COFI: Frequently Asked Questions
- What does "COFI" mean?
COFI is the acronym for the 11th District Monthly Weighted Average Cost of Funds Index. The COFI is not an interest rate. It reflects the interest expenses reported for a given month by the COFI Reporting Members, as described below. The interest expenses are incurred from the COFI Reporting Members' various sources of funds. Deposits—including checking and savings accounts, certificates of deposit, money market deposit accounts, transaction accounts, and passbook accounts (collectively known as "Deposit Accounts")—are the primary source of funds for most savings institutions. Other sources of funds include loans obtained through the credit program of the Bank (known as "advances") and from other sources.
- Is the Bank discontinuing the calculation and publication of the monthly and semiannual cost of funds indices?
Yes. The Bank has announced that it will stop publishing all cost of funds indices in early 2022 because of the significant decline in the number of financial institutions eligible to report the data used to calculate the indices. The Bank will no longer calculate the 11th District Monthly Weighted Average Cost of Funds Index (COFI) after the publication of the December 2021 COFI on January 31, 2022. The Bank will no longer calculate the Semiannual Weighted Average Cost of Funds Indices for the 11th District and for California after the publication of the indices for the July-December 2021 period on February 15, 2022
- Why is the Bank discontinuing the Cost of Funds Indices?
There has been a significant decline in the number of financial institutions that are eligible to provide data for the calculation of the COFI. When the monthly COFI was originally developed in 1981, there were over 200 COFI reporting members, but now there are only 9. We do not have any reason to expect the downward trend in reporting members to reverse.
The Bank has set target dates in early 2022 for discontinuing the cost of funds indices to allow lenders and other users of the indices the opportunity to formulate an orderly exit strategy. We want to avoid a situation where the number of eligible institutions declines and we are forced to stop publishing the indices with very little notice.
- What index will lenders use instead?
It will be up to the lender to determine what options to offer their customers. Loan documents vary, so the options may vary from lender to lender. We will not be making any recommendations regarding a successor index.
The UCLA Anderson Forecast, a unit of the UCLA Anderson School of Management, has published an independent study of the utility of existing and observable reference rate indices in the absence of the 11th District cost of funds indices, titled Consequences of the Discontinuation of the Eleventh District Cost of Funds Index.
- What institutions are included in the COFI Reporting Members?
Only Arizona, California, and Nevada savings institutions that are members of the Federal Home Loan Bank of San Francisco are eligible to be considered for inclusion in the COFI. The Bank reserves the right to determine what type of institution satisfies its criteria for inclusion in the COFI and its criteria may change in the future to reflect changes in relevant law. Various federal and state laws and regulations relevant to authorizing charters of financial institutions and defining the types of institutions that may join a Federal Home Loan Bank have changed, and may continue to change, over time.
An individual financial institution is usually a member of the FHLBank District in which the institution's principal office is located and, at this time, may be a member of only one Federal Home Loan Bank. Such limitations could change in the future, however. This means that the savings institutions that are currently included in the COFI may change at any time and without notice.
In determining which savings institution members are eligible to be included in the COFI, the Bank relies on information that it receives from its members. The Bank does not warrant, confirm, or guarantee the accuracy of the information that it receives from its members, and does not examine the books and records of its members for the purpose of confirming the accuracy of the information they deliver to the Bank that is used to determine the eligibility of savings institution members for inclusion in the COFI.
- Why does the COFI move differently than market interest rates?
The movement of COFI is affected by a number of factors, such as changes in market interest rates, the sources of funds used by the COFI Reporting Members, merger and acquisition activities, and changes in accounting rules or regulatory reporting instructions.
In general, the COFI has not moved up or down as rapidly as market interest rates (such as the prime rate, the discount rate, or Treasury bill rates) because some COFI Reporting Members rely on fixed rate deposits with medium- and long-term maturities as a primary source of funds. Because rates on these deposits are not affected by changing market interest rates until the deposit matures, the total interest expense paid by savings institutions in a particular month may reflect interest rates that were prevalent in previous months or years.
Merger and acquisition activity can affect interest expense if the activity results in an unrealized mark-to-market gain or loss on funds acquired by a COFI Reporting Member. The composition of the funds included in the COFI can also be affected by merger and acquisition activity between a COFI Reporting Member and a financial institution that is not included in the COFI.
The small number of COFI Reporting Members (16 in January 2013) may also add an element of volatility to the movement of the COFI, since those members vary in size and the COFI is calculated as a weighted average of the data reported. As a result, a single transaction by a large COFI Reporting Member may have a greater impact on the COFI than the movement of market interest rates has on the COFI.
Because of the interplay of these and possibly other factors, the movement of COFI may not correspond to the movement of market interest rates or to the general direction previously exhibited by the COFI itself. The movement of COFI cannot be predicted, and historical COFI rates should not be relied on as indicative of future COFI rates.
- How is the COFI calculated?
The COFI is a ratio of monthly interest expenses to total funds, adjusted for variation in the number of days in that month, annualized and expressed as a percentage.
Interest expenses, the numerator of the calculation, include the total amount of interest reported for the month on all Deposit Accounts, Federal Home Loan Bank advances, and other borrowings.
Total funds, the denominator of the calculation, consists of the simple average of the two most recent monthend balances of Deposit Accounts, Federal Home Loan Bank advances, and other borrowings.
Because the number of days in each month differs, the resulting quotient is multiplied by an adjustment factor that is calculated by dividing an average month (based on a 12-month, 365-day or 366-day year) by the actual number of days in that month.
The adjustment factors are:
365-day year 366-day year February 1.086 1.052 30-day months 1.014 1.017 31-day months 0.981 0.984
The product is annualized by multiplying by 12. This product is then rounded to the third decimal place to find the COFI for that month.
Sample COFI Calculation November 2009 COFI (dollars in thousands) Interest Expenses on Deposit Accounts, Advances, and Other Borrowings (November) $66,255 Calculation of Simple Average of Total Funds
(Monthend October plus monthend November divided by 2)
Deposit accounts $28,813,695 Advances 9,375,240 Other borrowings 306,634 Average total funds $38,495,569 Weighted Average Cost of Funds for November Ratio $66,255 / $38,495,569 = 0.0017211 Expressed as a percentage x 100 = 0.17211 Monthly adjustment factor x 1.014 = 0.17452 Annualized x 12 = 2.09424 Rounded to the third decimal place 2.094%
- What effect, if any, do changes in the COFI Reporting Members or member merger and acquisition activity have on the calculation of the COFI?
The COFI is based on data received from the Bank's COFI Reporting Members. If a COFI Reporting Member engages in corporate activity, such as changing its charter or merging into an entity with a different charter, the Bank may determine that the resulting entity no longer qualifies as a COFI Reporting Member and will no longer be included in the COFI. Similarly, if a COFI Reporting Member's Bank membership is terminated, it will no longer be included in the COFI Reporting Members. The impact of removals of COFI Reporting Members on the COFI will depend entirely on the amount of interest expense and total funds of the entity being removed. If an institution with a large amount of interest expense and total funds is removed from the COFI Reporting Members, the impact on the COFI could be significant.
As a result of mergers, acquisitions, charter changes, and terminations of Bank membership, the total number of institutions included in the COFI Reporting Members has declined significantly since January 1991. The total number of COFI Reporting Members was 153 in January 1991, 81 in January 1996, 49 in January 2001, 26 in January 2007, 16 in January 2013, and 9 in January 2018.
In addition, transactions that transfer liabilities between a COFI Reporting Member and an institution that is not a COFI Reporting Member during a given month may also affect the COFI because the interest expense and average total funds for that month are adjusted by the Bank so that the average dollar amount of total funds (the COFI denominator) will include only those funds for which the corresponding amount of interest expense has been included in the COFI numerator for that month.
- Are new savings institutions ever added to the COFI Reporting Members?
Yes. A new savings institution that is chartered with its principal offices in Arizona, California, or Nevada and that meets the Bank's criteria for inclusion in the COFI will become a COFI Reporting Member if and when it becomes a member of the Bank.
- When is the COFI announced?
The Bank usually announces the COFI for a given month at or after 3 p.m. California time on the last business day of the following month. For example, the COFI for November, which reflects the interest expenses incurred by COFI Reporting Members during November, is usually announced on the last business day of December at or after 3 p.m.
Sample Timeline for Calculating the COFI January Savings institutions incur interest expenses throughout the month. Mid-February (Approximately February 10-20) The Bank collects cost of funds data for January from its COFI Reporting Members. Between mid-February and 12 noon on the last business day in February The Bank calculates the January COFI. At or after 3 p.m. on the last business day in February The Bank announces the January COFI.
- Does the Bank guarantee that it will publish the COFI by 3 p.m. on the last business day of the month?
No. The Bank intends to publish the COFI at or after 3 p.m. California time on the last business day of the following month, but does not guarantee that it will always publish the COFI by that date and time. The Bank expressly disclaims all liability for any delay in publishing the COFI.
- Will the Bank publish the COFI if it does not receive cost of funds data from all of its COFI Reporting Members?
The Bank's COFI Reporting Members are required to submit cost of funds data on a monthly basis. The Bank usually receives all data for a given month in the middle of the following month, generally between the 10th and the 20th calendar day of the month, and calculates the COFI for the given month based on that data. To be included in the calculation of the COFI for a given month, any new or corrected data must be received by the Bank no later than 12 noon California time on the last business day of the following month.
If the Bank believes that it may not receive timely cost of funds data from any COFI Reporting Member for any reason, the Bank may request the assistance of the Office of the Comptroller of the Currency ("OCC") in obtaining that data. (The OCC is the federal banking agency with the jurisdiction to enforce 12 C.F.R. Sec. 163.180(e), the regulation that requires COFI Reporting Members to report the data necessary to calculate the COFI.)
If any of the Bank's COFI Reporting Members do not transmit the necessary data according to this timetable, the Bank will make a good faith effort to publish the COFI as scheduled, based on whatever data it has received from those COFI Reporting Members that have reported data. If the Bank publishes the COFI based on data received from fewer than all of its COFI Reporting Members, the Bank will disclose the number of members that reported data and the total number of COFI Reporting Members.
- Will the Bank revise the COFI for a given month after it has been published if the Bank finds out that a COFI Reporting Member gave the Bank inaccurate data?
No. The Bank accepts data for the COFI for a given month from its COFI Reporting Members only until 12 noon California time on the last business day of the following month and publishes the COFI based on data received by that time. The Bank will not revise or republish any COFI for a given month based on new or corrected data received after that time and, in general, will not revise or republish any COFI for any reason after the publication date; the Bank expressly disclaims all liability that may arise as a result.
- When will a change in the COFI affect my mortgage payment?
The effect of a change in the COFI on your mortgage payment depends on your lender's mortgage documents. Changes in the COFI may not coincide with changes in your mortgage payments because the use of adjustable rate mortgage indices varies greatly among lending institutions.
Typically, your mortgage note identifies the index to be used, your lender's methodology for adjusting the interest rate and mortgage payment, and your lender's timetable for notifying you of any changes in the rate and payment.
Because of the great variation in the way indices are used in adjustable rate mortgage contracts, any questions about changes in your mortgage payment should be directed to your lender.
- Is the COFI the only index published by the Bank?
No. The Bank also publishes semiannual weighted average cost of funds indices for California and the 11th District, which are based on the interest expenses of applicable COFI Reporting Members from January through June and July through December each year.
- How are the semiannual cost of funds indices calculated and reported?
Each semiannual index is a ratio of interest expenses to funds, annualized and expressed as a percentage, for the six-month period ending June 30 or December 31. The semiannual index for the 11th District is not calculated by averaging the COFI values published for each month in the six-month period.
Interest expenses, the numerator of the calculation, include the total amount of interest expense reported during the six-month period on Deposit Accounts, Federal Home Loan Bank advances, and other borrowings.
Total funds, the denominator of the calculation, consist of the simple average of the six monthend balances of Deposit Accounts, Federal Home Loan Bank advances, and other borrowings.
The primary difference between the COFI and the semiannual index calculations is that the monthend balance for the month preceding the six-month period is not used to calculate average funds for the semiannual index. In addition, no monthly adjustment factor is used, and the ratio is annualized by 2.
The Bank usually announces the semiannual indices approximately six weeks after the end of the semiannual period they cover. That is, the January 1 to June 30 index is usually published in mid-August, and the July 1 to December 31 index is usually published in mid-February.
The Bank generally uses the data collected monthly to calculate the semiannual weighted average cost of funds indices. However, the Bank will also incorporate new and corrected data for any month in the applicable six-month period into the semiannual calculation, provided that the data is received by the Bank in accordance with the Bank's procedures by 12 noon on August 15 and February 15 respectively (or if that day is not a business day, the following business day).
The Bank will not revise or republish any semiannual index based on new or corrected data received after that time and, in general, will not revise or republish any semiannual index for any reason after the publication date; the Bank expressly disclaims all liability that may arise as a result.
- Could my loan be tied to another index?
Yes. There are many other adjustable rate mortgage indices available, and some of them may be readily confused with the Bank's cost of funds indices. Your mortgage contract identifies the precise index to which your loan is tied. Here are some other popular ARM indices:
Index Published By Federal Cost of Funds Index Freddie Mac National Average Contract Mortgage Rate for the Purchase of Previously Occupied Homes by Combined Lenders Federal Housing Finance Agency Federal Reserve Statistical Release H.15, Selected Interest Rates: Federal funds rate, CD rates, Treasury bill auction averages, Treasury Constant Maturities (TCM) rates Federal Reserve Bank of San Francisco
- Does the Bank guarantee the accuracy of the cost of funds indices it publishes?
No. Although the Bank makes a good faith effort to be accurate in the calculation and publication of the COFI and other cost of funds indices it publishes, the Bank does not warrant, confirm, or guarantee the accuracy of the data it receives from its COFI Reporting Members, the accuracy of the cost of funds calculations, or the accuracy of the cost of funds indices as published. The Bank does not examine the books and records of its COFI Reporting Members for this purpose, and the Bank expressly disclaims all liability that may arise from any use of the COFI or other index or the use of inaccurate data received from its COFI Reporting Members in calculating the COFI and semiannual cost of funds indices. In addition, the Bank expressly disclaims any liability to any person for any inaccuracy in any cost of funds index, regardless of the cause, or for any resulting damages. In general, the Bank will not revise or republish any COFI or any semiannual cost of funds index for any reason after the publication date.