President's Report

April 29, 2005

At the Bank

Board Approves First Quarter Dividend at 4.70%

I am pleased to report that our Board of Directors has approved a dividend rate for the first quarter of 2005 of 4.70% (annualized). The dividend was distributed to member financial institutions on April 29, 2005. The Home Loan Bank's dividend rate for the fourth quarter of 2004 paid in January of 2005 was 3.05%. The dollar amount of the first quarter dividend is approximately $42.6 million.

The first quarter dividend complies with the Bank's Retained Earnings and Dividend Policy. The purpose of the policy is to: (1) establish a process to assess the adequacy of retained earnings in view of the Bank's assessment of the financial, economic, and business risks inherent in its operations; (2) establish the priority of contributions to retained earnings relative to other distributions of income; (3) establish a target level of retained earnings and a timeline to achieve the target; and (4) establish a process to ensure maintenance of appropriate levels of retained earnings. As discussed more fully in my September 2004 report to members, the policy establishes a methodology to calculate a retained earnings threshold level and optimal level based on the Bank's risk profile.

The first quarter dividend represents a payout of 80% of core earnings for the quarter. Retained earnings after the dividend payment will be approximately $207 million, which exceeds the threshold level of retained earnings by $35 million. Our success in maintaining substantial retained earnings reflects the Bank's low-risk asset profile and conservative financial management practices. To provide conservative dividend guidance, we expect the dividend rate will be at 4% or above for the remainder of the year.

Advances Averaged $63.4 Billion

Advances averaged $63.4 billion in March, down $1.9 billion in February. We ended the month at $62.1 billion. The decline is the result of a number of factors. These include payoff of advances caused by the prior acquisition of a member bank headquartered in another District, prepayment of advances by a small number of members, and the balance sheet strategies adopted by some members that are shrinking or restricting growth in response to the flat yield curve. Be assured that we work every day to provide the most competitive and most flexible sources of low-cost, wholesale funding. You can depend upon the Home Loan Bank as your source of low-cost liquidity.

Board of Directors Has Re-Approved the New Capital Plan

At the April Board meeting, our Directors re-approved the Bank’s new capital plan. Minor amendments were made to the original plan. The revised plan has been sent to the Federal Housing Finance Board for approval. We hope to implement this new capital plan before the end of this year. More detailed information on the capital exchange will be provided in the coming months.

In Washington

GSE Regulatory Reform Legislation Gains Traction

The GSE regulatory reform legislation appears to be gaining momentum in Washington. In the House, Congressman Baker introduced H.R.1461, the Federal Housing Finance Reform Act of 2005, with Financial Services Committee Chairman Michael Oxley as a co-sponsor, in early April. The Baker bill is very close to the Dole, Hagel, and Sununu GSE reform bill (S.190) introduced in the Senate earlier in the year. Although each needs some technical improvements, each does treat the Federal Home Loan Bank System in a fair manner in preserving the cooperative nature of the System and its core business – advances.

Both Congressional Committees have held hearings on GSE regulator reform legislation. Of particular note is the Federal Home Loan Bank Oversight Hearing held by the Senate Banking Committee on April 13, 2005. Testifying were: George Engelke, Federal Home Loan Bank of New York Chairman and Chairman, President and CEO of Astoria Federal Savings and Loan Association; Thomas J. McCool, Managing Director, Financial Markets and Community Investment, Government Accountability Office; Paul Clabuesch, Chairman of the Board, Federal Home Loan Bank of Indianapolis; John Edward Norris, III, Chairman and Chief Executive Officer, Plantation Federal Bank; Alex Pollock, Resident Fellow, American Enterprise Institute; and Martin Eakes, Chief Executive Officer, Self-Help.

The main topic of the hearing was the question of granting the Home Loan Banks the authority to securitize home mortgages. Mr. Engelke's testimony was strong and emphatic on this point.

Mr. Engelke noted, "this is an area that must be thoroughly studied and analyzed before any sort of prudent consideration can be given. In a $925 billion Federal Home Loan Bank System with $41.8 billion of member lenders' capital at stake through joint and several liabilities, it would be very dangerous to tinker with new authorities and new programs without understanding the full ramifications thereof, including usefulness, risks, and profitability." To further this point, Mr. Engelke submitted to the Senate Banking Committee the resolution adopted by the Board of the Federal Home Loan Bank of New York opposing securitization. (Mr. Engelke's testimony as well as the resolution adopted by the Board are enclosed.)

Mr. Engelke also stressed that it is "very important for the Congress and the Administration not to do anything that in any way would jeopardize the Federal Home Loan Banks ability to execute the fundamental mission of supporting housing by providing liquidity to members."

Mr. Engelke's testimony appears to have been persuasive. At the outset of the hearing Senate Banking Committee Chairman Shelby showed an interest toward allowing the Home Loan Banks to engage in securitization. But after the hearing Chairman Shelby stated that he "was not convinced that the Home Loan Banks had the expertise to manage securitization, pointing to the problems at the Federal Home Loan Bank of Seattle. I think we have to be careful, especially in view of what has happened in Seattle. I think you have to have sophisticated, well-trained people to create mortgage-backed securities. If you did otherwise, you make a mistake."

In a related action and to further underscore the importance for Congress to enact a world-class, independent GSE regulator (without the inclusion in the bill of extraneous matters), Richard S. Mroz, Chairman of the Board of Directors External Affairs Committee and Of Counsel at Stradley Ronon Stevens & Young, LLP, sent the enclosed letter on April 21, 2005, to the Congressional Delegation from New Jersey, New York, Puerto Rico, and the United States Virgin Islands. The letter suggests the general framework in which Congress should consider the legislation.

As we go to print, it appears that both the Senate Banking and the House Financial Services Committees will be moving steadily towards marking up S.190 and H.R.1461 in the coming weeks. The Council of the Federal Home Loan Banks (the trade group that represents the Federal Home Loan Banks) as well as the Federal Home Loan Banks are working with Committee staff to refine the legislation to ensure the legislation maintains the integrity and mission of the Home Loan Bank System. Coupled with this effort, the Federal Home Loan Banks are also working with the industry trade groups, e.g., the ABA, ACB, and the ICBA, to ensure the delivery of a simple and coordinated message: the Federal Home Loan Bank System should be left intact to meet its support role of enabling its 8,000 member lenders to ensure that credit remains available on Main Street.

We value your loyalty to the Home Loan Bank, and we respect your commitment to your customers. We are profoundly grateful for the opportunity to serve you.


Alfred A. DelliBovi
President & CEO

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Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
This report may contain forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. These statements are based upon our current expectations and speak only as of the date hereof. These statements may use forward-looking terms, such as “projected,” “expects,” “may,” or their negatives or other variations of these terms. The Bank cautions that, by their nature, forward-looking statements involve risk or uncertainty and that actual results could differ materially from those expressed or implied in these forward-looking statements or could affect the extent to which a particular objective, projection, estimate, or prediction is realized. These forward-looking statements involve risks and uncertainties including, but not limited to, regulatory and accounting rule adjustments or requirements, changes in interest rates, changes in projected business volumes, changes in prepayment speeds on mortgage assets, the cost of our funding, changes in our membership profile, the withdrawal of one or more large members, competitive pressures, shifts in demand for our products, and general economic conditions. We undertake no obligation to revise or update publicly any forward-looking statements for any reason.

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