November 2025 Peer Analysis and Balance Sheet Strategies Update

Good morning, everyone.

Thank you for joining us here today for our peer analysis and balance sheet update webinar. I am Andrew, it’s Caroline, and Tyler.

Happy to have you with us as we look at what was relevant in the third quarter and what’s happening in the broader world, and what we could be doing on the balance sheet strategy side of things.

So, for those of you who’ve been with us in prior quarters. You know the drill, but for those who are new, we’ll tackle this in three parts.

We’ll look at what’s happening in the markets and the economy.

We will look at key takeaways and trends from the third-quarter call reports for banks and credit unions.

And then lastly, we’ll talk about things that we should be thinking about now and in the future for how we think about positioning assets and liabilities.

So with that, we’ll start to jump in a little bit.

And again, as the regulars know, we like to start things off with a little lighthearted look.

And that’s one of the things that I like.

It helps get the brain flowing a little bit, right?

When you take a lighthearted look.

And I promise you, I looked at every way that I could tie things happening in the world of depositories to Drake May, to AI, and plenty of other six, seven jokes for anybody who’s got teenagers around the house.

But Tyler is a great analyst and was able to have some fun with correlation causation.

And you look at this graph here and say, oh, those two things are pretty related.

But then you look at it, it’s the median loan growth rate for our members and the wind speed in Milwaukee. Naturally, the thing that you would think would be a leading indicator of the other.

So you know, there’s an obvious asterisk there when I say, as one might totally expect, these things have a relationship, but it’s always fun to have fun with numbers.

Absolutely, and with the Brew City breeze kind of outpacing median member loan growth over the past couple years, I think it does beg the question, is it time to start installing wind meter is Milwaukee, or better yet, I think this might be a better pitch to the ALCO, is just take out some forward starting advances and pre-fund that loan growth before it blows in.

That’s a brutal pun.

All right.

Let’s kick it off with what’s happening in the real economy.

So, you know, the first thing I’m going to jump right into is the fact that I don’t have much to tell you today.

Normally, this is the part where I talk to you about what’s been happening in data and what that’s meant for expectations for Fed policy and for the yield curve.

But the most important thing to tell you is that we still don’t have the data.

So as a result of the government shutdown, most of the major indicators produced by the BLS, the BEA have been backlogged.

This chart will just show you some of the major indicators that we’re missing.

It’s not comprehensive.

There’s a lot that’s not on this chart that we’re still missing.

But the most important thing is that many of the indicators that are inputs to things like core PC, which is what the Fed explicitly targets, are still missing.

We’re missing September and October jobs data. We’re missing Q3 ECI data.

We’re missing inflation data from September and October, and then also GDP data. So we don’t have a lot that we know.

We got one update to this, which is that on Thursday, we’re going to get the September jobs data.

So that’s the non-farm payrolls and the unemployment rate.

But it’s really unclear what’s going to happen with the September data, which was collected before the government shutdown, meaning that the BLS already has all the data.

They just need to basically review it, sort through it, format it.

But the October data, there was no survey conducted.

And again, the way that they conduct these surveys is they go out, and they literally ask people, What are you doing in your hiring practices?

And they ask households, Are you unemployed?

How have your wages changed?

If you’ll allow me just a minute to nerd out, it actually is a really difficult question whether or not they should actually try to recreate these surveys because if you do that, you’re doing something methodologically a little bit dubious, you’re going back in time, and you’re saying, Hey, what did you do a month ago?

So even if they do it, there are going to be some concerns that you’re not getting it sort of true print and you’re compromising the overall series by having something that’s methodologically inferior.

But obviously, if you don’t do it, you don’t get the data, and you’re then missing an important data point.

So anyway, we’ll get some data on Thursday, that’ll give us some insight on what’s happening in the labor market, which had been weakening.

But we really don’t know more than that at this point.

Oops, sorry, click in the wrong way. So, jumping to the yield curve.

So we had the October FOMC meeting, and probably the most important thing to come out of that meeting was the idea that the FOMC and Chair Powell specifically pushed back pretty hard against the idea that they’re definitely going to cut rates again in December. So, going into the meeting, we had almost a full cut priced in for December.

Then, coming out of the meeting, the probability of that cut implied by market pricing had gone down to like 50-50.

It’s trended up a little bit since then, but it remains much lower than it was before.

And what this chart is just showing you is treasury bills at different points in time before and after the FOMC meeting.

And what you can see is that really move up in rates occurred at the six-months and 12-months point of the curve.

So we’re still pricing more cuts. That hasn’t changed, but the pace of cuts and the certainty that they’re going to be realized has certainly come down.

And we’ve gotten more commentary from Fed officials most recently from Jefferson kind of reiterating that idea that it’s not at all certain we’re going to get more rate cuts, especially when we don’t know what the data is actually telling us, given the government shutdown.

So despite the pushback against a December cut, market pricing still implies that you’re going to get more rate cuts in the coming years.

And we’re still seeing the lowest point in the treasury curve being about three months in the future.

So we’ll talk about that more as we get to funding, but the idea being that you’re getting a little bit more of a hawkish bed, December’s a live meeting with a lot of uncertainty, but we’re still expecting policy rates to come down from here, at least according to the FOMC and the markets for now.

So, let’s stay on that topic about the shape and level of the yield curve.

And one thing I do know about Bank and Credit Union executives is they all like a steep yield curve, right?

Because that means whatever’s coming in the door that day can be put on at pretty attractive spreads.

So, the legend got cut off here, so I’ll just explain what we’re looking at here.

So this is 25 years of yield curve data comparing the federal funds rate at the front end versus the five-year treasury, right?

That intermediate part of the curve that for a depository balance sheet drives a lot of the asset pricing. And so the light blue is from 2000 all the way to 2023.

The dark blue is the readings from 2024, and in green is 2025.

And as we all know by now, short-term rates have come down, but long-term rates have come down as well.

But it’s interesting to note that above the gray line, that’s where we have a steep yield curve, and below the gray line is where we have an inverted curve.

And there is this battle, right, between our need and want for a steep yield curve, but also at what nominal rates do we have a real preference for in terms of the drivers of earnings and risk.

And we’ll talk about this more later when we think about how far out we want to go or need to go on the asset side.

But I think in summary, when rates are very, very low, it diminishes the value of the deposit franchise, right?

And so there is that false sense of security, too. Well, we have a steep yield curve, but rates are nominally low.

So we’ll get into that more about the prospect of long-term and intermediate rates moving lower is the challenge.

And the interesting thing to note here, and Tyler is going to talk about this more in section three, is that, yes, long-term rates have come down.

But so there’s probably a lot of questions in our rooms going right now, and saying, hey, did we miss the boat?

Did we miss our window of opportunity?

And I wouldn’t necessarily say that’s the case.

Because if you were shying away from extending assets because of the slope of the curve, well, look at just the experience that we’ve seen over the last year and a half.

If you would extend it out in 2024, when those dark blue lines, dark blue markers were there, that was an inverted yield curve.

And we have seen a steepening of the yield curve, and we have seen nominal rates move down.

So those assets are well-positioned, certainly, as funding is getting cheaper and cheaper on the front end.

But where we sit today, we’re far from a steep yield curve, but flat is okay, right, in terms of the challenges that those pose.

So we take what we can get.

So let’s take a look at member banks, public member banks stock performance.

And while not all of you may be public, I think it has some value as far as the suggested sentiment lies, as far as expected earnings and then tangible book value increases.

So what we’re looking at is member banks cut up into four different asset-size buckets, indexed at 100 on January 1st of this year, looking at how performance did since then.

And so what we see pretty similar within the different buckets, the smallest banks actually outperformed, kind of I think catching up in some respects.

And if you look at that performance, very choppy, just with the very small market caps and small volume, but in general, very similar to the size, just one bigger than them and then to the largest banks, both being all three groups up between 5 and 10% from the beginning of the year after a bit of a round trip in both directions.

And then that one bucket from $500 million to $1 billion lagging just a little bit, but still up on the year, more generally as far as I think what may have drove this over the past course of the year.

At the beginning, there was some kind of bullish sentiment.

Things ran up on the new administration, kind of hope around deregulation, that kind of thing, maybe lower front-end rates.

Then as the kind of tariff talk came onto the table and fears over inflation, maybe the Fed having a harder time cutting in light of that, we saw things pull back and then the big move downward on that liberation day.

But then, since then, things have kind of slowly cropped back up as fears over longer-term inflation.

kind of subsided and then we actually saw a couple cuts come to fruition more recently and if you see that kind of that peak at the end of September I think is kind of coincides when we saw that the largest expectation for cuts coming down the pipeline since then we’ve seen expectation for cuts pull back as mentioned by Caroline and this actually wasn’t able to get onto the chart it only happened yesterday but with even a further move back in the expectation for cuts, we saw kind of, I don’t want to say bloodbath, but yesterday was not a great day for regional bank stocks.

But so that is kind of what has been driving those dynamics so far.

You did say bloodbath, though.

I did say bloodbath.

So let’s pivot to talking about what’s happening on our balance sheets right now.

So we’ll hop around and we’ll talk about profitability.

We’ll talk about a deep dive into the composition and pricing on the deposit side, interest rate risk, and credit trends, asset quality, which I think is something that I know when we did our planning meeting, that was something that we really wanted to emphasize and relay the differences between maybe what’s getting talked about right now and what’s intuitive versus what is actually happening when we look at the data.

So let’s jump to looking at, start off simply looking at net interest margin.

And we’ll look at banks first before moving to credit units.

And the margin lift continues for banks.

And in fact, when we look at the median bank in our universe here in New England, the lift was as strong as it’s been since 2024, when the margin has been increasing.

So the median member went up by 14 basis points last quarter.

So, but I think that the biggest takeaway here, when we look at this visual and show them the percentiles, the 25th and 75th, and the 10th and the 90th, is that the key observation here is that there’s a much wider range of how people are positioned and also how they got there, right?

So we rewind to 2020 or even as far out as 2022, right?

When rate cuts were really starting to materialize, and that was the end of the deposit lag, the beautiful days of rates rising by being able to lag deposits to the upside.

The range, you can see those blue bars were much, much tighter.

So most folks were kind of sort of in the same place in terms of profitability, but the rise in long-term rates, the rise in short-term rates, and now the beginning of the fall has had differing impacts for folks.

So, you know, the thing there is there’s no, there really never is one-size-fits-all strategy or approach in terms of what folks are doing or what folks should be doing.

I think this really underscores the fact that the way that folks are positioned and the way they’ve got to where they are really has led to a wider variety of balance sheet exposures.

And I’ll note before we flip the credit unions, you know, on the bottom, one thing that we like to look at is on a quarter-over-quarter basis, how many members increased or decreased in a particular metric.

And so you can see some of those numbers there, NIM, 86% of members, interest income, 89%.

And Tyler’s going to dig into this more about how the asset side repricing has been the key driver here.

But this interest expense at 44% and getting close to that 50-50 of members haven’t been able to switch.

And that’s an increase in the last quarter.

I’ll expand upon this a little bit more when we get to the credit union slide right now.

Because that is something that is, I think, I wouldn’t say bloodbath or troublesome, but it’s something to keep an eye on.

So, a similar story here in terms of margin lift on the credit unions, but with a couple of key differences, in that the rate of change has not been the same in the last few quarters for credit unions.

The median credit union was able to expand by four basis points.

But the context here is credit unions didn’t experience as much of a drawdown in margin and profitability as banks did.

And we’ve talked about that in previous conversations about the stickiness of deposits relative to you know commercially oriented banks where credit unions had more of the retail focus that served them well but then also generally speaking the shorter asset profile both on the loan and the investment plus cash side as well but we are seeing that same story where there’s a wider range of NIM exposures again not to the same extent as the banks but I will point out this interest expense thing because this this runs counter to a narrative that we’re seeing and a lot.

Rewind a year or so ago, and people were doing cartwheels over the fact that short-term rates were coming down because there was the prospect of repricing the liability side.

Those CDs that we put on at the top of the market at five and a quarter, well, we replaced them at four, which is not too crazy about four, we’d rather have money market accounts well below that, or checking accounts, well, well below that.

But the fact of the matter is, you go from five to four, you’re going to increase your margin.

But I think that benefit has more or less exhausted itself.

So now here we are in this declining rate environment where we have to consider, and Carolyn’s going to talk a little bit about this, about deposit pricing sensitivity moving down, where we flip it around where a high beta is usually a bad thing, because we think about in the context of rising rates, but in the short-term rate, we want the ability to reprice quicker.

So that we have more or less 50% of members who are experiencing a rise in interest expense.

I certainly think that’s something that we have to keep an eye on because short-term rates moving lower isn’t necessarily providing the relief that maybe we kind of sort of thought it would be doing.

So now to take a look at what is driving them as far as the underlying components.

So, what we’re looking at here is both on the yield side and on the cost of fund side, what the change was from last quarter to this quarter, and then looking at both the median member and then 25th percentile and 75th percentile, and looking at the average of those yields and costs to make sure that it’s not being weighed too much by asset size or influenced by asset size.

And so, what we’re looking at first on the bank side, on the left, yields are increasing on all three buckets and that really is driving some of the increase in them that we saw.

And same thing for yield on investments, not quite as strong but ticking up in all three buckets.

Kind of interesting going one more over on the cost of interest-bearing deposits, a little bit of a bifurcation here.

I think to some extent that’s because some of the banks that already had low cost of funds, they’re kind of now being victim to some negative remixing as far as into the cost of interest-bearing deposits and some of the higher cost ones within that, say CDs versus money markets and savings, and out of the checking.

But then on the 75th percentile, those banks that had already had a much higher percentage of CDs and those being higher beta, they have seen some relief as those rates have come down.

And then on the cost of borrowing side, kind of another interesting dynamic, where I think maybe some of the banks that had really, some existing really low-cost advances, maybe haven’t had to borrow more recently, are staying, kind of not seeing as much relief or they haven’t done much new borrowing, and the rest are coming down with rate cuts.

And as we come down to the credit union side, yield on loan, same thing, kind of really driving one of the larger drivers of the increase in them.

And then interesting for credit unions on the investment side, I think, because they tend to be a little bit more into the floating rate investments, so less of an increase, and kind of mixed story where I think while some maybe had some increases, it’s being outweighed or offset by some who saw the floating rate yields come down.

And then I would say for the cost of interest-bearing deposits, kind of a similar dynamic where some of the shops saw negative remixing and then the other ones have seen TD rates come down and drive the lowering cost of interest-bearing deposits.

And then I think a more conventional story for cost of borrowings on that side mostly floating rate, and then if anything a lot of credit unions who had borrowed in the past are now being able to pay those down, so cost of borrowing is really coming down for them.

Yeah, so following up on the point that Tyler just made, I wanted to do a little bit of a deeper dive into what the cost of funds actually looks like for members in Q3.

So what this is showing you is just the cost of funds, the change in the quarter over quarter broken down into the different core tiles.

So starting with the fifth percentile, 25th, 50th, 75th, 95th percentiles, and then it’s also showing you the change in the effective Fed funds rate, going back to 2020.

And I think there’s really a couple points to take from this.

The first thing is that deposits exhibit positive convexity.

So it’s not just the level or the change, it’s the pace of the change and the rate that really matters for deposit pricing.

You all know that, but that’s pretty clear in the data here, right?

Even if you look at the more aggressive banks that are pricing their deposits to try and attract deposits, right, people that are in the 95th percentile, you really don’t see a major uptick in the cost of funds until you get to, you know, the second quarter of 2022, which is when we saw a really abrupt move in rates.

A couple of other things I think we can pull from this chart.

First of all, unfortunately, I don’t think that the last rate-cutting cycle gives us a lot of guidance on how to think about deposit pricing this time.

So obviously that was in 2020.

You can see here the green line.

You had the effective fed funds rate precipitously decline because you had COVID, and it was a rapid cutting cycle and massive policy intervention, tons of volatility.

But it doesn’t tell us much for two reasons.

First of all, if you look at the change across the board, even the aggressive deposit pricers hadn’t actually seen deposit costs move up that much at that point, right?

You had not seen high enough levels of interest rates or fast enough moves in interest rates where you saw deposits repriced to a high level.

So there really wasn’t that much room to fall, unlike this cycle, where obviously we’ve seen the cost of deposits move up a lot.

The second thing, which if you get to the present, right, to this last quarter here, you’re really not seeing, with the decline in the Fed funds rate, you’re not really seeing deposit costs come down yet.

And again, I really think that that’s because of the convexity property, right?

You think about it as effectively you’re selling an option to your customers, right?

To move their funds.

The move downward in the effective funds rate this time has been gradual, well telegraphed, and slow.

And what that means is that you’re not getting the ability to rapidly cut deposit pricing.

If you look at the 95th percentile here, you actually saw the cost of funds move up for that group over this period.

And I’m not telling you that you should like jump into at three basis points and really take a strong message from that, but I think the message is just that we’re not seeing the ability to quickly pass on a decline in the fed funds rate that has been well telegraphed and expected.

And maybe some of that might be exacerbated by the changes in technology, right?

We saw earlier in this hiking cycle that we had maybe a change in how lots of people are thinking about the duration of deposits, right?

As consumers are able to move money more quickly, it becomes a bit more competitive, right?

To get their money into higher-yielding things as rates moved up a lot.

It’s possible for this pure conjecture, but what the data is showing us is that as rates have moved down gradually, that’s not quickly being passed on.

So some of that competition for deposits seems to be influencing pricing in a material way that’s maybe offsetting some of the ability to quickly pass on these rates again, because they’re moving slowly.

So the next two slides are just looking at deposit pricing, breaking down this information from cost of funds into interest-bearing transaction accounts and then also time deposits.

And effectively, the story is more or less the same.

Obviously, what you’re going to see is more movement in CDs than you’re going to see in an interest-bearing transaction account, where rates are typically lower.

But really, what I wanted to point your attention to is the idea that the trends are the same again.

So in all cases, it’s the velocity of the change in the Fed funds rate that matters.

You’re not going to see a lot of guidance from the last cutting cycle because it was so abrupt.

And what you’re seeing is that, particularly, the more competitive institutions that are in the 95th and 75th percentile, you’re not able to see this pass through yet, at least in terms of the Fed cutting cycle.

So this is the data again for time deposits.

So I’m sure if you’ve been following Bloomberg or any of the financial news recently, you might have heard Jamie Diamond talking about cockroaches.

So I thought it’d be good to take a look, maybe pull up the mat and see where are those cockroaches or are there any in the New England depository landscape?

So first, taking a look at the bank sub, this is non-performing loans as a percentage of loans in various categories, as well as the total.

And it’s similar to the NIM components.

We’re looking at the average of the percentages, so we’re not being influenced so much by the larger versus the smaller institutions.

So what we’re seeing here, the cracks are really emerging.

There is a continued uptick in the percentage of non-performing loans out of total loans, starting on the left.

And this quarter, it’s all but one category.

The last few quarters, we’d seen it kind of a little bit more diverse as far as some going up, some going down.

This time it was only non-owner-occupied Cree, which had been, you know, the bogeyman reason, you know, past couple years has actually continued to tick down and strongly, but everything else has ticked up.

I think maybe the newer story is the kind of concern, and also the concern bearing out in the numbers on the consumer side.

We’re hearing about it, just stress over tariffs and just the general economy, a lot of layoffs going on.

We’re starting to see that bear out.

So residential starting to tick up where it had been flat or coming down.

And then also on the multifamily, you can maybe even read into the owner-occupied CRE versus owner, not owner-occupied CRE, kind of speaking to the consumer versus the businesses, and the consumers kind of really struggling.

CNI, not moving up as badly as it was previously, but still ticking up and construction.

After coming down, we’re hoping that it was going to continue to come down, but kind of right back up and taking up from Q1.

And so I think we can get on to the credit union side.

Thank you, Caroline.

Very similar story.

Things continue to creep up.

I do think it looks a little bit more dramatic than it really is, where there’s kind of an interesting dynamic with credit unions, where Q1 asset quality looks lower than it really is because tax returns come in, and then credit unions do a lot of residential origination volume in that period, so the denominator gets larger.

So while it looks like a real big jump so far this year, I would say it’s more of a steady creep.

And then coming over to the right, to the auto side, we’ll get to routine that up, but just kind of a more broad look, continuing to deteriorate both used and new autos, personal, really quite a large jump there, up to 170 basis points of 60 days past due as a percentage of loans, Cree getting better.

So similar to the bank side and the one to four family, I think, really speaks to that dynamic I mentioned, where the larger denominator, the tax refunds.

So it is really flat, I would argue over the year, if anything.

Yeah, I think Tyler made this point really well.

So I won’t belabor it, but you know, one thing that was sort of in focus over the quarter was that there was not a loan originator that defaulted, and it had a pretty big impact on affiliated banks, most of which were large banks.

This was in September.

So one thing we were curious about is, are you seeing an outsized underperformance in autos in New England, right?

The short answer seems to be basically no.

So, as Tyler just walked you through, most of the increased delinquencies in loans are in other spaces.

You do see an uptick in delinquencies in auto loans, but this particular data just cuts credit unions specifically into a group that has high exposure to used auto loans, so they’re above the 75th percentile of used auto loans to their total loans, versus a control group.

So just a group that has, they’re in less than the 75th percentile.

So they have more normal exposure to auto loans.

And you’re seeing those groups basically move in tandem.

So as Tyler pointed out, you are still seeing an uptick in delinquencies related to autos, but you’re seeing an uptick in delinquencies related to a lot of things.

So there doesn’t seem to be a specific story that’s about autos, despite the headlines that this particular story got.

And if I can add on one thing, I think this is an excellent point because when we started looking more closely at asset quality issues and seeing if there’s any smoke or fire, our initial observations a couple quarters ago was that it wasn’t wholesale, it wasn’t across the board, that it was on those folks who intentionally as part of their business model were seeking out higher risk, right?

And this was more for the real estate-related loans, particularly commercial, more so on the bank side than the credit side, right?

And we had some idiosyncratic issues, and customer one’s relationship went bad, and so that’s why that drove the uptick in some of those asset quality metrics.

But so if we used autos as a proxy for the consumer broadly, that’s not the same experience that we’re seeing on the commercial or corporate side.

Start taking a look at the office of the comptroller or the currency, the report that they do, it’s the interest rate statistics report. This is from fall 2025.

This is their all bank peer groups looking at or asking all the banks they regulate what they expect as far as risk in up and down interest rate scenarios for both net interest income and then and so kind of interesting starting on the net interest income side there’s only two bands where it’s actually in all three groups the 25th percentile the median and the 75th percentile where net interest income improves. And that’s in the up 100 and the up 200 rate scenarios.

I think that speaks to where there’s maybe more downside on yields coming down versus relief on the deposit pressure or deposit pricing side.

And one way to almost look at this chart is that you can kind of split it up into, sorry, not sharp, but with this table, both of them, you can split them up into four quadrants.

So kind of the top-left side being the asset-sensitive banks. So they see, you know, in a down-rate scenario, lesser net-interest income.

And then right below them, the liability-sensitive banks.

So if we see an uptick of three, 400 scenario of almost a 10% or above 10% decline in interest income, and then going on the right side, it’s the liability sensitive banks on top, not seeing a huge amount of upside, say if they come down 100 to 200 basis points.

Same thing goes in the opposite direction with the asset sensitive side. Some upside if rates come up, but not huge.

And then one of the really big takeaways is getting over to the economic value of equity, just a lot of downsides still in an up-rate environment.

So, looking at that 25th percentile, say if we go up 200 basis points, minus 15% or almost 30% if we go up 400 basis points.

And even for the median, there’s no upside.

Coming down rates, even down 200 basis points, no change, only up 1% in a down 100 basis point scenario.

So what we’re seeing is, well, there’s been a lot of recovery as far as those market-to-market values in the investment books and loan books.

There’s still a lot of risk if we were to return, not maybe as much upside as we’d like in a down-rate environment.

And then from that same report, from the control of the currency, we’re looking here at expectations about deposit beta, and then average light for a couple of different deposit types. So those core deposits, checking, savings, and money market.

And then the rates are just kind of looking at what are average rates in our members’ books.

And so what we see, the expected betas are very low on these core deposits.

I mean, these are really your key, the engine or the fuel that powers the engine of your bank, even in the money market, only as high as 35%.

So much lower than I think you would generally be expecting to see in your CED book. And these average lives are really compelling.

I mean, five years for checking, five years for savings, just under four years for money market.

So even if we go up 100 basis points, looking over to the right, the rates are going to stay very low on these deposits.

You want to protect these.

And case in point, looking towards the bottom now, this is a small case study in marginal cost of funds, looking at, so say your existing deposit cost was 2%, and you were looking to raise funds with a 4% CD special for a year.

And then what would that look like at various levels of deposit cannibalization?

And we see that even at 10% deposit cannibalization, this is going to cost you 422 basis points.

And if we get, if you had 50% of the funds that come into the special or from your existing 2% deposit base, it’s going to cost 6%.

And you compare that to the blue bar coming across the bottom, that’s the all-in cost of a one-year classic advance after the dividend discount.

So what this speaks to is, well, you want to protect those core, those core funding sources.

I mean, compare the one year, and if anything, your CDs that you’re doing right now are five months, six months, maybe four months.

Compare that to five years of duration on the checking.

So if anything, think about funding, you can keep your CDs of course, but maybe stay below market, backfill with advances, and then protect those really important core funding sources that you have.

So let’s think a little bit about growth in a couple of different ways.

So when we think about the growth in the loan portfolio, this frankly has been surprising to me, right?

Because of the change in market expectations with the move towards lower rates, softening of some of the economic data, despite Caroline saying that there’s not, hasn’t been a lot of recent things recently, but in our webinar last month, she pointed out a couple things to keep an eye on in terms of not just the headline number, but things that the Fed is probably thinking about as well.

So intuitively, we would all think, right, slowing, weakening economy, changing rates, exhaustion of loan growth was running at a fantastic clip for a long period of time, at some point, demand dies down, or the supply, the willingness of depositories to keep the spigot open may, may temper a little bit. But that hasn’t been the case.

Over 50% of banks saw loan growth in excess of 5% last quarter, and about 47% of credit unions.

So you can see by the lighter colors there, it hasn’t really dropped too far to where loan growth has fallen off a cliff.

And I think there’s a couple of things that we won’t dive too deep into, but I think in contrast to what’s happening nationally, economically, I think a lot of markets here in New England, some more than others, are still doing extremely, extremely well.

We did something for a presentation up in Maine last quarter, and we were looking at county-by-county unemployment rates, and it was as good as it could probably get, right?

So that’s different than maybe what’s happening nationally.

The deposit growth story is a little more challenging, and this marries with the qualitative feedback that we hear from you all on a day-to-day basis.

Deposit growth is still hard to come by and even when the top line deposit growth number is kind of sort of okay It’s probably not coming in the types of products and at the rates that are Making you feel good about you know those deposit growth numbers coming in so flat for credit unions We can see on the right hand side at the median not even 2% for banks The scatter pod on the left is interesting.

It shows where the growth in CD reliance has come from.

And it’s two different stories for banks and credit unions.

Interestingly, the folks who have over the last four years, so that was September 21 was more or less the trial in rates before things really took off to the moon.

And there’s no correlation between who was reliant on CDs at that time versus who has been able to increase reliance on CDs at the most recent quarter for banks.

But for credit unions, it was the folks who leaned hard into CDs in the first place.

They doubled down their efforts and really led the way with the use of certificates of deposit.

So loan growth has been pretty good.

Deposit growth has not been that great.

Asset growth has trailed loan growth.

So, and this marries what we see on our advanced book, right?

As we know how that math equation works, right?

Loans are here, deposits are there, you fill in the gap with the funding.

Well, yes and no, it could be funding, liabilities, or it could be the remixing of the balance sheet.

And I think that’s really the story that’s going on, right?

Folks aren’t adding or even maintaining the investment portfolio at the level that they had in previous quarters.

Maybe it was part of the, oh, we feel like we missed the bone on rates, we’ll get to that in a minute.

But so we have this idea where total asset growth is tame despite loan growth, more or less rocking and rolling.

So I think that leads to continued use of liquidity and tightening liquidity, even despite maybe some pay down of wholesale, because that’s going to get the loan to deposit ratio up if we use that as a quick and dirty proxy for liquidity.

So let’s pivot to section three, talking about balance sheet strategies.

So we’ve been doing a lot of hiring and interviewing here.

And one of the questions, I’ll give you a hint, if anybody wants to interview for a job here, one of the questions we like to ask is, what’s keeping banks and credit unions up at night?

And I caveat that and say, you can’t say everything, but the answer kind of is everything sometimes.

So if we flip to the next side will give us an example of it’s not everything, but it’s a lot of things That may be keeping us up at night.

And I think that the things too, and we’ve talked about this a little bit is that conditions are changing very rapidly right, even if they’re changing subtly, right.

It’s not like 2020 when short-term rates came down 300 basis points and in a short period of time, anybody could see okay conditions that change, right?

But this gradual 25 basis points pause 25 basis point doesn’t seem like a sea change in things but I think I think we really have to hammer the point that and Tyler showed this with the interest rate risk report the prospect of rising long-term interest rates or long-term interest rates have been risen isn’t necessarily the problem from an be not being able to reprice the asset book at these, even still, at these very, very high rates.

The liquidity aspect is another issue, right?

We’ve seen it multiple times over the past couple of years, how quickly we can go from, oh, liquidity is the last thing I’m worried about, to liquidity is everything, right?

So there is a little bit of staring into the uncertain future and trying to out and marry what we think about long-term interest rates, excuse me, about interest rate risk and liquidity risk as it relates to all the things that are coming into play.

And then before I hand it to Caroline and Tyler for a couple of ideas, you know, up top, we’ve talked about asset quality.

There is the prospect that we’re so focused on interest rate risk and liquidity risk and how it changes and how it’s different than maybe it was a year or two ago.

But those of us who’ve been around know that it’s asset quality, lending, and credit. That is normally the thing that creates major problems for depositories.

So it’s been so far so good. There’s been some cracks starting to emerge. But you know just add it to the list. Alright, so thinking about funding costs, right?

We’ve given you guys a lot of data to think about in terms of Deposits and how to price them. I think the key things that come out of all of this data, if you’re going to take a couple of things away, it’s that last cutting cycle isn’t relevant because the volatility was too high compared to this cycle.

There’s a lot of competition, right?

Exacerbated by technological change for deposit pricing.

And so far, we’re not seeing the ability to pass these very gradual cuts into deposit costs, particularly when the Fed is pushing back on the idea that you’re definitely going to get more cuts.

So what does that mean?

The data here just shows you a bunch of different ways you can think about funding.

So it’s broken down.

It’s giving you the 25th, 75th and 50th percentiles for cost of time deposits, cost of transactional accounts.

And the reason I’m showing that data is because I want to recognize that different institutions have different business models, right?

There are some of you who are going to be very aggressive with your deposit pricing because that’s how your business works.

There are others of you who are going to be more reliant on wholesale funding, or you were going to think about the specific types of asset lending, that’s how your business works, right?

But what I would encourage you to do is think about, in addition to things like the cost of time deposits or the cost of transactional accounts, how can the FHLB work with you to provide funding where you need it?

So I’ve also included here one-year FHLB fixed advanced, two-year and three-year FHLB fixed advances, and then also the FHL Bank option advance.

So, you know, it’s really important anytime we’re talking about the option to note that that only secures funding for the lockout period, which you will determine at the time of the contract.

But it generally means that you’re paying less on that advance than you would for the fixed rate because the FHL Bank has the option to close the loan at the end of that lockout period if rates move in the way that works for us.

And I think what I want to highlight here is a couple of things.

First of all, if you’ve got really low-cost transaction accounts, if you’re in the 25th percentile of transaction accounts, you’re doing great, right? This isn’t for you.

But if you’re somebody who has to think about, okay, what’s the value of doing a CD versus thinking about wholesale funding from FHL Bank?

Some of these costs are quite comparable, particularly if you can think about extending your funding at all, because as we’ve mentioned earlier, the three point of the curve is still lower yielding than the very front end of the curve.

So again, you should think about your own institution, you should think about what makes sense for you, but it might be worth considering if you could integrate some FHL Bank funding options, particularly funding options that include FHL Bank options or extending further at the curve if you’re trying to reduce your cost of funds, and that makes sense for your business as well.

So let’s take a look at an investment leverage idea that Andrew teed up a couple of times during the presentation.

And so the idea here is funding, say, five-year assets, longer assets, kind of extending out, but then funding it with a much shorter, say, one-year or even shorter advance.

The idea being, I don’t know, many of you got maybe burned a couple of years ago by extending out, but now in a falling rate environment, really is the time to extend out on the asset And then fund shorter where those prices, there’s a cost price into the curve, and maybe you have deposit price, deposit growth coming in so that you maybe at the end of that, you know, short advance, you can put it back and you now have this, this great higher yielding longer term asset, and lower interest expense.

And so, as mentioned by Andrew, it’s kind of the idea dates back to earlier this year or even late 2024, when we discussed this, it was actually our February webinar, this idea where you can put on, say, a five-year investment, maybe MBS, and then fund with a one-year advance.

And so your day one spread, maybe say like 75 basis points.

So, looking at the chart, we’re comparing here the five-year yield, and then minus the one-year yield.

So the green line is the spread between them.

And so looking back at the beginning of this year, that spread was in that 20, 30, actually, almost got 40 basis points.

So, including the additional credit spread with whatever investment you’re doing.

So we were talking about 75 basis points of day one spread.

But if you did that then, now with how the short end of the curve has come down, maybe you have 150 basis points of investment leverage spread, but certainly above that kind of 100 basis point, golden mark that you want to get above to really make your investment leverage worth it.

But so you’ll be asking yourself, Well, that’s great, if you did that earlier this year, but can I still do it now?

Well, the chart suggests that that window of opportunity has reopened where, as you see, the five-year yield has leveled off.

It really hasn’t come down much.

It’s even going to come up a little bit since September with rate cuts, expectations dropping off.

But the short end of the curve has come down in that time.

So this has created a positive spread again.

So even though it’s maybe in that 10-basis-point spread, you add the credit, a spread on top of that.

So maybe you’re getting a day one spread of 50, 75 basis points.

And so if we get those cuts that are priced in right now, it might be a very similar scenario where, you know, in a year from now, you’re looking at, you know, 100 basis points investment spread. So you may be asking, how do I fund this?

Well, we’ve got a couple options for you at the bottom, kind of depending on what your expectations are, as far as liquidity or expectations for, you know, rates going forward, then also your current liquidity needs and expectations for loan and deposit crew.

So if you are, you know, maybe not so tight on liquidity, not much of a concern, but you do want exposure to rates as they fall.

Go with the one-year SOFR, currently priced 17 basis points above SOFR.

So that’s the one-month term.

You can ride the cuts down, easy exit.

If deposits come in, you don’t need that funding.

Or maybe you have a little bit more of a liquidity need, but you still want to ride rates as they come down.

The six-month slash, three-month call with SOFR, that’s a six-month structure, callable after three months.

There’s one more basis point that you’re paying up.

So 18 basis points above SOFR.

So you get that little bit of a term addition on the liquidity or on the liability, and then plus your riding rates on the way down.

You can give it up for three months if you don’t need it or you need a little bit more of a liquidity need and so you want to take advantage of cuts that are priced in.

You’re not so sure what’s being predicted are going to come to fruition. Go with the one-year advance.

All those cuts are priced into our curve.

Get that one year of liquidity, and say after a year, you don’t need the funding anymore.

As mentioned, you can give the advance right back, and now you have got that investment still on the books.

And then the last one, forward starting advance, say, you don’t really need the cash today.

And you want to preserve that liquidity on the books, but you do expect growth to come later.

Lock in the rate; all those cuts are priced in.

And then say, you know, you don’t need the funding for the next year, but you expect it for years two, or one through one through three, you save out on not having to do any unnecessary interest expense in the meantime.

So let’s think about mortgages for a second.

And going back to that prior comment about things are evolving, even if it’s not flashing red lights.

The move down in long-term rates has been more prevalent in mortgages than in treasuries.

And we have seen some spread tightening in mortgages relative to treasury rates. So we can think about a couple of different dimensions.

We can think about steady as she goes on new production and to what extent that you have activity on the new purchase side, or even a blast from the past, refi activity, right?

We haven’t had a ton of conventional refi activity over the last couple of years, but there may be some activity for folks who bought homes and got loans six, 12, 18 months ago.

So, if you’re not a part of our MPF program as a PFI, participating financial institution, I strongly encourage you to reach out to your relationship manager or member of our MPF team, because it’s got a lot of great options to be able to manage the liquidity rate and credit risk on the mortgage side, not just for new production or semi-season loans, but also on the super-season loans.

And this is something when we talk about balance sheet restructuring and positioning for the way you need and want to be.

When you think about those 3% loans that you put on the balance sheet because liquidity was so, so plentiful out of nowhere, those have a drain on your interest rate risk and your earnings and your liquidity profile.

So when you think about the fact that there’s very minimal prepayment risk there, and spreads have tightened, and rates have come down.

So the marks, and I know we don’t have to pass through the marks into other comprehensive income like we do with investments, but those levels have improved.

So maybe they were 80 cents on the dollar, now they’re closer to 90 cents.

So to the extent that there’s opportunities to calibrate all of the various risks and prospects of return that are floating out there in the air, that’s something that you can look at as well in order to sell seasonal loans and then reposition.

You can do it for a number of reasons.

You could do it because you want to create capacity, because maybe you’re hitting policy limits on the amount of arms that you have on books.

Maybe you want to, you have surprisingly strong commercial loan or auto loan growth, right, where there’s going to be more spread, so you can redeploy.

You can sell the residential loan and move into those other targeted loan areas.

You could reposition into investments, right, to align your interest rate risk at the top of the house where you want it to be.

And also, you could use that to pay down wholesale funding, pay down advances, and deliver the balance sheet and maybe prepare for a credit storm that may be coming.

So it’s a lever that’s out there.

So reach out if you want to discuss further.

So naturally, the last point I make is how to pay off advances efficiently.

So, you know, don’t tell our bosses.

But so, you know, we’ll wrap things up here.

Again, thank you.

This is, you know, one of our favorite things to do.

Just a couple of things that are relevant to point out.

You know, we do a lot of work with all the regulatory bodies, and, you know, as everyone knows, in the last couple of years, there has been a big push for tapping all sources of liquidity.

I certainly have lines set up at the Federal Reserve and whatnot.

And even if you are in the fortunate position, as Caroline talked to, you have all the transaction, low-cost transaction accounts in the world, there still is an awful lot of merit in making that you’re airtight on the process of being able to move collateral and borrow from us, right?

And you pat yourself on the back, right? You document it and you say, here’s what we did.

We didn’t need to do it, but we did it. And we showed you exactly how we need to do that.

So I think there’s a lot of merit, again, that we call proactive regulatory defense, which I think is probably something you all can certainly appreciate. We have a webinar coming in a couple of weeks.

Frank Farone from Darling Consulting Group will be up with us to help throw some ideas out into the universe about what we should be thinking about and doing for 2026.

So we always enjoy when a friend comes on board.

So I think that you’ll see that invite coming from us soon.

And the last thing that I’ll say here is, we have big plans for 2026 from our side of the house.

These guys have their sea legs here; they’re grizzled veterans now at this point.

So, you know, we are really going to be diving deep into the strategic content side, building analytical resources, and the like.

And we really appreciate the chances to interact directly with you all.

So please, we’re not hard to find.

If there’s things that you like, you don’t like about us, or things you would say, hey, it would be great if the Home Loan Bank could do X or Y.

Please reach out.

We would love to incorporate any feedback or considerations there, again, because we’re, you know, that’s where we’re about and that’s where we’re going to spend our focus and energy.

So with that, I think we can wrap things up. Appreciate the time and participation.

And again, I hope everybody has a great rest of the day and great rest of the year.

Close up 2025 on the strong. Thank you