We are pleased to report that in 2019 the Federal Home Loan Bank of Cincinnati (FHLB) again fulfilled its mission as a reliable provider of liquidity. The Bank continued to provide value to members with reliable products and services, a competitive dividend, and education and information.
Our mission is to provide member-stockholders with financial services and a competitive return on their capital investment, so that they can facilitate housing finance and community investment and achieve their goals for asset/liability management. In 2019, we paid a solid dividend to members, funded more affordable housing than ever in our history, and led new efforts to interface with members on issues important to their prosperity.
Financial and operating performance
Earnings declined to $276 million in 2019 from a record of $339 million in 2018. The primary causal factors were smaller spreads earned on Advances and lower average Advance balances. Growth in Mortgage Purchase Program balances and in portions of our investment portfolio were positive contributors to earnings in 2019.
Our dividend is a strategic component of how we deliver value to our members. We paid an average dividend of 5.05 percent in 2019 – significantly higher than the level of short-term rates.
Our retained earnings ended the year at nearly $1.1 billion, an increase of $71 million from year-end 2018. We believe we have an ample amount of retained earnings to protect the value of your capital ownership in the FHLB.
Total assets at year-end were $93.5 billion, down 6 percent from year-end 2018. Advances ended the year at $47.4 billion, down from $54.8 billion 12 months earlier. We executed more than 10,709 Advances during the year, providing members with $1.3 trillion in funding. Our ability to quickly facilitate member liquidity needs is a significant benefit of membership. In 2019, we boosted our own liquidity to ensure we stand ready to fulfill member needs in all economic and financial environments.
Our Mortgage Purchase Program (MPP) achieved a record: nearly $11 billion in mortgage loans held in portfolio, a net increase of $709 million, or 7 percent, from year-end 2018. MPP has grown each year since 2014. This program helps us fulfill our housing finance mission and is an important contributor to earnings and dividends. MPP users can both increase their liquidity and minimize risks associated with holding mortgages in portfolio.
We are transitioning away from products linked to the London InterBank Offered Rate (LIBOR). In 2017, the Federal Reserve endorsed a rate called the Secured Overnight Financing Rate (SOFR), and the FHLBanks have begun adopting it as an additional benchmark for debt issuance and Advances. The Federal Home Loan Banks are an industry leader in issuing SOFR-linked debt, which continues to gain acceptance in the market. Our regulator, the Federal Housing Finance Agency, has issued deadlines that will affect our ability to issue longer-term Advances linked to LIBOR. You will hear more from us on this topic throughout 2020.
Community Investment Programs
Earnings in 2018 resulted in a $38 million set-aside for our Affordable Housing Program in 2019. Our Housing and Community Investment (HCI) programs again provided a multitude of opportunities for our members to help their communities flourish. Through our competitive Affordable Housing Program, a record $30.9 million was awarded in 2019 through 34 members, to help create 2,253 units of affordable housing in the Fifth District and elsewhere. In all, 233 members took part in one or more of our HCI programs.
Two programs highlighted FHLB Cincinnati’s ability to shape communities for the better in 2019. In October, we joined with Habitat for Humanity of Greater Nashville and several members to sponsor the 36th Jimmy & Rosalynn Carter Work Project. The efforts of thousands of volunteers yielded 21 new homes for deserving families.
In Dayton, Ohio, where a series of tornadoes over Memorial Day weekend damaged some 6,000 homes, FHLB Cincinnati is working with members and sponsors to help homeowners recover from the devastation. By year-end 2019, we disbursed nearly $300,000 to Daytonarea residents, and work continues in 2020. We also plan to help Tennessee residents rebuild, following deadly tornadoes that struck in March 2020.
The Board and Senior Management
For 2020, members re-elected three incumbent directors, elected a new director from Ohio, and a new director was appointed. In the Ohio Member Director election, incumbent Director Robert T. Lameier, President & CEO of Miami Savings Bank, Miamitown, was re-elected. Newly elected as an Ohio Member Director was Jonathan D. Welty, President, Ohio Capital Finance Corp., Columbus. In addition, appointed by the Board to fill the remaining two years of an Ohio Member Director’s term was Kathleen A. Rogers, Executive Vice President, Director of Capital Stress Testing & Financial Systems at U.S. Bancorp and U.S. Bank, Cincinnati.
Re-elected as Independent Directors were the Board’s chair, Donald J. Mullineaux, DuPont Endowed Chair in Banking & Financial Services Emeritus, University of Kentucky, and incumbent Director Charles J. Ruma, President, Davidson Phillips Inc. The FHLB Board also re-elected James A. England to serve as Vice Chair of the Board. He has served on the Board since 2011 and in the capacity of Vice Chair since 2018.
We bid farewell to Michael R. Melvin, who served as a director for 21 years. Mike’s long tenure on the Board allowed him to put issues in perspective for newer directors and management. In his life and business career, Mike embodied the principles that the FHLB aspires to: reliability and service to others, community service, family and citizenship. We wish Mike well.
FHLB Cincinnati also saw some changes in senior management. Roger B. Batsel was promoted to Executive Vice President, Chief Operating Officer, from Senior Vice President, Chief Information and Operations Officer. James G. “Greg” Dooley, the Bank’s Executive Vice President, Chief Risk and Compliance Officer, retired April 3, 2020, after 13 years of service. He is succeeded by Daniel A. Tully, as Senior Vice President, Chief Risk and Compliance Officer. Dan joined the Bank in 2006.
As we write this report, our FHLB has joined the FHLBank System, the nation and the global financial community in addressing the economic impact of the coronavirus pandemic. Over the past eight decades, the FHLB has weathered a wide range of business downturns. We do not yet know the extent of the economic damage to be brought by this unprecedented health crisis, but we are confident that we will remain engaged and focused on the steps we can take, small or large, to help calm and stabilize the communities served by our members and stakeholders.
At FHLB Cincinnati, our compass is our mission, vision and values. In 2019, we applied these to a stronger and more deliberate strategic planning process, aimed at making our operations more efficient and ready for future opportunities, engaging our employees, and creating more value for your membership. That’s why the theme of this report is “Advancing Forward.” It’s about how we look to the horizon and beyond and how we’ll position the Bank to be your trusted and reliable partner no matter what the future brings. We are grateful for your support and we look forward to serving you as your Federal Home Loan Bank.
Donald J. Mullineaux
Chair, Board of Directors
Andrew S. Howell
President and CEO