Current Interest Rates for Cds for Banks in Nj

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Current Interest Rates for Cds for Banks in Nj Powered By Docstoc
					Balance Sheet Opportunities
         November 5, 2004
                               AGENDA
1)   Balance sheet growth through strategic funding
2)   Today’s mortgage trends
3)   Funding your loan portfolio
4)   Deposit pricing principals
5)   Collateralization of municipal deposits
         MULOC
                                   ®              ®
6)   Mortgage Partnership Finance Program (MPF )
                            STRATEGIC FUNDING
Funding
Requirement                                           $39 million
Funding                                      Retail             Wholesale
Allocation                               $25 million         $14 million
Asset
Classes                             Loans                       Investments
Product
Line               1-4           Multi                C&I       MBS         Corp.
Product
              30yr FRM       15yr FRM           ARM
Type
$ Dollar
              $10 million
Forecast
Funding         Wholesale       Retail

Mix           $7 million     $3 million
                   CURRENT MORTGAGE TRENDS
                        2003                        2004




      2004 growth in ARMs is primarily attributed to hybrid-ARMs
      Both lenders and consumers are pushing the growth of ARMs


Source: Mortgage Bankers Association
MBA LONG-TERM MORTGAGE FINANCE FORECAST
                                                    AS OF 10/19/2004
                                       2004                   2005                           2006
                                    Q3      Q4     Q1      Q2        Q3     Q4     Q1     Q2     Q3     Q4    2004    2005    2006
 Mortg a g e Orig in a tion s
  Tota l 1- to 4-Fa mily ( Billions) $652   $559   $450    $607      $593   $473   $402   $542   $550   $440 $2,669 $2,122 $1,934
      Purcha se                     437     324    293     407       415    331    289    406    412    330   1,480   1,445   1,438
      Refina nce                    215     235    158     200       178    142    113    135    137    110   1,189   677     495
          Refina nce S ha re        33%     42%    35%     33%       30%    30%    28%    25%    25%    25%   45%     32%     26%
   ARM S ha re                      39%     38%    37%     37%       36%    36%    35%    35%    34%    34%   35%     37%     34%

 Notes:
 Total 1- to 4-Family Originations and Refi Share are MBA's estimates
 Refinance Share is percent of total dollar volume of loans closed
 ARM Share is percent of total number of conventional purchase loans closed




Source: Mortgage Bankers Association
  MATCH FUNDING vs. POOL FUNDING

           Match Funding                                   Pool Funding
          Individual Loans                               Group Loans
                 vs.                                         vs.
   Individual Advances/Deposits                    Group Advances/ Deposits
                                                      (loans typically has similar characteristics
                                                           i.e. type, collateral and purpose)


  Advantages              Disadvantages         Advantages                     Disadvantages
Easy to               Cumbersome as         Fund  in bulk              Prepayment
 understand             portfolio grows       Less tracking                 assumptions are not
Easy to track                                 required                      always correct
 Prepayments


    Predominantly used for Commercial Loans       Predominantly used for Residential Loans
  AMORTIZING ADVANCE vs. CIP ADVANCE
BalanceTerm ®                   5 Yr         7 Yr      10 Yr           15 Yr         20 Yr        30 Yr

Mortgage Term 5 Yr           3.56 3.37

                      7 Yr   3.78 3.59 3.93 3.74

                      10 Yr 3.89 3.7        4.2 4.01 4.35 4.16

                      15 Yr 3.96 3.77 4.34 4.15 4.64 4.45 4.81 4.62

                      20 Yr 3.99 3.8        4.4 4.21 4.74 4.55 5.05 4.86 5.12 4.93

                      30 Yr 4.01 3.82 4.45 4.26 4.82 4.63 5.21 5.02 5.4 5.21 5.45 5.26

                  Amortizing Advance Rate            CIP Advance Rate

CIP Benefits                                        Eligible Uses of CIP Advances
• Provide below-market advances to member           • Housing for families/individuals with incomes at
  institutions                                        115% or less of the area median income
• Enhance CRA performance                           • Finance facilities that benefit low- and moderate-
• Enhance profitability                               income households:
• Improve community public relations                          Provide services or permanent jobs for
                                                               households with incomes at 80% or less of
• Flexible advance structures
                                                               the area median income
• Simple application process
                                                              Located in neighborhoods where at least 51%
• Responsive commitment process - you control the              of the households have incomes at or below
  funding                                                      80% of the area median
             DEPOSIT PRICING PRINCIPLES

   Two tools are needed to make effective pricing
    decisions:
    1)   Benchmark Rate
            Used to determine whether your deposits and your
             competitors’ deposits are appropriately priced
    2)   Marginal Cost Analysis
            Reveals the true cost of raising rates on existing funds in
             order to attract new funds
          SELECTING A BENCHMARK RATE
 Considerall funding sources (i.e., deposits and wholesale
  borrowings)
 Benchmarks include:
    Federal Home Loan Bank advance rates
    Rates on CDs in the Internet CD market
    The LIBOR Curve
    The Swap Curve
    Fed Funds

 Start   out using HLB advance curve
    Funding source for virtually every regulated depository financial
     institution
    Supplies a complete funding curve, covering short- and long-term
     borrowings
    Rates are available on the Internet at www.fhlbny.com
 SELECTING A BENCHMARK RATE (continued)
 Develop      benchmarks using the following:
     Select a rate on the wholesale funding curve for a wholesale
      instrument with a similar duration to the deposits you are pricing
     Estimate the cost of servicing the deposit account
     Subtract the cost of servicing the account from the wholesale rate




  Provides you with the rate you could pay on the deposit and
  be indifferent between the all-in-cost of the deposit and your
  wholesale funding alternative
MARGINAL COST OF FUNDS ANALYSIS
                                                                      5                 ($4)
     Should you Raise Rates to Raise Funds ?
                                                                     Use FHLB Advance
    New Acct/Special          $5.0    m illion

    Sources of Funds :                                          Save           $1,000          =   3 bps
       New Money              $4.0    m illion        does not include FDIC or advertising & overhead expenses
      Repriced Accts          $1.0    m illion
                                                                    Repriced
     Interest Rates :                 Proportions                    Accts
      Repriced Accts          1.50%                                   20%                                               ReRate:
      Prom otion Rate         2.40%
      FHLB Advance            2.60%
    Reset      Save        AutoCalculate Breakeven
                                   M atrix                                                New
0
                                                                                         Money
                                                                                          80%


                Retail Strategy                                      FHLB Advance                      
            Marginal Cost :              2.63%              FHLB Advance Cost :                    2.60%
         Balance           Increase          Cost      Borrowing                Rate                 Cost
         $1,000,000           0.90%         $9,000
     (existing accounts)                                $4,000,000              2.60%              $104,000
                                                      (net liab increase)
                                                                                                                 
        $4,000,000            2.40%         $96,000
       (new money)
Dollar Cost of Raising Rates :            $105,000        Cost of FHLB Advance :                   $104,000      Exit
REVERSE MARGINAL COST OF FUNDS ANALYSIS
         Should You Meet the Competition?
                            NRS = Non-Rate Sensitive

                                                                                20%                       80%
              Current Account Structure - Facing Runoff            1.80%
                                  Balance           Ann Int Exp
             80% NRS Core     $     4,000,000   $         72,000   1.80%
             At Risk 20%      $     1,000,000   $         18,000   1.80%           At Risk              20.00%
                Total         $     5,000,000   $         90,000                Current Rate            1.80%
                                                                                Com petition            2.00%
                                                                               FHLB Advance             2.60%
         Raise Rates 20bp on all accounts to keep the 20%          2.00%
                                                                                 Adv         Marg          BEP
                                  Balance           Ann Int Exp
             80% NRS Core     $     4,000,000   $         80,000   2.00%       New Total Cost       $    100,000
             At Risk 20%      $     1,000,000   $         20,000   2.00%       Orig NRS Cost        $     72,000
                Total         $     5,000,000   $        100,000               Cost of $1MM         $     28,000
                              Marginal Cost                2.80%                                1          2000

             Hold Rates and Replace the 20% with Advance           1.96%   
                                  Balance           Ann Int Exp
             80% NRS Core     $     4,000,000   $         72,000   1.80%       New Total Cost       $     98,000
               Advance        $     1,000,000   $         26,000   2.60%       Orig NRS Cost        $     72,000
                Total         $     5,000,000   $         98,000               Cost of $1MM         $     26,000
      Exit                    Marginal Cost                2.60%
   $4,000,000
                                                                                                                    1.00%
   $2,000,000

               $0                                                                                                   0.00%

                               CORE DEPOSIT MODEL
                     Dec- Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar-
                      98 99 99 99 99 00 00 00 00 01 01 01 01 02 02 02 02 03



                    MMDA Ba la nc e                       MMDA Ra te                       3 Month Tre a sury
$20,000,000                                                                                                     8.00%

$18,000,000
                                                                                                                7.00%
$16,000,000
                                                                                                                6.00%
$14,000,000
                                                                                                                5.00%




                                                                                                                % Rate
       Money




$12,000,000

$10,000,000                                                                                                     4.00%

 $8,000,000
                                                                                                                3.00%
 $6,000,000
                                                                                                                2.00%
 $4,000,000
                                                                                                                1.00%
 $2,000,000

        $0                                                                                                      0.00%
                    Dec-98    Mar-99   Jun-99    Sep-99   Time
                                                           Dec-99    Mar-00    Jun-00    Sep-00    Dec-00



                             MMDA Balance            MMDA Rate                3 Month Treasury
After you have priced the deposits prudently and
have won the business…

          how are you planning to collateralize
                               large deposits?
                                  MUNICIPAL DEPOSITS

                20000                                                                              40%

                                                                                                   35%
                17000
                                                                                                   30%
Tho us a nd s




                14000
                                                                                                   25%




                                                                                                         % Cha ng e
                11000                                                                              20%

                                                                                                   15%
                 8000
                                                                                                   10%
                 5000
                                                                                                   5%

                 2000                                                                              0%
                        Dec 1997 Dec 1998 Dec 1999 Dec 2000 Dec 2001 Dec 2002 Dec 2003 June 2004


                                      Municipa l Deposits                    % Cha nge
FORMS OF ACCEPTABLE COLLATERAL

 Securities
       Treasuries
       Agencies
       MBS
       Municipals

 Letters   of Credit
A credit instrument issued by a bank guaranteeing payment
on behalf of its customer to a beneficiary, normally to a
third party but sometimes to the bank’s customer, for a
stated period of time and when certain conditions are met.
                                HLB L/Cs

IRREVOCABLE STAND-BY LETTER OF CREDIT
   Irrevocable Letter of Credit
        cannot be cancelled before a specific date without the agreement of all
         parties involved

   Stand-By Letter of Credit
        is a contingent (future) obligation of the issuing bank to make
         payment to the designated beneficiary if its bank customer fails to
         perform as called for under the terms of the contract
         MULOC PROCESS




              MUNICIPALITY
   Contract                         Guarantees payment on
                                       Members behalf


                 MULOC
                                                            sm



                  Request that an
                 LOC is issued on
                   their behalf

MEMBER                                            HLB
THE BENEFITS OF HLB L/CS TO MUNICIPALITIES


      Safety of a                Approved by
      AAA-rated                 NY & NJ State
         L/C




          No cost                 Easy to use


                    Immediate
                     pay out
THE BENEFITS OF HLB L/CS TO MEMBERS

                                                           Low cost,
   Alternate form            MUNICIPALITY             decrease operational
    of collateral                                           expense




                       HOME LOAN            MEMBERS
                         BANK
       Ability to                                            Eliminates
   pledge securities                                     the need to match
      elsewhere                                        securities and monitor
                                                                calls
                                    Increase
                                   earnings of
                                   investment
                                    portfolio
  MORTGAGE PARTNERSHIP FINANCE PROGRAM                                                                               ®




The “MORTGAGE PARTNERSHIP FINANCE” logo and the “MPF” logo are trademarks of the Federal Home Loan Bank of Chicago
           MPF HELPS MEMBERS TO:
                 ®




   Maintain customer relationships

   Eliminates interest rate risk

   Rewards credit quality, not volume

   Eliminates holding 30-yr FRM in your own portfolio
                     MPF   ®




     HLB                       MEMBER




Interest Rate Risk             Credit Risk
                    DAILY PRICING SHEET
   15, 20, and 30 year fixed rates
   Note rates are quoted in 1/8’s
   Mandatory Delivery Commitments
        Terms of 3, 10, 20, 30, 45 business days with funding up to and
         including expiration date
             out to 60 calendar days

             Pair-off Fee   may be applied
              PROFIT ON SALE OF LOAN
LOAN STATISTICS               GAIN ON SALE
   $100,000 Loan                Price = $100.71 (11/4/04)
   30-yr FRM                    Dollars = $182.48
   5.625%                       Interest rate locked
   45 business day lock-in      Price locked
   10 bps CE fee                10 bps for life of loan
   25 bps service fee           25 bps for life of loan
          HOW DO WE DO THIS?

 Better      Member receives    25 bps
upfront       an additional    Servicing
pricing       monthly fee of      fee
                7 -10 bps
               annualized




     Improves Your Profits
               CREDIT RISK ANALYSIS
 Based    on rating agency methodology
    Standard and Poor’s   LEVELS software
       modeling tool
 Creditrisk coverage amount is equivalent to level of
  subordination for a AA security
 In   form of a collateralized guarantee
    Credit enhancement obligation amount is   deducted
       from your maximum borrowing capacity
DETERMINING THE CREDIT ENHANCEMENT
1)   Determine individual loan-by-loan calculation to
     “AA” equivalent
        Manual Process
                                   ®
        Automated Process eMPF Internet Site
2)   Aggregate loan level calculation
        Members’ CE obligation is at POOL LEVEL
        Multiply by pool size factor
                   ORIGINAL MPF              ®


           CREDIT ENHANCEMENT FEE
                  10 basis points annually
 Paid monthly against the outstanding principal balance
  of the loans in the pool divided by 12
       Example: $5,000,000 x   .10% / 12 = $416.66 or $5000

 Approximately    35-45 basis points NPV
              CE INFORMATION
PROPERTY             BORROWER
INFORMATION          INFORMATION
                     Income
Address/location
                     FICO   score
Property type
Loan   purpose      LOAN STATISTICS
                     Term
                     Loan amount and rate
                     LTV amount
                     Housing expense ratio
                     Total debt ratio
                     Mortgage insurance
                                           CREDIT ENHANCEMENT
                                             General Structure of MPF Original
AA Loss
Coverage
 AA%



                                                   Member CE     Member CE       Member CE
                                                    $125,000      $125,000        $125,000
       Increasing Mortgage Losses




                                    Member CE



                                                                                 FLA 20bps =
                                                                 FLA 12bps =
                                                  FLA 4bps =                       $10,000
                                                                   $6,000
                                                    $2,000

                                    Primary MI     Primary MI    Primary MI      Primary MI

                                     Borrowers     Borrowers      Borrowers       Borrowers
                                       Equity       Equity          Equity         Equity

                                                  YEAR 1         YEAR 3          YEAR 5
                                    Portfolio      4 bps          12 bps         20 bps
                                          ®
                       ORIGINAL MPF

                      Credit Management

Primary Loss Coverage
                                     Mortgage Insurance

HLB 1st Loss Tier
                                     First Loss Account*
* Increasing 4 basis points yearly


PFI 2nd Loss Tier                    Credit Enhancement

HLB 3rd Loss Tier                             HLB
                       SUMMARY

 Strategic   Funding Options

 Deposit   Pricing

 Letter   of Credit
                                ®             ®
 Mortgage    Partnership Finance Program (MPF )
                                    Advancing Housing                              and       Community Growth
                                                             Adam Goldstein
                                                          Director of Sales & Marketing
                                                                  212-441-6703
                                                              goldstein@fhlbny.com

                                                            Maureen Kalena
                                                                       Vice President
                                                                       212-441-6706
                                                                    kalena@fhlbny.com

The information provided by the Federal Home Loan Bank of New York ("FHLBNY") in this communication is set forth for informational purposes only.
The information should not be construed as an opinion, recommendation or solicitation regarding the use of any financial strategy and/or the purchase or sale
of any financial instrument. All customers are advised to conduct their own independent due diligence before making any financial decisions. Please note
that the past performance of any FHLBNY service or product should not be viewed as a guarantee of future results. Also, the information presented here
and/or the services or products provided by the FHLBNY may change at any time without notice.

  Federal Home Loan Bank of New York • 101 Park Avenue • New York, NY 10178 • WWW.FHLBNY.COM
Attachments
          DOCUMENTS FOR THE L/CS
Application for L/C or MULOC   Irrevocable Reimbursement Agreement
                        STATE OF NEW JERSEY
2002 N.J.A.C. 3:1—4.13
                                                                         REVISED LEGISLATION
October 24, 2002
The Department therefore adopted this new rule to specify irrevocable stand-by letters of credit issued by the
Federal Home Loan Bank of New York as an additional form of eligible collateral.
The Governmental Unit Deposit Protection Act, N.J.S.A. 17:9-41 et seq., provides that public depositories that
have public funds on deposit shall maintain security for those deposits. Public depositories are State or
Federally chartered banks, savings banks, or savings and loans with an office in New Jersey and which hold
public funds, which are funds of a governmental unit. Security is required to be in the form of eligible collateral.
The statute sets forth specific types of eligible collateral such as obligations of, or guaranteed by, the United
States or the State of New Jersey or any of its political subdivisions. It also provides that the Commissioner of
Banking and Insurance ("Commissioner") may, by rule, approve other types of eligible collateral.
The Commissioner has decided to allow irrevocable stand-by letters of credit issued by the Federal Home Loan
Bank of New York as an additional form of eligible collateral under the Governmental Unit Deposit Protection
Act, N.J.S.A. 17:9-41 et seq. The change provides additional flexibility for smaller banks. T
This rule proposal provides for a comment period of 60 days, and, therefore, pursuant to N.J.A.C. 1:30-3.3(a)5,
is not subject to the provisions of N.JA.C. 1:30-3.1 and 3.2 governing rulemaking calendars.

				
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