Bank Directors Seminar, Coeur d'Alene, ID, September 15-17, 2019

FHLB DES MOINES MEMBER FEEDBACK

Loan demand appears to be softening in some sectors in Eastern Iowa. Competition has increased for good loans which is causing margins to narrow. Margins are also affected by the fact that asset yields have declined faster than deposit rates in many markets. Members are watching the agriculture sector closely. Past due loans have increased slightly. The wet weather caused some planting delays and positively affected commodity prices. With the recent increases in corn and soybean prices, cash flow projections for farmers are looking more positive. Bankers continue to look at restructuring options and have increased collateral requirements in some situations. So far, land values in Eastern Iowa remain steady. As members plan for decreased interest rates, more bankers plan to stay short with their advance durations. Liquidity continues to be a focus for members. Discussions about pledging additional collateral to increase advance capacity have been well received. EASTERN IOWA Eastern Missouri continues to see a softening of loan demand overall. The flooding has been extensive but agriculture bankers as well as commercial bankers feel their customers will handle this without seeing many forced out of business. There continues to be pressure on the NIM from the cost of funds rising and now for the first time in over two years the yield on earning assets has declined by approximately 10 bps. Asset quality remains strong and earnings are solid. Most members are trying to adjust to the declining rate environment by slowing cd growth and lowering deposit rates. Overall the membersremain very strong. Regulators are delivering the message that farms not making a profit will be looked at in the same light as commercial loans not making a profit and should be classified. Many banks are delivering this message early in the year to let their farmers know that unless they show a profit, the likelihood of refinance is low. Commercial loans continue to be strong in most areas with a diverse group of projects to include warehouse, industrial, retail and multi-family. Multi- familyhas slowed in mostareas but remains strong in the Twin Cities market. EASTERN MISSOURI SOUTHERN MINNESOTA For the second consecutive year, the wet spring in Southern Minnesota created farming issues early in the year. Corn prices have ticked up this spring bringing optimism to an industry that’s been beat down pretty hard over the past few years. Yields will be the big factor in determining profitability and viability of farmers.

NORTHERN MINNESOTA

Overall banking conditions remain good except for some limited weakness in Ag loans. Banks in the Minneapolis have been indicating mixed loan growth results, banks established in certain loan areas report good loan growth while banks trying to enter new lending areas say loan growth has slowed from this time last year. Ag lenders have indicated with the current corn prices and potential yields good farmers in the region should be able to make money. Iron Ore mines in Northern MN have started to shut down some of their processing facilities due to over production. Employment levels remain high throughout the region and membersare doing well. Members report that Ag lending continues to have headwinds from current issues of the trade war and early season wet weather. Current positives in the Ag sector is that land prices are holding steady and commodity prices are trending up. Farmers not affected by early season rains are seeing the benefit of a pricing bump in forward contracts. The commodity prices have also allowed farmers to sell inventory that they have been holding. Iowa crop progress as of July 14th is still behind historical norms. Corn crop has begun to silk, over 1 week behind last year and the 5yr average. Soybeans emergence reached 96%, 2 weeks behind average. The full affect of the early season rains won’t be known until after harvest. WESTERN IOWA Banking conditions in Western Missouri remain good. Asset quality is strong, as the level of past due and nonaccrual loans is minimal. The Net Interest Margin has compressed slightly due to increased deposit costs but earnings performance is good with an average adjusted ROAA at 1.05%. Liquidity positions are satisfactory and capital levels are strong. Ag lending is the primary concern. Wet conditions and major flooding throughout much of the region prevented farmers from planting thousands of acres of high quality row crop ground. Flooding began in March and continued to drag on through July. Many communities in the flood plain have been devastated and will likely take years to recover. Unlike the standard cropping cycle, this year’s farm incomes will come from crop sales and insurance payments. WESTERN MISSOURI

ADV : $3.6 billion

ADV : $19.8 billion

ADV : $9.3 billion

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Advances as of June 30, 2019

FHLB DES MOINES MEMBER FEEDBACK

MONTANA

NORTH & SOUTH DAKOTA

More economic activity in larger cities than has been seen in some time. Strong economic activity continues in several markets, Bozeman remains the most vibrant market. Tourism is off to a strong start and the effect of the wildfire season has not yet hit the Montana tourist areas. The Ag industry continues with the same old story. Many farmer and ranchers are challenged. So far moisture has been good throughout Montana in 2019. This has resulted in hopes for ample supply of grain and hay (results in large well fed cattle). The hope is that this will help offset the negative impact of tariffs. Many bankers believe that the short term negative impact from tariffs is necessary to remedy the unfair trade and may result in a better situation for the ag industry long term. Short term usage on ag lines continues due to commodity price pressures on the sector and many of our members are using FHLB advances to support their liquidity needs. There has been increased focus by banks involved in the ag industry to manage through potential credit issues.

Past due loans have remained stable for credit unions and increased slightly for banks, in light of slower growth for all members. The big concern at this time is flooding that has affected a large portion of this part of the country. Most farmers in both states are behind about a month in planting because the land has been so saturated and muddy. What has protected farmers the last two years from the low cost of commodities has been extremely good yields. The concern now is that because of the extreme and prolonged rain, yields will be affected. Bank cost of funds have increased due to sourcing of higher cost of deposits during much of 2018 and early 2019. South Dakota and North Dakota have seen a slight decrease in demand for wholesale funding, though the impact is negligible. Capital levels and ratios remain strong and members feel confident that the economy will continue to do well this year.

IDAHO

ADV : $3.6 billion +1.1%

ADV : $1.9 billion

ADV: $1.0 billion

In 2018 Eastern Idaho experienced the highest population growth rate in the nation. In May, home prices rose at the fastest rate in the nation with median home values now reaching the national average. Job growth in professional and business services has risen by 5.5% over the previous 12 months. Loan to deposit ratios have continued to increase. The Boise area continues to be experiencing significant growth and economic activity. Western Idaho is seeing similar growth and activity. Several credit unions are aggressively pursuing consumer and auto lending and are very active in residential originations. Some members are reporting a slowing in loan growth but demand is still strong.

ADV : $48.6 billion

ADV : $19.8 billion +.5% ADV : $125.0 million

ADV : $.5 billion

The Wasatch Front – from Ogden on the north to Provo on the south – continues to be vibrant economically with a continued optimistic outlook. Many members have planned for, and are seeing continued growth in 2019; although, it is not at the same level as was experienced in 2017 and 2018. The labor market remains one of the best in the nation. While year-over-year employment dropped slightly in May, it is still the 2nd highest rate in the country. Every major industry added jobs over the past year. The state continues to be viewed as business friendly. UTAH

WYOMING

Employment growth in Wyoming is steady and has added 4,500 jobs over the past year. It is experiencing its lowest unemployment rate since 2008. Although employment shifts have occurred in natural resources and mining there has essentially been no net change in jobs in this sector over the past year. Construction jobs have increased the most, while leisure and hospitality jobs have decreased. Median home prices fell in May and has now stabilized below the national average for the first time since 2008. There is hope that this will begin to alleviate burden for first time home buyers. Capital levels remain strong and members generally demonstrate optimism for continued growth in the economy. Many speculate a downturn at some point in the next few years but feel confident that it will be manageable.

ADV : $9.3 billion -5.9%

ADV : $6.0 billion

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It holds the presence of several industrial loan banks, finance companies and bank charters with specialties that tend to niche markets. Loan to deposit ratios have continued to increase. In addition to competitive pricing on the loan side, pressure on deposits has continued as a result of aggressive pricing campaigns.

Advances as of June 30, 2019