OSAGE BEACH, Mo., May 23, 2006 (PRIMEZONE) -- "Capitalizing on Rural America - Missouri" is sponsored by the Federal Home Loan Bank of Des Moines and continues a three-year series of dynamic dialogues about energizing and revitalizing rural America in Osage Beach, May 23 - 24, 2006. The May conference is designed to introduce Missouri's community leaders and community bankers to new models for everything from economic development to capital formation.
Neil N. Fruechte, Acting President and CEO, addressed the conference attendees to bring them up to date on the recent activities of the Des Moines Bank. The following is the complete text of Mr. Fruechte's remarks:
"I'm Neil Fruechte and I'm serving as the Acting President of the Home Loan Bank. I'm very pleased to be here today and bring what we think is very good news. Before I get started, I need to tell you that some of my remarks involve objectives, projections, estimates or future predictions that may be considered forward-looking statements, which by their very nature involve risk of uncertainty. With that formal statement out of the way, let me bring you up to date.
"As a long-time board member of the Des Moines Bank, and the former CEO of member bank Roundbank in Waseca, Minn., I have been involved with the Federal Home Loan Bank since 1991. I have a special appreciation for the important role the Bank plays in the success of its members. As a bank president and CEO, I learned the value of Home Loan Bank membership.
"When Congress approved the legislation that permitted community banks to become members of the Home Loan Bank, it provided Roundbank with a pipeline to the capital markets. My message to my loan officers was, 'Find every good loan you can to put on the books, and I'll find a way to fund it.' Advances from the Home Loan Bank made up about 20% of our balance sheet and contributed substantially to our steady growth -- taking our bank from assets of $70 million in 1991 to more than $190 million when I retired in 2003.
"Needless to say a great many things have changed since 1991 but the Bank's mission to help members better manage liquidity and interest rate risk and to provide advances to fund loans has not. We are acutely aware of the significant role the Bank plays in supporting our members' balance sheets. With the highest percentage of borrowers in the Bank System -- 79% -- we clearly demonstrate how important the Home Loan Bank is to its community bank members.
"When I first took over the role as Acting President, with the very able assistance of Dan Williams who is also a former board member, I talked to a lot of the Bank staff below the senior manager level. What I found was a dedicated and accomplished group of vice presidents and department directors, several who have been with the Bank for 25 years or more. They have a great deal of knowledge and exercise good judgment in their day-to-day decision making. They are very conscientious and know that the Home Loan Bank exists to serve our members.
"One major task the Bank has recently completed is submitting its Form 10 registration statement to the Securities and Exchange Commission. In June of 2004, the Bank's regulator, the Federal Housing Finance Board mandated that all of the Home Loan Banks register with the SEC. This has been a tremendous undertaking and has been a priority focus since then. The Form 10 is over 400 pages and is available on the Bank's website. It has a lot of information that we have been looking forward to providing our members, so we hope you will all take the opportunity to read at least the overview section. The Bank's registration status with the SEC will be effective 60 days from the filing date which was May 12th. We are confident once we become an effective SEC registrant, the Bank will be better equipped to provide reliable, accurate and comprehensive information about its business to members, the public and the investment community.
"As a part of the SEC registration process, the Bank has restated its financials for the years 2001 through 2004. The restatement was required because of errors in our application of hedge accounting under the Statement of Accounting Financial Standard 133 -- widely known as FAS 133. The effect of the restatement has been to significantly accelerate the timing of the Bank's recognition of income which increased cumulative net income by approximately $226 million through December 31, 2005. This acceleration of income will result in a corresponding reduction in earnings in future periods.
"The increased cumulative net income has pushed the Bank's retained earnings to more than $329 million as of December 31, 2005, exceeding our board approved retained earnings target by $173 million. One of the next projects the Bank will undertake is to establish a retained earnings and dividend policy that considers the expected future decrease in earnings related to the restatement.
"In March 2006 Federal Housing Finance Board proposed a regulation titled Excess Stock Restrictions and Retained Earnings Requirements for Federal Home Loan Banks. If that regulation had been effective as of December 31, 2005, the Bank's retained earnings would have exceeded the Retained Earnings Minimum by almost $45 million.
"Without going into too much detail I would like to note that net income in 2005 was $227.7 million compared with $99.5 million in 2004. The one-sided increase of $128 million resulted primarily because of increased net gains on derivatives and hedging activities.
"The 2004 annualized dividend rate was 2.13 percent compared to 2.82 percent for 2005. The dividend for the first quarter of 2006 was 3.0 percent. In recent years we have tried to achieve a balance between offering attractively priced products, providing a reasonable dividend and maintaining adequate retained earnings to support safe and sound business operations. And while I can't predict what the next dividend payment will be, I can assure you we are working toward a goal of seeing that members get a fair return on their investment.
"All of you are familiar with our Affordable Housing Program. The Bank is required to allocate 10% of its net income for the AHP program and because the restatement resulted in accelerated income, we have substantially more funds available for our Affordable Housing Programs. This is a great opportunity for our members and for housing programs throughout the District. We are currently exploring ways we can adjust our guidelines to be able to distribute more funds under these programs. We encourage our members and developers across the five states to remember the increased resources we have at this time.
"We are particularly pleased to have announced last Friday that Richard 'Dick' Swanson has been elected president and chief executive office of the Bank effective June 1st. Dick Swanson has a great combination of extensive legal and banking experience. He has been a principle in a Seattle law firm and is the former Chairman and CEO of HomeStreet Bank which grew to become the largest privately held bank in the coastal Pacific Northwest under his leadership from 1990 to 2003. Mr. Swanson has also served as an industry-elected director and vice chair of the Federal Home Loan Bank of Seattle where HomeStreet Bank was an active member. Dick Swanson has the exact skill set the Bank needs to continue serving our member banks in the years to come. I am confident that once you meet Dick, you will agree he has a strong member focus. Under his leadership, we believe the Des Moines Bank can become one of the highest performing Banks in the Home Loan Bank System.
"And so our message today is very positive. The Bank has a new, exceptionally well-qualified president, we have submitted our Form 10 to the SEC and completed our financial restatements which accomplishes three of our highest priorities. We have devoted substantial resources to completing these projects and now look forward to focusing the efforts of our dedicated Bank staff to working full time on serving our members and providing the quality customer service our members expect.
"We hope you enjoy the tremendous line up of speakers we have assembled and that you find the information valuable for your bank and your community."
Statements contained in this announcement, including statements describing the objectives, projections, estimates or future predictions in our operations, may be forward-looking statements. These statements may be identified by the use of forward-looking terminology, such as anticipates, believes, could, estimate, may, should and will or their negatives or other variations on these terms. By their nature forward-looking statements involve risk or uncertainty and actual results could differ materially from those expressed or implied or could affect the extent to which a particular objective, projection, estimate or prediction is realized.
The Federal Home Loan Bank of Des Moines is $50 billion wholesale bank with more than 1,200 members which include commercial banks, saving institutions, credit unions and insurance companies. The Bank is owned by its members and receives no taxpayer funding. The Des Moines-based Bank serves Iowa, Minnesota, Missouri, North Dakota, South Dakota, and is one of 12 regional banks that make up the Federal Home Loan Bank System.