Connecticut Bankers Association
Edward A. Hjerpe III
President and Chief Executive Officer
November 14, 2014
Today’s Topics
 Third Quarter Financial Highlights
 FHLB Boston as Your Business Partner
 Legislative and Regulatory Issues
2
FHLB Boston Board of Directors Update
 FHLBBoston board of directors comprised of
• Member (industry) directors – nominated from and elected by
members in each individual state
• Independent directors – elected by the membership at large
 Connecticut representation today
• Martin Geitz, President and CEO, Simsbury Bank
• Joan Carty, President and CEO, Housing Development Fund
• Eric Chatman, President and Executive Director, CT Housing Finance
Authority
• Jay Malcynski, Managing Partner, Gaffney Bennett & Associates
3
FHLB Boston Board of Directors Update, continued
 Industry directorships allocated based upon a statutory formula driven by
advances outstanding in each state as of 12/31 the prior year
• Currently eight total seats; MA grandfathered with three seats
 Independent director seats must be at least 40% and less than 50% of
total board – currently seven seats
 Growth in advances to CT members in 2013 resulted in a second member
seat beginning in 2015
• Congratulations to Greg Shook
• Total industry seats will increase to nine
4
Third Quarter Financial Highlights
Third Quarter 2014 Financial Highlights: FHLBBoston
Q3 2014
Assets
$51.9 billion
Advances
$31.4 billion
Net Income Before OTTI Charges and AHP Assessment
$53.7 million
Credit-Related OTTI Losses
$(311 thousand)
Affordable Housing Program
$(5.5 million)
Net Income
$47.9 million
Dividend
1.49%
All third quarter results are preliminary and unaudited.
6
Year-End and Q3 2014 Financial Data
12/31/07
12/31/08
12/31/09
12/31/10
12/31/11
12/31/12
12/31/13
9/30/14
End Advances
$55.7B
$56.9B
$37.6B
$28.0B
$25.2B
$20.8B
$27.5B
$31.4B
Total Investments
$17.9B
$18.9B
$20.9B
$27.1B
$21.4B
$15.6B
$13.0B
$15.2B
Total Assets
$78.2B
$80.4B
$62.5B
$58.6B
$50.0B
$40.2B
$44.6B
$51.9B
End Capital Stock(1)
$3.2B
$3.7B
$3.7B
$3.8B
$3.9B
$3.7B
$3.5B
$2.8B
$(2.2)M
$(483.9)M(2)
$(1,021.6)M
$(638.1)M
$(534.4)M
$(476.6)M
$(481.5)M
$(440.5)M
End Retained Earnings
$225.9M
$329.4M(2)
$142.6M
$249.2M
$398.1M
$587.6M
$788.8M
$876.2M
Pre-assessment, Pre-OTTI Income
$270.0M
$265.9M
$257.3M
$229.8M
$265.6M
$237.4M
$239.1M
$53.7M
N/A
$(32.6)M(2)
$(444.1)M
$(84.8)M
$(77.1)M
$(7.2)M
$(2.6)M
$(0.3)M
Period REFCorp Assessment
$(49.6)M
-
-
$(26.6)M
$(11.1)M
-
-
-
Period AHP Assessment
$(22.2)M
-
-
$(11.8)M
$(17.8)M
$(23.1)M
$(24.2)M
$(5.5)M
Period Net Income
$198.2M
$(115.8)M(3)
$(186.8)M
$106.6M
$159.6M
$207.1M
$212.3M
$47.9M
Period Return on Average Equity
6.96%
(3.17)%
(6.49)%
3.52%
4.73%
6.03%
7.4%
6.7%
End Regulatory Capital Ratio
4.37%
4.99%(2)
6.20%
6.83%
8.51%
10.59%
9.63%
6.80%
Market / Par Value of Stock
103%
48%
78%
94%
95%
108%
119%
130%
End AOCI
Period Credit Losses
(1)Includes
mandatorily redeemable capital stock classified as a liability.
cumulative effect of adopting FSP FAS 115-2 and FAS 124-2, January 1, 2009.
(3)Includes $349.1MM of noncredit losses, subsequently reclassified to AOCI upon adoption of FSPs. Excluding non-credit loss, pre-assessment net income would be $233.3MM
(2)Includes
7
Year-End and Q3 2014 Advances Balances
$60
55.7 56.9
$50
38.1
$40
37.6
37.3
31.4
In Billions
30.2
$30
28.0
26.9 26.1
22.5
27.5
25.2
24.4
21.6
20.8
$20
15.4
12.1
•
•
Q3
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
8.1
9.7
1996
8.5
1995
5.0
1993
5.3
1992
7.2
1991
1989
$0
1990
8.8
$10
1994
10.2
In 1989, FIRREA expanded FHLB charter, enabling commercial banks and credit unions to join
Median advances balance since FIRREA: $23.5 billion
8
FHLB Boston Partnership
with Connecticut Members
Q2 2014 Industry Performance Metrics
All FDIC-Insured Institutions
Based on 2Q 2014 Financials
US
NE
CT
ME
MA
% of Unprofitable Banks
6.6%
4.5%
8.9%
3.6%
% with YoY Earnings Gains
56%
48%
53%
Net Interest Margin
3.16%
2.33%
Return on Assets
1.04%
Equity Capital to Total Assets
NH
RI
VT
2.7%
5.0%*
10.0%
7.7%**
50%
43%
55%
70%
62%
3.25%
6.05%
1.79%
3.40%
3.09%
3.44%
0.74%
0.70%
0.77%
0.70%
0.56%
0.94%
0.76%
11.3%
10.1%
12.1%
10.0%
8.5%
10.9%
15.6%
10.0%
Net Charge-Offs to Total Loans
(YTD)
0.51%
0.15%
0.16%
0.85%
0.07%
0.19%
0.36%
0.13%
Non-Performing Assets to Total
Assets
1.40%
0.48%
0.99%
0.83%
0.24%
0.74%
1.02%
0.82%
71%
113%
75%
183%
120%
114%
99%
111%
Loan-Loss Allowance to NonCurrent Loans
Source: FDIC; * 1Q2014 (more recent data not yet available) ** 4Q2013 (more recent data not yet available)
10
FHLB Advances to Total Assets
All FDIC-Insured Institutions
12.00%
U.S.
Connecticut
10.00%
New England
8.00%
6.00%
4.00%
2.00%
0.00%
2012Q1
2012Q2
2012Q3
2012Q4
2013Q1
2013Q2
2013Q3
2013Q4
2014Q1
2014Q2
Note: Excludes State Street Corporation
Source: SNL
11
Member Business Activity Profile
 Members layering in long-term funding
• Nearly $2.5B disbursed in one- to seven-year maturities
• Specials and Dutch auctions most actively used
• Community Development advances also in high demand for economic
development such as small business lending
 Affordable Housing Program 2014 round underway
 Letters of Credit tapped primarily to collateralize municipal deposits
• $ 4.1 billion currently outstanding, $75 million with CT members
 Mortgage Partnership Finance®
• 26 Connecticut members are Participating Financial Institutions
• $492 million sold year to date across district, $31 million from CT members
“Mortgage Partnership Finance” and “MPF” are registered trademarks of the Federal Home Loan Bank of Chicago.
12
What to look for in 2015
 Capital stock requirement changes under consideration
 New MPF products in development
 Our staff eager to work with you to expand our business
partnership
13
Legislative and Regulatory Issues
Legislative and Regulatory Issues
 Senator Richard Shelby (R-AL) expected to chair Senate Banking
Committee in Republican-controlled Senate next year
• Dodd-Frank likely to be on agenda
 AHP regulation is in initial stages of an overhaul
• Goals are to keep what is working and revamp elements no longer
relevant or workable
• Input sought from Banks, boards, Advisory Councils, and other
affordable housing constituents this year, with a goal of introducing a
new AHP regulation in 2015
 FHLBanks of Seattle and Des Moines have entered into a definitive
agreement to merge, expect process to be completed by next June
15
Notice of Proposed Rulemaking: FHLBank Membership
 FHFA considering significant change to membership eligibility
requirements
• Two eligibility tests applied on ongoing basis to new and existing members
1. Non-community financial institution (CFI) depository institutions required to
hold 10 percent of total assets in “residential mortgage loans”
2. All members required to hold a certain minimum percentage of total assets
in “home mortgage loans;” one percent requirement currently proposed, and
requirement may potentially be raised to two or five percent
• Members out of compliance would be given a one-year remediation
period, and continuing failure would result in termination of membership
• Eliminates captive insurance companies from membership, seen by
the FHFA as a backdoor way for ineligible parent institutions to seek
membership
16
Notice of Proposed Rulemaking: FHLBank Membership
 Main areas of focus
• Impact on members’ strategic business decisions as a result of potential loss of
access to funding source
• Would eliminate liquidity source for some, create uncertainty for others, and
impact reliability of funding from member regulator perspective
• Up until now, Congress has defined eligibility, typically expanding criteria
• If proposal is enacted, eligible asset requirement could be ratcheted up in future
 Efforts to address proposed rule published September 12
• Congressional leadership to request withdrawal of NPR
• National and local trade organizations submitting comment letters, urging their
members to do the same
• FHLBank Presidents’ Conference to submit comment letter, as will FHLB Boston
and the other FHLBanks
• Member CEOs and CFOs are encouraged to submit letters expressing their
concerns by January 12
17
Why Is the Proposed Membership Rule Important to You?
 Relatively few members affected today
 Risk is related to uncertainty
• Access to liquidity
• Potential for membership termination
 Risk also related to regulatory vs. legislative action
• Congress should determine membership eligibility and define the
associated rules
 Communications from FHLB Boston in September and Martin Geitz
last month
• Eighteen comment letters as of 11/10/14, four from Connecticut
• Goal is >1,000 Systemwide and 100 from FHLB Boston
• Need your help to get us there
18
In Summary
 FHLB Boston has successfully weathered financial challenges
 Positioned for growth
• Membership
• Business Solutions
 Advances
 Letters of credit
 Programs for affordable housing and community economic development
 Mortgage Partnership Finance
 Product offerings within existing business lines expanding
 Need your help in communicating concerns about the FHFA’s
proposed membership rule
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Thank you