LETTERS OF CREDIT. Standing Behind Member Obligations

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1 LETTERS OF CREDIT Standing Behind Member Obligations

2 Letters of Credit Federal Home Loan Bank of Pittsburgh s (FHLBank) Standby Letter of Credit (LC) products offer a number of useful business solutions to member financial institutions. LCs are issued to a third-party beneficiary on a member s behalf to function as an independent guarantee of the member s obligation. LCs require the same collateral as that applicable to advances and qualify for activity-based capital stock dividends, reducing all-in cost. Members use LCs to: Support or obtain public unit deposits Support their payment obligations to third parties Provide credit enhancements FHLBank is not permitted to issue commercial LCs or LCs to foreign beneficiaries. LCs serve to mitigate risk to beneficiaries, lower bondrelated financing costs and enable member involvement in community projects.

3 LC Options LCs to Secure Public Unit Deposits Particularly beneficial for accounts exceeding Federal Deposit Insurance Corporation (FDIC) insurance levels, these standby LCs are a unique offering of an FHLBank. Individual state laws permit the use of FHLBank LCs to secure public funds held by municipalities, school districts and other public depositors. Members seeking to garner public deposit accounts can do so with attractive pricing when considering the all-in cost including activity-based capital stock dividends. To be sure that a customer and its deposits meet the Federal Deposit Insurance Corporation s (FDIC s) definitions of a public unit, please visit deposit/deposits/factsheet.html. Only an FHLBank can issue LCs to secure public unit deposits. They are accepted in 47 states, including Delaware, Pennsylvania, West Virginia, the District of Columbia and the U.S. Virgin Islands. Member Public Unit Deposits FDIC Insurance Coverage up to $250,000 Request for Letter of Credit Beneficiary (Depositor) Letter of Credit To access a customizable flier that supports member conversations with public unit customers and prospects, visit Products-Letters of Credit.

4 As a bank that doesn t hold much in the way of unencumbered investment securities, we used FHLBank s Letter of Credit products to reach a deposit segment that we otherwise wouldn t have been able to reach. Using them is a cost effective, effortless process that is much more efficient than pledging investment securities for both the bank and the public funds entity. Confirming LCs Chad R. Wheeler, Treasurer, Senior Vice President Customers Bank To support an LC issued by a member, a confirming LC functions as a secondpay arrangement. In the unlikely event that a member fails to make payment under the member s LC, the beneficiary may demand payment under the FHLBank confirming LC. These may be used to enhance the creditworthiness of certain transactions such as assisted housing bonds, state housing finance bonds, and taxable industrial economic development bonds and insurance premiums. Confirming LCs can be valuable tools to support a member s community investment activities, including: Community and economic development projects Affordable housing projects Direct Pay LCs A direct pay LC is a primary mechanism (without regard to default) for satisfying an applicant s payment obligations over a period of time. For example, it may be used for making payment of principal and interest on commercial paper, medium-term notes and municipal bonds, where the beneficiary requires the payment source to carry a high-quality credit rating with a low degree of risk.

5 LC Benefits Safety Efficiency Ease of Use Community Involvement Flexibility Guarantees payment to third-party beneficiaries as an irrevocable, independent obligation of FHLBank Delivers access to FHLBank s Aaa/AA+ credit rating (Moody s/s&p) Enhances bond-related transactions (e.g., taxable industrial economic development bonds, municipal bonds, commercial paper) Facilitates quick response to opportunities with same-day issuance Using LCs in place of eligible securities specifically for public unit deposits: Unencumbers marketable securities and increases available liquidity Optimizes use of less-liquid loan collateral Provides stability since LC values do not fluctuate with changing market conditions Saves time and expense previously spent selecting, monitoring and preparing reports for eligible securities Is accessed online via Bank4Banks Is renewable automatically with an evergreen clause Uses currently pledged collateral Increases opportunities to invest directly in local, community-based projects Supports affordable housing Helps to potentially meet Community Reinvestment Act (CRA) requirements Includes terms ranging from one day to 20 years Allows single or multiple beneficiaries* Offers fluctuating balance options that keep pace with public unit deposit accounts

6 Offerings FHLBank Pittsburgh offers a broad range of programs, products and services to meet member needs, including: Community Investment Programs Correspondent Services Credit Products Mortgage Partnership Finance (MPF ) Program Bank4Banks 601 Grant Street Pittsburgh, PA All rights reserved. LC *Requires a trust agreement Disclaimer: LCs issued by FHLBank Pittsburgh are governed by various agreements between FHLBank Pittsburgh and its members, as well as certain policies and regulations, which will, in all cases, be determinative. Bank4Banks is a registered trademark of FHLBank Pittsburgh. Mortgage Partnership Finance and MPF are registered trademarks of the Federal Home Loan Bank of Chicago.