SAN FRANCISCO, Oct. 29, 2014 (GLOBE NEWSWIRE) -- The Federal Home Loan Bank of San Francisco today announced that its net income for the third quarter of 2014 was $76 million, compared with net income of $49 million for the third quarter of 2013.
The $27 million increase in net income primarily reflected higher net interest income combined with a lower fair value loss associated with derivatives, hedged items, and financial instruments carried at fair value, partially offset by higher expense on derivative instruments used in economic hedges.
Net interest income for the third quarter of 2014 was $133 million, up from $114 million for the third quarter of 2013. The increase was primarily due to a decline in mandatorily redeemable capital stock balances, which resulted in a decrease in the amount of dividends paid on that stock (which are classified as interest expense). The increase also reflected the accretion of yield adjustments on certain other-than-temporarily impaired private-label residential mortgage-backed securities (PLRMBS) resulting from improvement in expected cash flows. The increase was partially offset by 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 $26 million, a decrease of $21 million, or 45%, compared with the third quarter of 2013.
Other income/(loss) for the third quarter of 2014 was a loss of $12 million, compared with loss of $22 million for the third quarter of 2013. This change primarily reflected a $2 million fair value loss associated with derivatives, hedged items, and financial instruments carried at fair value compared with a $25 million fair value loss for the third quarter of 2013, which was chiefly 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 September 30, 2014, the Bank's restricted retained earnings included a cumulative net gain of $52 million associated with derivatives, hedged items, and financial instruments carried at fair value.
The change in other income/(loss) also reflected expense on derivative instruments used in economic hedges of $12 million (compared with income of $4 million for the third quarter of 2013). Income/expense on derivative instruments used in economic hedges is generally offset by interest expense/income on the economically hedged assets and liabilities.
During the first nine months of 2014, total assets decreased $3.0 billion, or 3%, to $82.8 billion at September 30, 2014, from $85.8 billion at December 31, 2013. Advances decreased $3.8 billion, or 9%, to $40.6 billion at September 30, 2014, from $44.4 billion at December 31, 2013. In total, 70 members increased their use of advances during the first nine months of 2014, while 66 institutions reduced their advances borrowings.
Accumulated other comprehensive income/(loss) increased by $241 million during the first nine months of 2014, to income of $96 million at September 30, 2014, from a loss of $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 September 30, 2014, the Bank was in compliance with all of its regulatory capital requirements. The Bank's total regulatory capital ratio was 8.2%, exceeding the 4.0% requirement. The Bank had $6.8 billion in permanent capital, exceeding its risk-based capital requirement of $3.4 billion. Total retained earnings as of September 30, 2014, were $2.4 billion.
As of September 30, 2014, the Bank's excess capital stock totaled $1.4 billion. The Bank plans to repurchase $250 million in excess capital stock on November 18, 2014. This repurchase, combined with the estimated redemption of up to $278 million in mandatorily redeemable capital stock during the fourth quarter, will reduce the Bank's excess capital stock by up to $528 million.
Today, the Bank's Board of Directors declared a cash dividend on the capital stock outstanding during the third quarter of 2014 at an annualized rate of 7.40%. The dividend will total $83 million, including $21 million in dividends on mandatorily redeemable capital stock that will be reflected as interest expense in the fourth quarter of 2014. The Bank expects to pay the dividend on or about November 17, 2014.
| Financial Highlights | ||
| (Unaudited) | ||
| (Dollars in millions) | ||
| Selected Balance Sheet Items at Period End | Sept. 30, 2014 | Dec. 31, 2013 |
| Total Assets | $82,789 | $85,774 |
| Advances | 40,615 | 44,395 |
| Mortgage Loans Held for Portfolio, Net | 754 | 905 |
| Investments1 | 33,164 | 35,260 |
| Consolidated Obligations: | ||
| Bonds | 50,871 | 53,207 |
| Discount Notes | 24,431 | 24,194 |
| Mandatorily Redeemable Capital Stock | 1,076 | 2,071 |
| Capital Stock - Class B - Putable | 3,310 | 3,460 |
| Unrestricted Retained Earnings | 303 | 317 |
| Restricted Retained Earnings | 2,073 | 2,077 |
| Accumulated Other Comprehensive Income/(Loss) | 96 | (145) |
| Total Capital | 5,782 | 5,709 |
| Selected Other Data at Period End | Sept. 30, 2014 | Dec. 31, 2013 |
| Regulatory Capital Ratio2 | 8.17% | 9.24% |
| Three Months Ended | Nine Months Ended | |||
| Selected Operating Results for the Period | Sept. 30, 2014 | Sept. 30, 2013 | Sept. 30, 2014 | Sept. 30, 2013 |
| Net Interest Income | $133 | $114 | $406 | $355 |
| Provision for/(Reversal of) Credit Losses on Mortgage Loans | (1) | — | — | — |
| Other Income/(Loss) | (12) | (22) | (114) | 10 |
| Other Expense | 34 | 32 | 103 | 93 |
| Affordable Housing Program Assessment | 12 | 11 | 29 | 38 |
| Net Income | $76 | $49 | $160 | $234 |
| Selected Other Data for the Period | ||||
| Net Interest Margin3 | 0.62% | 0.53% | 0.63% | 0.55% |
| Operating Expenses as a Percent of Average Assets | 0.14 | 0.13 | 0.14 | 0.13 |
| Return on Average Assets | 0.35 | 0.23 | 0.25 | 0.36 |
| Return on Average Equity | 5.25 | 3.48 | 3.73 | 5.41 |
| Annualized Dividend Rate4 | 7.35 | 5.14 | 6.91 | 3.52 |
| Average Equity to Average Assets Ratio | 6.72 | 6.49 | 6.63 | 6.58 |
| 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 September 30, 2014, was $6.8 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.