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2015 Retained Earnings of the Federal Home Loan Banks Figure 6 • Retained Earnings of the Federal Home Loan Banks $16 2.00% $14 1.75% $12 1.50% $ Billions $10 $8 $6 1.25% 1.00% 0.75% Percent of Assets $4 0.50% $2 0.25% $0 Q1 2001 Q4 2001 Q4 2002 Q4 2003 Q4 2004 Q3 2005 Q2 2006 Q1 2007 Q3 2008 Q2 2009 Q4 2010 Q4 2011 Q4 2012 Q4 2013 Q4 2014 Q4 2015 0.00% Retained Earnings (left) Retained Earnings to Assets (right) Source: Federal Housing Finance Agency retained earnings associated with the Joint Capital Enhancement Agreement. 13 At year-end 2008, in the immediate aftermath of the financial crisis, the FHLBanks held only $3.0 billion of aggregate retained earnings, representing 0.2 percent of assets (Figure 6). FHLBank Membership – At the end of 2015, the FHLBanks had a total of 7,235 members. The membership consisted of 4,669 commercial banks, 1,318 credit unions, 835 thrifts, 372 insurance companies, and 41 non-depository community development financial institutions. Of insurance company members, FHFA estimates that 54 were captive insurance companies. Following the publication of FHFA’s final rule on FHLBank membership in January 2016, captive insurance companies will have to leave the Federal Home Loan Bank System within one or five years, depending on whether they obtained membership after or before September 12, 2014. Approximately 59 percent of FHLBank members were active borrowers. FHLBank Advances – The FHLBanks provide long- and short-term advances (loans) to their members. Advances are primarily collateralized by residential mortgage loans and government and agency securities. Community financial institutions 14 may pledge small business, small farm, and small agri-business loans as collateral for advances. 13 14 Until the third quarter of 2011, the FHLBanks were required to pay 20 percent of pre-assessment income to pay the interest on bonds issued by the Resolution Funding Corporation (REFCORP), the proceeds from which were used to resolve the savings and loan crisis of the late 1980s. After satisfying the total obligation with the July 2011 payment, the FHLBanks entered into the Joint Capital Enhancement Agreement, which requires each FHLBank to direct the funds previously paid to REFCORP into a restricted retained earnings account. The FHLBanks cannot pay dividends from this restricted retained earnings account and each FHLBank must continue to build it until it equals one percent of its average consolidated obligations. As defined in the Bank Act, the term community financial institution (CFI) means a member, the deposits of which are insured under the Federal Deposit Insurance Act, that has average total assets over the last three years at or below an established threshold. For calendar year 2016, the CFI asset threshold is $1.128 billion. FHLBank members that are CFIs may pledge small business loans, small farm loans, small agri-business loans, and, for 2013 and thereafter, community development loans, all of which may be fully secured by collateral other than real estate, and securities representing a whole interest in such loans. 22 FEDERAL HOUSING FINANCE AGENCY
SUPERVISION AND OVERSIGHT In 2015, FHLBank advances increased by $63.3 billion, to $634.0 billion, compared to the prior year. The increase marked the fourth consecutive year of advance growth, following three consecutive years of declines. Although FHLBank advances have increased in recent years, demand for advances is below the levels experienced during the height of the global financial crisis. At year-end 2015, advances reached their highest quarter-end level since September 30, 2009. During 2015, 10 of the 11 FHLBanks reported increases in advances. Typically, FHLBank members use advances to fund mortgage portfolios, meet operational liquidity needs or meet other funding requirements. In recent years, some members may have increased their use of advances to meet higher regulatory liquidity requirements. Concentration of advances to subsidiaries of large bank holding companies remains high. The top four borrowers as of the end of 2015 – J.P. Morgan Chase, Wells Fargo, PNC, and Capital One – accounted for 23.6 percent of aggregate advances (Figure 7). Total year-end advances to subsidiaries of these four holding companies increased in 2015. 15 The largest increase came from J.P. Morgan Chase which added 10 percent or $6.5 billion in 2015, bringing its balance to $71.5 billion. Wells Fargo increased its advances by $3.0 billion to $37.1 billion, Capital One increased its advances by $2.8 billion to $20.1 billion, and PNC had a modest increase of $106 million in its advance portfolio, bringing its total to $20.1 billion. FHLBank Mortgage Programs – The FHLBanks also operate programs through which members can sell mortgage loans. Under Acquired Member Assets (AMA) programs, the FHLBanks acquire and hold (on balance sheet) conforming and government guaranteed or insured loans. The AMA programs 17 are structured such that the FHLBanks manage the interest-rate risk and the participating member manages a substantial portion of the risks associated with originating the mortgage, including much of the credit risk. The two existing AMA programs are Mortgage Partnership Finance (MPF) and Mortgage Purchase Program, under which various products are offered to members with differing credit risk-sharing structures. FHFA is proposing to amend the AMA regulation to comply with Section 939A of the Dodd-Frank Act, which requires federal agencies to remove from regulations all references to, or requirements based on ratings issued by Nationally Recognized Statistical Ratings Organizations, Figure 7 • Total FHLBank Advance Holdings ($ Billions) Holding Company 2010 Q4 2011 Q4 2012 Q4 2013 Q4 2014 Q4 2015 Q4 JP Morgan Chase & Co. 25.2 17.8 42.0 61.8 65 71.5 Wells Fargo & Company 7.9 2.6 2.2 19.1 34.1 37.1 PNC Financial Services Group, Inc. 6.1 7.0 9.4 12.9 20.0 20.1 Capital One Financial Corporation 1.1 6.9 20.9 16.3 17.3 20.1 Top 4 Holding Companies 16 114.7 77.7 98.7 135.1 154.2 148.8 Other Members 349.1 325.5 315.0 357.4 412.0 482.4 Aggregate Advances 463.8 403.2 413.7 492.5 566.2 631.2 Top 4 Share 25% 19% 24% 27% 27% 24% 15 16 17 All advance metrics for the four largest borrowers are expressed as par values and may not match previous advance data expressed as book values. The member listing presents the top four borrowers in the latest period and their borrowing history going back five quarters. The top four summation and share presents the total borrowing of the top four in the given time period. As the current top four may not have been the top four in the past, the summation for previous quarters may include borrowing from members not listed above. To qualify as AMA, assets must meet a three-part test established by the AMA regulation (12 CFR Part 955) which outlines the asset, member nexus, and credit risk-sharing requirements. REPORT TO <strong>CONGRESS</strong> • 2015 23
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A P P E N D I X : H I S T O R I C A
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Table 3. Fannie Mae Earnings A P P
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Table 5a. Fannie Mae Mortgage Asset
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End of Period Manufactured Housing
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Federal Housing Finance Agency KEY
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