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FHLBank San Francisco Announces Third Quarter 2019 Operating Results

SAN FRANCISCO, October 24, 2019 — The Federal Home Loan Bank of San Francisco today announced that its net income for the third quarter of 2019 was $61 million, compared with net income of $102 million for the third quarter of 2018.

The $41 million decrease in net income relative to the prior-year period primarily reflected an increase in net fair value losses associated with derivatives, hedged items, and financial instruments carried at fair value, which reduced both net interest income and other income.

Net interest income for the third quarter of 2019 was $112 million, compared with $153 million for the third quarter of 2018. The $41 million decrease in net interest income primarily reflected lower spreads on interest-earning assets and the impact of new hedge accounting guidance adopted on January 1, 2019, which requires changes in the fair value of a derivative that was designated as a fair value hedge, along with changes in the fair value of the hedged asset or liability that are attributable to the hedged risk, to be recorded in net interest income with the earnings effect of the hedged item. The guidance was applied prospectively, so the gains and losses on fair value hedges in the prior-year period are presented in other income. Net fair value losses on designated fair value hedges recorded in net interest income for the third quarter of 2019 were $11 million. The decline in net interest income was also due to a retrospective adjustment of the effective yields on mortgage loans driven by a lower interest rate environment.

Total assets decreased $5.1 billion during the first nine months of 2019, to $104.2 billion at September 30, 2019, from $109.3 billion at December 31, 2018. Total advances decreased $10.6 billion, to $62.8 billion at September 30, 2019, from $73.4 billion at December 31, 2018. Investments increased $5.1 billion, to $37.5 billion at September 30, 2019, from $32.4 billion at December 31, 2018, primarily reflecting an increase in available-for-sale securities.

Accumulated other comprehensive income increased by $32 million during the first nine months of 2019, to $267 million at September 30, 2019, from $235 million at December 31, 2018, primarily as a result of improvement in the fair value of mortgage-backed securities classified as available-for-sale.

As of September 30, 2019, the Bank was in compliance with all of its regulatory capital requirements. The Bank’s total regulatory capital ratio was 6.2%, exceeding the 4.0% requirement. The Bank had $6.4 billion in permanent capital, exceeding its risk-based capital requirement of $1.5 billion. Total retained earnings as of September 30, 2019, were $3.4 billion.

Today, the Bank’s Board of Directors declared a quarterly cash dividend on the capital stock outstanding during the third quarter of 2019 at an annualized rate of 7.00%. The quarterly dividend rate is consistent with the Bank's dividend philosophy of endeavoring to pay a quarterly dividend at a rate between 5% and 7% annualized. The quarterly dividend will total $54 million, including $3 million in dividends on mandatorily redeemable capital stock that will be reflected as interest expense in the fourth quarter of 2019. The Bank expects to pay the dividend on November 12, 2019.

Financial Highlights
(Unaudited)
(Dollars in millions)

Selected Balance Sheet Items at Period End

  Sept. 30, 2019 Dec. 31, 2018
Total Assets   $104,153   $109,326
Advances   62,826   73,434
Mortgage Loans Held for Portfolio, Net   3,382   3,066
Investments1   37,490   32,381
Consolidated Obligations:        
Bonds   67,431   72,276
Discount Notes   28,605   29,182
Mandatorily Redeemable Capital Stock   138   227
Capital Stock - Class B - Putable   2,898   2,949
Unrestricted Retained Earnings   2,715   2,699
Restricted Retained Earnings   690   647
Accumulated Other Comprehensive Income/(Loss)   267   235
Total Capital   6,570   6,530

Selected Other Data at Period End

  Sept. 30, 2019 Dec. 31, 2018
Regulatory Capital Ratio2   6.18%   5.97%

Selected Operating Results for the Period

  Three Months Ended Nine Months Ended
  Sept. 30, 2019 Sept. 30, 2018 Sept. 30, 2019 Sept. 30, 2018
Net Interest Income   $112   $153   $366   $455
Other Income/(Loss)   3   7   11   4
Other Expense   47   46   138   138
Affordable Housing Program Assessment   7   12   25   34
Net Income   $61   $102   $214   $287

Selected Other Data for the Period

  Three Months Ended Nine Months Ended
  Sept. 30, 2019 Sept. 30, 2018 Sept. 30, 2019 Sept. 30, 2018
Net Interest Margin3   0.44%   0.60%   0.46%   0.54%
Operating Expenses as a Percent of Average Assets   0.15   0.14   0.14   0.12
Return on Average Assets   0.24   0.40   0.26   0.34
Return on Average Equity   3.65   6.26   4.29   5.76
Annualized Dividend Rate   7.00   7.00   7.00   7.00
Average Equity to Average Assets Ratio   6.47   6.36   6.16   5.91
  1. Investments consist of Federal funds sold, interest-bearing deposits, trading securities, available-for-sale securities, held-to-maturity securities, and securities purchased under agreements to resell.
  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, 2019, was $6.4 billion.
  3. Net interest margin is net interest income (annualized) divided by average interest-earnings assets.

Federal Home Loan Bank of San Francisco 

The Federal Home Loan Bank of San Francisco is a member-driven cooperative helping local lenders in Arizona, California, and Nevada build strong communities, create opportunity, and change lives for the better. The tools and resources we provide to our member financial institutions–commercial banks, credit unions, industrial loan companies, savings institutions, insurance companies, and community development financial institutions–foster homeownership, expand access to quality housing, seed or sustain small businesses, and revitalize whole neighborhoods. Together with our members and other partners, we are making the communities we serve more vibrant and resilient.

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 philosophy and dividend rates. 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 “endeavoring,” “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, including future dividends. 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; future operating results; and other-than-temporary impairment of investment securities. We undertake no obligation to revise or update publicly any forward-looking statements for any reason.