Federal Home Loan Bank of San Francisco Announces Annual and Quarterly Operating Results
SAN FRANCISCO, February 20, 2020 — The Federal Home Loan Bank of San Francisco today announced its 2019 operating results. Net income for 2019 was $327 million, compared with net income of $360 million for 2018. Net income for the fourth quarter of 2019 was $113 million, compared with net income of $73 million for the fourth quarter of 2018.
The $33 million decrease in net income for 2019 primarily reflected a decrease in net interest income, partially offset by an increase in other income. Net interest income decreased by $70 million, from $601 million for 2018 to $531 million for 2019. This decrease was primarily attributable to lower spreads on interest-earning assets as well as a retrospective adjustment of the effective yields on mortgage loans driven by a lower interest rate environment.
In addition, net interest income was affected by new hedge accounting guidance adopted on January 1, 2019, which required 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, instead of other income. The guidance was applied prospectively, so the gains and losses on fair value hedges for 2018 are presented in other income, while the gains and losses on fair value hedges for 2019 are presented in net interest income. Net fair value losses for 2019 on designated fair value hedges recorded in net interest income were $10 million, contributing to the decline in net interest income.
Other income for 2019 increased by $32 million, which primarily reflected an improvement in net fair value losses associated with derivatives and financial instruments carried at fair value, as well as the effect of the new accounting guidance.
The $40 million increase in net income for the fourth quarter of 2019 primarily reflected an increase in net fair value gains associated with derivatives, hedged items, and financial instruments carried at fair value.
Total assets decreased $2.5 billion during 2019, to $106.8 billion at December 31, 2019, from $109.3 billion at December 31, 2018. Total advances decreased $8.0 billion, to $65.4 billion at December 31, 2019, from $73.4 billion at December 31, 2018. Investments increased $5.2 billion, to $37.6 billion at December 31, 2019, from $32.4 billion at December 31, 2018, primarily reflecting an increase of $8.6 billion in available-for-sale (AFS) securities, partially offset by a decrease of $3.5 billion in held-to-maturity securities.
Accumulated other comprehensive income increased by $39 million during 2019, to $274 million at December 31, 2019, from $235 million at December 31, 2018, primarily as a result of improvement in the fair value of mortgage-backed securities classified as AFS.
As of December 31, 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 $6.6 billion in permanent capital, exceeding its risk-based capital requirement of $1.5 billion. Total retained earnings as of December 31, 2019, were $3.5 billion.
Today, the Bank’s Board of Directors declared a quarterly cash dividend on the capital stock outstanding during the fourth 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 $2 million in dividends on mandatorily redeemable capital stock that will be reflected as interest expense in the first quarter of 2020. The Bank expects to pay the dividend on March 12, 2020.