www.cfasociety.org/dayton
UPCOMING EVENTS – SAVE THE DATE • Friday, March 23, 2018: LIFT Symposium at Wright State University • Tuesday, April 10, 2018: Karen Bowie, JD, CFP, CFA, Small and Mid-Cap Portfolio Manager of Nuveen Asset Management • Tuesday, May 8, 2018: TBD Events are held at noon at the Schuster Center (unless indicated). RSVP by Friday before the meeting to: secretary@dayton.cfasociety.org CFA Society Dayton
www.wright.edu/event/lift-symposium TOPICS: Investing for Retirement Recruit, Train, Retain: Leveraging the NextGen Talent Everything you need to know about Social Security Tax Reform and Its Impact Bitcoin and Cryptocurrencies March 23, 2018 – 8:00a.m. to 6:00p.m. Early registration - $125 CFA Society Dayton
The Federal Home Loan Bank of Cincinnati CFA Society Dayton March 13, 2018
The Federal Home Loan Bank System
How We Fund Advances FHLB issues consolidated FHLB Debt held in debt to the investors’ portfolios financial markets FHLB funds available for: $ Proceeds from debt • Liquidity needs issuances receive • Asset / liability management slight markup, available • Match funding longer-term to FHLB members assets as credit products 6
A Brief History • FHLB system established in 1932 during the Great Depression. – Mission to support housing market through member financial institutions. – Joint and several liability among districts. • Originally only for thrifts (savings and loans) and insurance companies. – FIRREA in 1989 opened access to commercial banks and credit unions. • Cooperative ownership structure. – Each member’s stock holdings grow in proportion to their borrowings. – The largest users are also the largest shareholders. • During the financial crisis, served as lender of next-to-last resort for depository members. – Federal Reserve lender of last resort. 7
The FHLB Business Model • Franchise Value – As GSE, public policy mandate to support housing finance – Consistent ability to issue large amounts of debt worldwide – Cooperative ownership structure – Liquidity support • Three Primary Business Activities – Advances – Mortgage Purchase Program – Housing and Community Investment 8
FHLB Cincinnati Fifth District Overview
Value Proposition to Members Mission Statement Provide our Members with financial services and a competitive return on their capital investment to help them facilitate and expand housing finance and community investment and achieve their objectives for liquidity and asset liability management. • Consistent focus on mission and cooperative ownership • Competitive Advance rates and Mortgage Purchase Program (MPP) prices • Stable, favorable , and sustainable financial performance • Offer MPP as an attractive secondary market alternative for Members • Capital Plan that supports cooperative business model • Longstanding commitment to affordable housing including voluntary programs 10
FHLB Cincinnati Members FHLB Cincinnati membership composition as of year-end 2017: Charter Type Ohio Kentucky Tennessee Total Assets ($Billions)* Commercial Banks 113 140 132 385 $1,053 Thrifts/Savings Banks 71 12 9 92 54 Credit Unions 81 24 27 132 55 Insurance Companies 34 6 6 46 364 CDFIs 3 2 0 5 0.3 TOTAL 302 184 174 660 $1,526 While financial industry consolidation has reduced the number of Members, the asset base of our membership has grown: 750 $2,000 727 $1,526 $1,500 700 # Member Member Assets $1,235 Stockholders $1,000 ($Billions)* 660 at Year-End 650 $500 600 $- 2013 2014 2015 2016 2017 # Members Member Assets ($B) * Excludes JPMorgan Chase 11
Fifth District At A Glance Population by State (2018 Est.): Kentucky:4.5 million Ohio:11.6 million Rural Population: Tennessee:6.7 million Kentucky: 2.4 million (#9 in U.S.) Ohio: 3.4 million (#3 in U.S.) Tennessee: 2.4 million (#10 in U.S.) U.S. Census Bureau 2011-15 5 Year Estimates Depository Institution Assets * : Kentucky: $ 68 billion Ohio: $ 962 billion Tennessee: $ 137 billion FHLB Cincinnati Members represent 98.8% of total depository institution assets in the 5 th District * Excludes JPMorgan Chase, with assets of $2.1 trillion Red dots indicate location of FHLB Members 12
Financial Overview Balance Sheet Key Components ($Billions) Primary Mission Asset Ratio Outstanding Principal (Advances and MPP as % of Consolidated Obligations) $120 100% $100 $37.3 90% $27.0 $25.3 $26.0 $22.4 $80 81% $7.8 $9.5 79% $6.8 $8.9 78% 77% $6.6 80% 75% $60 70% or higher 70% $40 $73.2 $70.3 $69.9 $70.0 $65.1 preferred $20 60% $0 50% Y/E 2013 Y/E 2014 Y/E 2015 Y/E 2016 Y/E 2017 2013 2014 2015 2016 2017 Advances MPP Investments Net Income ($Millions) Retained Earnings ($Millions) $400 $1,200 $350 $314 $940 $1,000 $834 $300 $268 $254 $254 $737 $240 $800 $656 $250 $578 $200 $600 $150 $400 $100 $200 $50 $0 $0 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 13
Historical Performance Year-End Key Balance Sheet Components ($Billions) 2013 2014 2015 2016 2017 Total Assets $103.1 $106.6 $118.8 $104.6 $106.9 Advances (Outstanding Principal) $65.1 $70.3 $73.2 $69.9 $70.0 MPP (Outstanding Principal) $6.6 $6.8 $7.8 $8.9 $9.5 Capital ($Millions) Total Regulatory Capital $5,392 $4,986 $5,204 $5,026 $5,211 Regulatory Capital-to-Assets 5.23% 4.68% 4.38% 4.80% 4.88% Retained Earnings $578 $656 $737 $834 $940 Retained Earnings as % of Regulatory Capital 11% 13% 14% 17% 18% Market Capitalization Ratio 105% 114% 109% 114% 121% Profitability ($Millions) Net Income $240 $254 $254 $268 $314 Return on Average Equity 4.72% 5.16% 5.04% 5.35% 6.15% Cash Dividends Paid $178 $176 $172 $171 $208 Dividend Rate (Weighted Average Annual Rate) 4.18% 4.00% 4.00% 4.00% 5.00% Operating Costs ($Millions) Operating Expenses $51 $54 $62 $68 $65 Operating Expenses to Average Assets .055% .054% .058% .064% .063% Employees (FTEs) 199 203 203 209 226 14
How Our Members Use the FHLB
Core Mission Activities Advances Mortgage Purchase Program Outstanding Principal Outstanding Principal 2017 $69,978 2017 $9,454 2016 2016 2015 2015 2014 2014 2013 Year-End ($Millions) 2013 2012 $- $20,000 $40,000 $60,000 $80,000 $- $2,000 $4,000 $6,000 $8,000 $10,000 Core Mission Activities Letters of Credit Affordable Housing Program* Notional Principal Annual Accrual 2017 $14,691 2017 $35 2016 2016 2015 2015 2014 2014 2013 2013 2012 $- $5,000 $10,000 $15,000 $20,000 $- $10 $20 $30 $40 *Excludes FHLB voluntary housing program disbursements 16
Advance Products What is an Advance? • An Advance is a collateralized debt obligation • Advances are over-collateralized (collateral held > Advance principal) using a variety of collateral types: – Mortgage loans; commercial real estate loans; investment securities (include MBS/CMOs) – Collateral haircuts set by each FHLB district • Advances Types and Terms: – Maturity from overnight to 30 years – Full, partial or no amortization of principal – Fixed rate or indexed to the most popular indices (LIBOR, Prime) • No FHLB has ever experienced a credit loss on Advances • FHLB’s follow certain procedures in lending to weaker institutions – Increased collateral haircuts based upon financial condition – Downgrade in collateral status – Restricted Advance maturities – Halt lending at the request of primary regulators 17
Advance Products “We have a liability to match any asset.” 18
Mortgage Purchase Program (MPP) How it Works • Active secondary mortgage investor for Members • Purchase high-quality loans and hold them in portfolio • Helps achieve FHLB’s public policy mission of supporting housing finance • Since inception, over $37 billion in UPB from over 248,000 loans purchased; outstanding balance at year-end 2017 is $9.5 billion • MPP portfolio accounts for 8% of assets and 30% of dividend • Over 90% of active Participating Financial Institutions are community financial institutions with assets under $1 billion. Benefits for Members • Reduced fixed-rate lending risk • Greater competition among mortgage investors • Provides some smaller Members a mechanism to sell loans who wouldn’t otherwise have access • Alternative investor for medium banks • Increased return to FHLB Member stockholders • Members share credit risk with the FHLB; Lender Risk Account (LRA) 19
MPP Products & Underwriting MPP Products • Prime, Fixed-Rate, Fully Amortizing – Max Loan Amount: $453,100 – Terms: 120 to 360 months – Single family, 2-4 family, condos and PUDs – Primary residence and second homes • Servicing Retained or Servicing Released • Servicing Retained offers several remittance options (Scheduled/Scheduled or Actual/Actual). MPP Underwriting • LTV, FICO, and Debt Ratio criteria are MPP specific – Up to 95% LTV – lower maximums for certain loan types – Minimum FICO score of 660 – higher minimums for certain loan types – Max Housing Ratio of 35% and Total Debt Ratio of 40% – Delegated Underwriting – Use of AUS acceptable with minimal overlays – AUS Max Housing Ratio of 38% and Total Debt Ratio of 43% • Exceptions to underwriting guidelines considered 20
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