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

FHLB DES MOINES MEMBER FEEDBACK

WASHINGTON

Members have been focusing on the their core business models and customer bases for the last few months with loan growth at forecasted levels and deposit competition softening with only one member still assimilating a past acquisition. There is more talk from smaller players of eventually expanding organically in the Seattle and or Portland urban areas in order to foster growth since Timber prices have been depressed from the highs in 2018 of $500 to now about $380 for 1000 board feet. Credit risk remains benign with members in Washington state. Strong job growth has been tempered recently by threatened tariff impact on exports and the flat yield curve. The substantial disposition of mortgage origination activities of a large member has negatively impacted advance balances. Asset-sensitive institutions continue to actively use short-term advances even during a period in which seasonal advance usage wanes. Members with neutral interest rate risk positions are considering the refinance of term advances that were drawn in Q4 2018 and similar periods of higher interest rates.

ALASKA

The state’s Governor line item vetoed the operating budget with cuts amounting to $444 million from a budget that totaled $8.3-billion. Some of the line item cuts came from public services like the $2.7 million that the state would have provided Alaska’s 27 public radio and television stations, along with much of the funding for food banks, senior citizens and the public university system. In hopes offsetting the economic impact of these line item cuts, payments from the Permanent Fund to each resident was proposed to increase from $1600 to $3,000 a year, total payouts would nearly double to $1.9 billion. Regardless of the budget fights, its widely believed that any increase in the Permanent Fund payouts to residents will increase deposit balances for our members.

ADV : $.01 billion

ADV : $3.6 billion +1.1%

ADV : $1.9 billion +15.1%

The deposit rate competition up and down the I5 corridor seems to have taken a turn from an all-out offensive in deposits gathering to now a more defensive tone with one off CD rate to hold a good customers balance. Spokane, the Tri Cities, Yakima, Wenatchee, Everett and Bellingham are all vibrant and experiencing growth. Loan demand remains strong and competitive for our members operating in these markets. OREGON

ADV: $1.0 billion -21.0%

HAWAII

ADV : $19.8 billion +.5%

ADV : $48.6 billion -4.8%

ADV : $.5 billion +22.2% The Hawaiian economy is sustaining a slowing rate of growth. Visitor expenditures remain below 2018 peak levels. Overall state GDP growth is expected to continue at a pace of 1.2% for the remainder of 2019. The unemployment rate continues to flat line at 2.8%. Several bank members have increased or initiated public unit deposit-related standby letter of credit programs and are deploying three-to-four year advances, given yield curve inversions. Many members remain cautiously optimistic on the economy with recognition that the FED likely will ease monetary policy. Interest level in using advances to help manage interest rate risk has been a recent topic with a few of the members. The state is heavily impacted by tourism spending and government spending. Loan demand remains strong. While the liquidity situation remains abundant for the majority of our members, several members continue to experience strong loan demand with increasing loan to deposit ratios.

ADV : $125.0 million +22.2%

ADV : $1.9 billion

Consumer/retail customer loan growth has been at or below most members targets but still a respectable 5% level +/- 2% . Loan growth in C&I and CRE in the quarter was at members conservative forecast levels with commercial customers taking a wait and see attitude because of the trade issues. Oregon’s unemployment rate has held steady at 4.1%. In spite of sluggishness in the manufacturing sector, job gains in finance, business services, technology and construction exceed the national average. For those members involved in mortgage originations, servicing rights valuations are being negatively adjusted due to fair value changes. A large member has been selling MSR’s to reduce balance sheet volatility. Deposit and loan growth rates are at parity in many markets. Investment prepayment speeds are accelerating, placing additional pressure on margins as rates decline. Asset-sensitivity reduction moves have included swapping MBS holdings for agency securities.

ADV : $9.3 billion -5.9%

ADV: $1.2 billion

ADV : $6.0 billion +12.8% LOC : $622.3 million +1.0%

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Advances as of June 30, 2019

TRENDS: BORROWING

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