping members finding solutions to their long-term loan dilemma!!! Let s look at retaining A-quality Agricultural and commercial loan customers 38

39 MEMBER ISSUES AND SOLUTIONS 39

40 MEMBER ISSUES AND SOLUTIONS

41 Making Loans your Mortgage Customers Want

42 MEMBER ISSUES AND SOLUTIONS? The Mortgage Dilemma Hold Them or Sell Them? What to do with non-qm loans to quality A credit customers? The FHLB Des Moines Solutions/Strategies group is on the case helping members finding solutions to their mortgage dilemma! Let s look at holding Residential Mortgages in Portfolio 42

43 MEMBER ISSUES AND SOLUTIONS FHLB DES MOINES 43

44 MEMBER ISSUES AND SOLUTIONS 1) How Many Loans Actually go to Maturity? 2) Where is Half the Original Principal Repaid on a 15yr Mtg Loan Pool? 0% PSA 9.3 yrs 100% PSA 6.5 yrs 200% PSA 4.8 yrs 300% PSA 3.8 yrs 400% PSA 3.3 yrs 500% PSA 2.9 yrs 600% PSA 2.7 yrs 700% PSA 2.4 yrs 800% PSA 2.3 yrs 900% PSA 2.2 yrs 1000% PSA 2 yrs 1,000, , ,000 Prepayment speeds usually fluctuate over the life of a loan pool. 400, , Higher Coupon Loans Typically Have More Volatile Prepayment Activity FHLB DES MOINES 44

45 MEMBER ISSUES AND SOLUTIONS FHLB DES MOINES 45

46 MEMBER ISSUES AND SOLUTIONS FHLB DES MOINES 46

47 MEMBER ISSUES AND SOLUTIONS

48 THANKS Brad Spears VP/Director,Member Solutions or