Bank Notes

Dear Valued Members,

Welcome to our mid-year Bank Notes newsletter, where we share news from around the Bank and highlight timely topics for our cooperative and the financial services industry.

The Federal Home Loan Bank of San Francisco continues to play an irreplaceable, stabilizing role in the nation’s financial system, providing vital liquidity to our member financial institutions of all sizes, day in and day out, as well as in times of stress, as we saw earlier this year. By executing on our foundational mission as a reliable supplier of funding and risk management tools, we are contributing to the health of regional and local lenders and enabling economic resiliency throughout our three-state district of Arizona, California, and Nevada, while directing valuable resources to meet the needs of underserved communities. 

The State of Our Cooperative 

Our cooperative continues to be financially strong and healthy. Last week, we reported our second quarter operating results. The Bank’s net income for the second quarter of 2023 was $121 million and total assets were $114.9 billion. Advances were $70.5 billion at June 30, 2023, down from $101.5 billion at the end of the first quarter of 2023, once again demonstrating our ability to seamlessly expand and contract based on member needs. 
Also last week, our board of directors declared a quarterly cash dividend on the average capital stock outstanding during the second quarter of 2023 at an annualized rate of 7.75%, an increase from the 7.00% rate paid for the prior quarter. The Bank’s dividend philosophy is to endeavor to pay a quarterly dividend at an annualized rate between 5% and 7%. The decision to declare any dividend and the dividend rate is at the discretion of the Bank’s board of directors, which may choose to follow the dividend philosophy as guidance in the dividend declaration. The Board may also revise or eliminate the dividend philosophy in the future. The Bank’s historical dividend rates and the dividend philosophy are not indicative of future dividend declarations.

Investing in Communities

Because of the business you do with our Bank, we are also able to act on the second, but equally important, part of our mission: partnering with our members to increase the supply of quality affordable housing, facilitate equitable and sustainable homeownership, drive economic development, and change lives for the better in the communities we serve. 

This year, FHLBank San Francisco is investing up to 15% of net profits from 2022 back into the communities our members serve. We recently announced the award of $32.9 million in competitive Affordable Housing Program (AHP) grants to fund 38 projects that will create 2,825 units of affordable housing throughout Arizona, California, and Nevada. Six of these projects are funded through our newly implemented Nevada Targeted Fund, which is the first of its kind in the FHLBank System and designed to address the state’s extreme shortage of affordable housing options.

Our annual AHP contribution also supports matching grants for lower-income first-time homebuyers through our WISH Program. In the 2023 program cycle, 41 member banks and credit unions signed on to assist eligible low- to moderate-income first-time homebuyers by delivering 4-to-1 matching grants, up to the current Federal Housing Finance Agency maximum subsidy of $29,172, that can be applied to the homebuyer’s downpayment and closing costs.

In May we announced a new $10 million voluntary downpayment assistance pilot program to help make the American dream of owning a home a reality for middle-income families and individuals, who are increasingly squeezed by high interest rates in an already high-cost housing market. This program offers grants of up to $50,000, delivered by participating member financial institutions, to qualifying households earning just over 80% and up to 140% of area median income where the home is purchased. We are excited to be able to direct this support to those who make up the ‘missing middle’ — which includes our teachers, our firefighters, and other hard-working members of our communities — so they can put down roots and secure a brighter, more financially stable future. Members who would like to learn more about participating in this valuable program can send an email to outreach@fhlbsf.com.

Fostering homeownership is core to our mission, and we believe that enabling more lower- and middle-income earners who can afford a mortgage to move from renting to owning has the additional benefit of redirecting more affordable rental options toward those in need in our region. Funding for the middle-income downpayment pilot program is one component of our board’s commitment to voluntarily allocate up to an additional 5% of the Bank’s annual net income to funding economic development and homeownership grant programs and special purpose credit programs that enrich people’s lives and revitalize communities.

I am pleased to announce that the Bank’s board recently approved a $2 million renewal of funding for our Empowering Black Homeownership matching grant program, which is designed to help advance racial equity by providing financial support for housing counseling agencies (HCA) directly serving populations that have been historically disadvantaged when it comes to building wealth through homeownership. In 2022, 22 members partnered with us to deliver $2.2 million to 22 local HUD-approved HCAs, and we are excited to be able to again contribute a dollar-for-dollar match of member donations of up to $125,000 to HCAs providing the pre- and post-homeownership counseling that is so essential to achieving or sustaining homeownership in the communities they serve. Stay tuned for details on how to participate in this impactful program. 

Also as part of the increased allocation to our community programs, the Bank’s board more than doubled funding for our 2023 AHEAD economic development grant program, to $4 million. This increase allows us to make grants of up to $100,000 per grantee, nearly four times the average grant awarded in prior years. The AHEAD Program is designed to support our members in forging strong and productive relationships with nonprofit organizations that have specific economic and community development expertise, to bring greater opportunity to underserved communities across our footprint. AHEAD grants are awarded though a competitive application process. This year’s winners will be announced in September.

FHFA’s “FHLBank System at 100” Review

The “FHLBank System at 100: Focused on the Future” review begun by our regulator, the Federal Housing Finance Agency, last fall is nearing completion, and we are anticipating that a report making recommendations that may chart the course for the System’s next century will be released at the end of September. 

While we have welcomed the opportunity to have a robust discussion of how best the mission and role of the FHLBanks can be enhanced to meet the always-changing needs of our members and communities, both the Finance Agency’s review process, where the voices of our members were heard, and recent stress in the financial sector have highlighted the value of the FHLBank System’s liquidity mission. This is a mission that, in turn, supports our significant contribution to affordable housing, homeownership, and economic growth and vitality. 

We expect the report to outline changes that the FHFA intends to implement with respect to how the FHLBanks operate as well as recommendations that the FHFA will make to Congress that require congressional action. Our goal has been and continues to be to ensure that any recommended changes don’t devalue our 91-year-old liquidity mission, diminish our ability to serve all our members in all economic environments, or disrupt the meaningful support we provide for housing and communities throughout the country. 

Once the review report is available, we will prepare and share with you a summary of the major changes it proposes, along with analysis of the implications for both members and the cooperative’s mission and operations. 

FHLBank System Corporate Social Responsibility Report

The Federal Home Loan Banks’ recently published an inaugural Corporate Social Responsibility Report that  focuses on how FHLBanks are addressing housing needs; serving renters, borrowers, and homeowners; strengthening local economies; and supporting communities through environmental and social challenges. I encourage you to take a look inside the report, which illustrates the full scope of the System’s considerable impact, in all corners of the country.

FHLBank San Francisco’s efforts are well represented throughout the report, with multiple case studies highlighting how the Bank’s programs and initiatives, which we undertake in partnership with our members, benefit individuals, families, and communities. We are also proud that this report shines a spotlight on our majority-diverse board, since this accomplishment is a direct result of the value that our members place on making diversity, equity, and inclusion an essential part of the Bank’s operations and culture when you vote in our annual director elections. (This year’s director election will be underway soon – look for your online voting instructions in early October.) 

Our Annual Member Conference

Registration is now open for our 2023 Member Conference, taking place at the Ritz-Carlton, Laguna Niguel, in Dana Point, California, September 13- 15. Recognizing that the first half of this year has been a tumultuous time for our industry and that the rapidly evolving marketplace has important implications for how we conduct business, I hope you will join us to “Lean into Change,” which is the best strategy for ensuring a strong financial sector in the future. We have a terrific slate of expert speakers who will share insightful, and sometimes provocative, perspectives on advanced technologies, innovation, building inclusive economies, and more. Our conference is a great opportunity to network with your peers and connect with the Bank’s team, as we explore the trends, challenges, and opportunities ahead. I look forward to seeing you there!

Best,

Teresa Bryce Bazemore
President and CEO, FHLBank San Francisco

August 2023