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Fed Policies and Their Impact

Community Bank DayPrinceton, NJ

Jim ReberICBA Securities

New Fed Roster

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Before: Chairman Ben Bernanke Dove Governor Sarah Bloom Raskin Dove Esther George, Kansas City Hawk James Bullard, St. Louis

Moderate Charles Evans, Chicago Dove Eric Rosengren, Boston Dove

New Fed Roster

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After: Vice-Chair Stanley Fischer* Wild Card Governor Lael Brainard* Dove (?) Narayana Kocherlakota, Minneapolis Dove Richard Fisher, Dallas Hawk Sandra Pianalto, Cleveland Moderate Charles Plosser, Philadelphia Hawk

*Yet to be confirmed

Net Change: Slightly more hawkish

New Fed Roster

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More work to be done Looking for replacement for Gov. Raskin Looking for replacement for Gov. Stein Cleveland Pres. Pianalto has announced intention

to retire

Say What?

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March 19 FOMC Press Release

“The Committee currently judges that there is sufficient underlying strength in the broader economy to support ongoing improvement in labor market conditions.”

“In determining how long to maintain the current 0 to 1/4 percent target range for the federal funds rate, the Committee will assess progress -- both realized and expected --toward its objectives of maximum employment and 2 percent inflation.”

“The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.”

10-Year Treasury NoteMarch 19

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Projected Inflation

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http://www.federalreserve.gov/monetarypolicy/fomccalendars.htm

FOMC Aggregate Fed Funds Target

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March 31 Speech

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“This extraordinary commitment is still needed and will be for some time, and I believe that view is widely shared by my fellow policy makers.”

“It is clear to me that the U.S. economy is still considerably short of the two goals assigned to the Federal Reserve by the Congress. The first of those goals is maximum sustainable employment... Most of my colleagues on the Federal Open Market Committee and I estimate that the unemployment rate consistent with maximum sustainable employment is now between 5.2 percent and 5.6 percent.”

“Earlier this month, the Fed reiterated its overall commitment to maintain extraordinary support for the recovery for some time to come. This commitment is strong, and I believe the Fed's policies will continue to help sustain progress in the job market.”

10-Year Treasury NoteMarch 31

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Unemployment Rate

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Inflation Rate

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Fed Funds Futures

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12-31-13 04-25-14

Fed’s Balance Sheet

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Was QE3 Successful?

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Recent MBS Issuance

April 30 Highlights

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Dropped Treasury purchases to $25B/month

Dropped MBS purchases to $20B/month

Reaffirmed intent to keep rates accommodative for a “considerable time”

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10-Year Treasury NoteApril 30

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GDP 1Q 2014

Treasury Rates 2014

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Typical Portfolio 3-31-13

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Typical Portfolio 3-31-14

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Key Portfolio Metrics

Average Book Price 102.96 102.61 Tax-Equivalent Yield 2.61% 2.61% Effective Duration 2.9 3.8 Effective Duration +200 4.6 4.7 Net Unrealized G/(L) 1.89% (0.82%)

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3-31-13 3-31-14

Yields vs. Durations

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SBA Lending Opportunities

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Member Advantages

• Reasonable and competitive fee structure

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• NO NET COST TO BANK

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Thank You

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Intended for institutional investors only. Although the information included in this report has been obtained from sources we believe to be reliable, we do not guarantee its accuracy. All opinions expressed in this report constitute the judgments as of the dates indicated and are subject to change without notice. This report is for informative purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any product. The accuracy of the financial projections is dependent on the occurrence of future events which cannot be assured; therefore, the actual results achieved during the projection period may vary from the projections. Member FINRA/SIPC.

Jim Reberjreber@icbasecurities.com

800-422-6442