Federal Home Loan Bank of San Francisco Announces First Quarter 2014 Operating Results

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| Source: Federal Home Loan Bank of San Francisco

SAN FRANCISCO, April 28, 2014 (GLOBE NEWSWIRE) -- The Federal Home Loan Bank of San Francisco today announced that its net income for the first quarter of 2014 was $45 million, compared with net income of $81 million for the first quarter of 2013.

Net interest income for the first quarter of 2014 was $135 million, up from $127 million for the first quarter of 2013. The increase was primarily due to accretion of yield adjustments on certain other-than-temporarily impaired private-label residential mortgage-backed securities (PLRMBS) resulting from improvement in expected cash flows and to improved spreads on interest-earning assets primarily resulting from lower funding costs. These factors were partially offset by an increase in dividends on mandatorily redeemable capital stock, which are classified as interest expense, and a decrease in earnings on invested capital because of lower average capital balances and the lower interest rate environment. Dividends on mandatorily redeemable capital stock totaled $39 million, an increase of $13 million, or 50%, compared with the first quarter of 2013.

Other income/(loss) for the first quarter of 2014 was a loss of $48 million, compared with a loss of $4 million for the first quarter of 2013. The increase in the loss primarily reflected expense on derivative instruments used in economic hedges of $22 million (compared with income of $21 million for the first quarter of 2013) and a fair value loss associated with derivatives, hedged items, and financial instruments carried at fair value of $27 million (compared with a fair value loss of $24 million for the first quarter of 2013), partially offset by a de minimis credit-related other-than-temporary impairment charge on certain PLRMBS (compared with a charge of $3 million for the prior-year period).

Income/expense on derivative instruments used in economic hedges is generally offset by interest expense/income on the economically hedged assets and liabilities. The increase in the fair value loss associated with derivatives, hedged items, and financial instruments carried at fair value for the first quarter of 2014 was primarily due to the effects of changes in market interest rates, interest rate spreads, interest rate volatility, and other market factors during the period. As of March 31, 2014, the Bank's restricted retained earnings included a cumulative net gain of $71 million associated with derivatives, hedged items, and financial instruments carried at fair value.

During the first quarter of 2014, total assets increased $0.4 billion, to $86.2 billion at March 31, 2014, from $85.8 billion at December 31, 2013. Advances increased $1.2 billion, or 3%, to $45.6 billion at March 31, 2014, from $44.4 billion at December 31, 2013. In total, 43 members increased their use of advances during the first quarter of 2014, while 59 institutions reduced their advances borrowings.

Accumulated other comprehensive loss declined $81 million during the first quarter of 2014, to $64 million at March 31, 2014, from $145 million at December 31, 2013, primarily as a result of improvement in the fair value of PLRMBS classified as available-for-sale.

As of March 31, 2014, the Bank was in compliance with all of its regulatory capital requirements. The Bank's total regulatory capital ratio was 8.5%, exceeding the 4.0% requirement. The Bank had $7.4 billion in permanent capital, exceeding its risk-based capital requirement of $3.7 billion. Total retained earnings as of March 31, 2014, were $2.4 billion.

As of March 31, 2014, the Bank's excess capital stock totaled $1.9 billion. In light of the Bank's strong regulatory capital position, the Bank plans to repurchase $750 million in excess capital stock on May 16, 2014. This repurchase, combined with the estimated redemption of up to $6 million in mandatorily redeemable capital stock during the second quarter, will reduce the Bank's excess capital stock by up to $756 million.

Today, the Bank's Board of Directors declared a cash dividend on the capital stock outstanding during the first quarter of 2014 at an annualized rate of 6.80%. The dividend will total $93 million, including $34 million in dividends on mandatorily redeemable capital stock that will be reflected as interest expense in the second quarter of 2014. The Bank expects to pay the dividend on or about May 15, 2014.

Financial Highlights
(Unaudited)
(Dollars in millions)
 
Selected Balance Sheet Items
at Period End
Mar. 31, 2014 Dec. 31, 2013
Total Assets $86,185 $85,774
Advances 45,552 44,395
Mortgage Loans Held for Portfolio, Net 852 905
Investments1 34,918 35,260
Consolidated Obligations:    
Bonds 53,184 53,207
Discount Notes 24,863 24,194
Mandatorily Redeemable Capital Stock 1,644 2,071
Capital Stock - Class B - Putable 3,325 3,460
Unrestricted Retained Earnings 312 317
Restricted Retained Earnings 2,069 2,077
Accumulated Other Comprehensive Income/(Loss) (64) (145)
Total Capital 5,642 5,709
     
Selected Other Data at Period End    
Regulatory Capital Ratio2 8.53% 9.24%
     
  Three Months Ended
Selected Operating Results for the Period Mar. 31, 2014 Mar. 31, 2013
Net Interest Income 135 127
Provision for/(Reversal of) Credit Losses on Mortgage Loans 1
Other Income/(Loss) (48) (4)
Other Expense 32 30
Affordable Housing Program Assessment 9 12
Net Income $45 $81
     
Selected Other Data for the Period    
Net Interest Margin3 0.64% 0.59%
Operating Expenses as a Percent of Average Assets 0.14 0.12
Return on Average Assets 0.21 0.37
Return on Average Equity 3.11 5.59
Annualized Dividend Rate4 6.67 2.30
Average Equity to Average Assets Ratio 6.74 6.62
 
1. Investments consist of Federal funds sold, trading securities, available-for-sale securities, held-to-maturity securities, securities purchased under agreements to resell, and loans to other Federal Home Loan Banks.
2. This ratio is calculated as regulatory capital divided by total assets. Regulatory capital includes retained earnings, Class B capital stock, and mandatorily redeemable capital stock (which is classified as a liability), but excludes accumulated other comprehensive income/(loss). Total regulatory capital as of March 31, 2014, was $7.4 billion.
3. Net interest margin is net interest income (annualized) divided by average interest-earning assets.
4. Dividend rates reflect the dividends declared, recorded, and paid during the relevant periods.

Federal Home Loan Bank of San Francisco

The Federal Home Loan Bank of San Francisco delivers low-cost funding and other services that help member financial institutions make home mortgage loans to people of all income levels and provide credit that supports neighborhoods and communities. The Bank also funds community investment programs that help members create affordable housing and promote community economic development. The Bank's members are headquartered in Arizona, California, and Nevada and include commercial banks, credit unions, industrial loan companies, savings institutions, insurance companies, and community development financial institutions.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995

This press release contains forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, including statements related to the Bank's dividend rates and other-than-temporary impairment (OTTI) charges. These statements are based on our current expectations and speak only as of the date hereof. These statements may use forward-looking terms, such as "plans," "will," and "expects," or their negatives or other variations on these terms. 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 application of accounting standards relating to, among other things, the amortization of discounts and premiums on financial assets, financial liabilities, and certain fair value gains and losses; hedge accounting of derivatives and underlying financial instruments; the fair values of financial instruments, including investment securities and derivatives; and OTTI of investment securities. We undertake no obligation to revise or update publicly any forward-looking statements for any reason.

Amy Stewart, (415) 616-2605