Federal Home Loan Bank of Pittsburgh Year-end and Fourth Quarter 2015 Member Conference Call

February 23, 2016 at 9 a.m. EST

WINTHROP WATSON

Good morning and thanks for attending our quarterly member call. I’m joined by Kris Williams, Chief Operating Officer and Ted Weller, Chief Accounting Officer. This morning we’ll be talking about fourth quarter and full-year 2015. I’m happy for the opportunity because, by any measure, 2015 was an outstanding year.

Ted will discuss our financial results, then Kris will present information about Bank products and services that can help your business. And finally I’ll return to welcome any questions or comments.

Our remarks will be accompanied by slides. If you cannot access the slides, please email “IR at f-h-l-b hyphen p-g-h dot com” right now and we’ll forward them to you.

As always, please note that elements of this call are forward-looking, based on our view of broad housing, financial and other market conditions, and our business as we see it today. These elements can change due to changes in our business environment or in market conditions. Please interpret them in that light. Also note that a transcript of this call will be available on our website by tomorrow morning.

Last week’s earnings release included the following highlights:

• Net income of $257 million for 2015, highest in the Bank’s 83-year history

• Advances of $74.5 billion, highest reported balance ever

• Letters of credit at $20.2 billion, highest year-end balance ever

• Our 2015 AHP funding round was the largest in the program’s 25-year history

• And retained earnings were the highest in our history, at $881 million

The Board declared dividends of 5 percent annualized on activity stock and 3 percent annualized on membership stock. These dividends were paid on February 19.

As you can see, 2015 was a record year in many ways. While it’s nice to set records – great, actually – the real news is that this performance was driven primarily by member activity, which reflects the relevance of the co-op to your institu-

tion. To review our financial performance for 4th quarter and year-end in more detail, I’d like to turn the call over to Ted Weller, our Chief Accounting Officer. Ted…

TED WELLER

Thanks, Winthrop, and good morning. I am glad to be with you today to provide an overview of our financial results and the key drivers behind them. Please note the disclaimer language contained on slide 2. Moving to slide 3 – The Bank recorded net income of $256.5 million in 2015 compared to $255.8 million in 2014. The increase was primarily due to higher net interest income and an increase in all other income, partial-

ly offset by lower gains on litigation settlements, net of legal fees and expenses. Net interest income was $317.8 million for 2015, an increase of $34.7 million compared to $283.1 million in 2014. The year-over-year increase was primarily due to higher interest income from growth in advances.All other income increased $24.5 million year-over-year. The drivers of the higher other income were mark-to-market adjustments to derivatives and trading securities along with increases in letter of credit fees. Gains, net of legal fees and expenses, on litigation settlements of claims against certain defendants arising from investments the Bank made in private-label mortgage-backed securities were $15.3 million for 2015 compared to $70.9 million in 2014. These results allowed the Bank to set aside $28.5 million for affordable housing programs.

The net interest margin declined four basis points primarily due to the runoff of higher-yielding assets that have been re-placed with lower-yielding assets as interest rates continue to remain low. Please turn to the next slide.

This slide compares the fourth quarter 2015 net income with the prior four quarters. Excluding the items in the table, which are not part of our normal run rate, net income was $51.2 million in the fourth quarter of 2015, $14.1 million lower than the third quarter of 2015 and $6.7 million lower than the fourth quarter of 2014. The decrease in financial performance is primarily due to the decline in the net inter-est margin which more than offset the growth in average advances. Please turn to the next slide.

Total average assets for 2015 were $89.2 billion, up 24% from 2014 due to growth in advances. As of December 31, 2015 advances were $74.5 billion, an increase of $11.1 billion, or 18% from 2014. Advance growth in 2015 was driven primarily by increased demand from larger members; however, advance volumes increased in all member clas-sifications.

Capital stock was $3.5 billion at December 31, 2015, up 16% from 2014 due to purchases to support advance growth. Retained earnings at December 31, 2015 totaled $881 million, an increase of $43 million from year-end 2014 reflecting earnings for 2015 less dividends paid. Please turn to slide 6

This slide provides a summary of the Bank’s capital require-ments. At December 31, 2015, the Bank continues to be in full compliance with all regulatory ratios and permanent capital exceeds the risk-based requirement. Also at Decem-ber 31, 2015 the ratio of Market Value of Equity to Capital Stock was 127.9%, down slightly from year-end 2014 due to an increase in capital stock as a result of the growth in ad-vances. Please note the Bank expects to release its annual report on Form 10-K on March 10, which includes additional information. This concludes my presentation, and now I’ll turn the call back to Winthrop.

WINTHROP WATSON

Thanks Ted. There’s no question that 2015 was an outstanding year for our cooperative. We are grateful for your business, which was the primary driver of our success.

Before I turn the call over to Kris for a discussion about your business, I’d like to comment briefly on the dividend. Last year at this time, we were talk-ing about dividend differentiation, paying different amounts on activity stock versus membership stock. You’ve now had 4 quarters of differentiated dividends, and the response has been positive.

As we discussed last year, management and the Board agree that rewarding users of the cooperative is important. Also, as announced last year, the amount of difference between the two subclasses of stock is likely to widen, beginning with the first quarter dividend, which will be paid in April. Management and the Board are currently reviewing the various options for the April dividend.

Finally, we’ve had some inquiries about last year’s special dividend. You’ll recall that dividend was primarily due to the significant litigation settlements in 2014, and, accordingly, there will be no special dividend for 2015.

We’ve had good dialogue and feedback from many of you in this process, and I look forward to continuing the conversation. Please feel free to reach out at any time. At this time, I’d like to turn the call over to our Chief Operating Officer, Kris Williams. Kris…

KRIS WILLIAMS

Thank you Winthrop, and good morning to everyone on the call. Ted and Winthrop recapped 2015 from a financial perspective, and I want to reinforce some key themes on slide 8. Our record financial performance demonstrates the rel-evance of all of our Home Loan Bank products. Last year I was excited to announce advances at $63.4 billion. Well guess what? Year-end 2015, highest quarter-end balances ever at $74.5 billion. And most importantly, all member seg-ments were up year-over-year.

We also introduced two new advance products and one new jumbo MPF product during 2015. It was the largest Afford-able Housing funding round ever, and we implemented a differentiated dividend, rewarding users more than just members.

Turning to slide 9, I want to reinforce that it’s your co-op. You are both the shareholder and the customer. Your activity affects the vibrancy of the Bank. My talk is about the value proposition of membership: your rewards as a shareholder as well as your rewards as a customer.

The next slide shares with you a picture I’ve used often showing the power of combining shareholder and customer. I also added some measures of the value components that I will briefly walk through in the blocks beside the circles to the left.

Moving to the next slide, first, as a shareholder, you want a vibrant Bank. Federal Home Loan Bank vibrancy is driven by member activity in the Bank. The largest asset and the big-gest driver of vibrancy is advances. Total assets are in blue and advances are in red. And as you can see, advances have seen significant growth in the last five years. Additionally, our other core products such as the MPF Program and letters of credit have also progressed positively.

Second, as a shareholder, you care about the value of your stock. The Federal Home Loan Bank stock always trades at par. Therefore, our goal is to maintain a market value above par value at all times.

As you can see, 2015 was down from 2014. The decline in the market value is driven primarily by advance growth. As you all know, you must capitalize your activity at your co-op, and when market value is above par and a new advance is executed, the purchase of capital stock at par reduces the total market value of the Bank.

Third, as a shareholder, you need a financial return. The red line shows return on equity, a standard measure of return; it has im-proved significantly over the past five years. As Ted noted, 2015 results are generated from core member activity, whereas 2014 benefitted from litigation gains. Management is keenly aware that a reliable dividend is important to membership value.

Our intent, as Winthrop noted, is to continue to pay a differen-tiated dividend based on activity versus membership, which is denoted in the blue line, rewarding users more than non-users. And by the way, a 5% return in today’s environment is defi-nitely meaningful on activity stock.

And finally, as a shareholder, you care about a strong capital position. In the top chart, the red line represents total capital, which consists primarily of your capital stock and retained earnings. The green line is the risk-based capital requirement. The Bank exceeded all regulatory capital requirements over the five-year period presented.

The bottom chart shows retained earnings in red, and as you can see, retained earnings have grown substantially over the past five years. Green is our internally developed retained earnings target which has been exceeded since 2012. Additional accu-mulation of retained earnings is expected, as we view retained earnings as the risk-absorbing capital in your co-op.

In summary, I have reviewed with you four key measures as a shareholder: a vibrant Bank, stock value, financial return and strong capitalization. And now, as a customer, there are key measures as well.

The first and foremost, is access to liquidity. Your membership and borrowing capacity provide access, and true liquidity comes from advances. Attractive advance pricing depends on our ability to raise attractively priced funding in the capital markets. When compared to Treasuries, the Home Loan Bank funding levels are very attractive as noted in the top chart. The blue is our five-year average funding levels and the green is the 12/31/15 level. The attractiveness is evident in the term part of the curve at two years and out, which makes it an excellent time to term out your advances.

If you are a LIBOR-based funder, you should look at the bottom chart. And while our funding is currently not priced as well as it has been on a longer-term basis, that’s due to recent market changes and swap spreads.

Second key measure as a customer, are the products and services we offer. Slide 16 shows a pictorial I use often and the next few slides provide high-level data on those products. As noted earlier, advances are core to a vibrant Bank. We of-fer a variety to meet your needs: fixed, floating rate, different terms and structure. We also have introduced new products to address evolving needs. We always are open to evaluating new products to help you meet your business needs – all you need to do is ask.

Another key product are letters of credit. Members can use letters of credit to improve the credit rating of certain transactions. Letters of credit for public deposits have been very popular and it allows members to retain securities for liquidity and other purposes. We also offer other types of letters of credit. Please check with your relationship manager for additional details.

The third core product is our mortgage purchase program called MPF. It’s a competitive alternative to selling mortgages to secondary market agencies. Servicing can be retained or sold, and we offer various products.

Next is a suite of products to help the communities you operate in – in effect, a community dividend. Our flagship

Winthrop Watson President and Chief Executive Officer

Edward V. Weller Chief Accounting Officer

Kris Williams Chief Operating Officer

product, the Affordable Housing Program, provides housing to low-income families and individuals in competitive fund-ing rounds. Banking On Business, or BOB, is a recoverable assistance program to help eligible small businesses with start-up and expansion costs. Our Community Lending Program provides low-cost loans for qualified projects that create hous-ing, improve business districts and strengthen neighborhoods. Our First Front Door program provides assistance to first-time homebuyers for down payment and closing costs.

And finally, outstanding customer service. We pride ourselves in our customer service and hope that you always have a positive experience with the Bank. So to recap, to maximize your membership value as both a shareholder and a customer, remember it’s your co-op. And we think the value proposition is great. And now I’d like to turn the call back to Winthrop.

WINTHROP WATSON

Thanks Kris. Before I open the lines for your questions, I’d just like to pause to say thank you – for your business, your sup-port and for making 2015 an incredible one for our coopera-tive. I know I speak for the entire Bank when I say that it is truly our pleasure to work for you. We are mindful you are the owners, and we never take that for granted.

601 Grant StreetPittsburgh, PA 15219

www.fhlb-pgh.com

Statements contained in these slides, including statements describing the objectives, projections, estimates, or predictions of the future of the Bank, may be “forward-looking statements.” These statements may use forward-looking terms, such as “anticipates,” “believes,” “could,” “estimates,” “may,” “should,” “will,” or their negatives or other variations on these terms. The Federal Home Loan Bank of Pittsburgh (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, the following: economic and market conditions including but not limited to, real estate, credit and mortgage markets; volatility of market prices, rates, and indices related to financial instruments; political, legislative, regulatory, litigation, or judicial events or actions; changes in assumptions used in the quarterly Other-Than-Temporary Impairment (OTTI) process; risks related to mortgage-backed securities; changes in the assumptions used in the allowance for credit losses; changes in the Bank’s capital structure; changes in the Bank’s capital requirements; membership changes; changes in the demand by Bank members for Bank advances; an increase in advances’ prepayments; competitive forces, including the availability of other sources of funding for Bank members; changes in investor demand for consolidated obligations and/or the terms of interest rate exchange agreements and similar agreements; changes in the FHLBank System’s debt rating or the Bank’s rating; the ability of the Bank to introduce new products and services to meet market demand and to manage successfully the risks associ-ated with new products and services; the ability of each of the other FHLBanks to repay the principal and interest on consolidated obligations for which it is the primary obligor and with respect to which the Bank has joint and several liability; applicable Bank policy requirements for retained earnings and the ratio of the market value of equity to par value of capital stock; the Bank’s ability to maintain adequate capital levels (including meeting applicable regulatory capital requirements); business and capital plan adjustments and amendments; technology risks; and timing and volume of market activity. We do not undertake to update any forward-looking information. Some of the data set forth herein is unaudited.

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