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Positioning Your Business for Success in an Uncertain Market
Affordable Housing Products

March 2016 - I am fortunate to have spent the last 20 years working in the FHLBank System, including 15 years at FHLBank Atlanta. I have held a variety of roles at FHLBank Atlanta during my tenure, including serving as the asset/liability manager, chief credit officer, and, for the last five years, as chief financial officer. I previously worked at FHLBank Chicago where I ran the investment portfolio and helped with the startup of the Mortgage Partnership Finance® program. Before working in the FHLBank System, I had the opportunity to work with a commercial bank, credit union, and thrift, some of which had relationships with an FHLBank.

These various experiences have shaped my perspective on our role as our shareholders’ trusted partner. I have a broad understanding of FHLBank Atlanta’s operations and how our decisions at the Bank affect our shareholders’ operations. I also understand the challenges community financial institutions commonly face and how we can best help our shareholders address these challenges.

Balance Sheet Management and the Perils of Complacency

One of the top concerns for financial institutions today is balance sheet management. While the economy has strengthened significantly since the great recession, there is still heightened uncertainty in the market, particularly around interest rates. Interest rate volatility has actually increased since the December rate hike and through the rocky start to 2016.

Within this context, a risk financial institutions must guard against is complacency. So much uncertainty in the market can lead to a failure to make decisions. Rates have been so low for so long and net interest margins have been compressed for so long that institutions tend to avoid putting long-term liabilities on the balance sheet. However, it can be perilous to defer making balance sheet decisions. If an institution is adding assets, it is critical to look at the liability side too.

If anything can be said about the current rate environment it’s that it is another chance to look at balance sheet management strategies and establish a plan going forward. As an FHLBank Atlanta shareholder, the first thing you can do is to talk to us as your trusted partner.

The Bank offers many asset/liability management tools that can be customized to your unique business needs. With net interest margins under pressure, trying to match-fund assets to liabilities can be costly. Start by looking at your funding mix. There will be a certain amount of assets that you know you can fund with deposits, but it can be beneficial to layer additional funding with those deposits. FHLBank Atlanta advances are a cost effective way to add wholesale funding to your balance sheet.

Two beneficial structures in this low-rate environment are the Floating-to-Fixed and Forward Starting advances. The Floating-to-Fixed enables you to take advantage of low rates now with variable-rate funding and lock in a known fixed rate for a future date. The Forward Starting advance allows you to secure a fixed rate for future funding at today’s rates. Recent interest rate volatility reinforces that these structures are worth evaluating. I encourage you to reach out to your relationship manager to discuss how these and other structures can benefit your institution.

Regulatory Pressures

Compliance and regulatory pressures are also critical challenges for most financial institutions. Over the last few years, we have worked closely with regulators and examiners to educate them about the FHLBanks and the many ways we are working to strengthen your businesses.

When thinking about relationships with regulators and examiners, it is too easy to focus only on the top-to-top relationships. It’s also important to reach the examiners who are in your shops day to day. As part of our outreach, I have focused on education and training with field examiners at FFIEC conferences. The benefit of these conferences is that they bring together examiners from many different regulators – FDIC, Federal Reserve, OCC, NCUA, and state agencies – who are working onsite at your institutions. These individuals think of the FHLBanks as liquidity providers but often do not understand that we provide many more solutions, including long-term balance sheet management tools. Our goal is to correct these misconceptions.

If you are experiencing challenges with examiners as it relates to your FHLBank Atlanta relationship, reach out to us for assistance. We plan to continue our educational efforts with regulators, and your feedback will help us focus on the right areas.

Trends in the District

I am often asked about trends in FHLBank Atlanta’s district. Obviously, our shareholders’ credit strength has improved markedly since the financial crisis, which is a very positive trend. Additionally, we are currently seeing a significant amount of merger activity. Since 2014, we have had 128 shareholders merge with other institutions, both within and outside of the Bank’s district. I believe this trend will continue.

If your institution is evaluating a merger, it is important to consider the value that your institution receives from FHLBank Atlanta. Of the 11 FHLBanks, Atlanta has one of the broadest product suites, the most varied Affordable Housing Program offering, and, historically, one of the strongest dividends in the System. If a shareholder merges with an institution outside of FHLBank Atlanta’s district, and closes the charter within the FHLBank Atlanta district, it loses the value that FHLBank Atlanta provides.

As a shareholder in the cooperative, it is to your benefit to take advantage of all that FHLBank Atlanta offers your institution. We are here to help you do just that – as our success depends on your success.

Kirk Malmberg
Executive Vice President and Chief Financial Officer

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