Federal Home Loan Bank of San Francisco Announces First Quarter 2020 Operating Results
SAN FRANCISCO, April 28, 2020 — The Federal Home Loan Bank of San Francisco (Bank) today announced its operating results for the first quarter of 2020. The Bank incurred a net loss of $8 million for the first quarter of 2020, compared with net income of $104 million for the first quarter of 2019.
The $112 million decrease in net income/(loss) relative to the prior-year period primarily reflected a $95 million decrease in net interest income, from $144 million for the first quarter of 2019 to $49 million for the first quarter of 2020. As a result of the global COVID-19 pandemic, conditions in the financial markets deteriorated significantly beginning in late February and into March 2020, causing significant disruption to the availability of funds in the credit markets and resulting in adverse changes in interest rates, credit spreads, and asset prices. The decrease in net interest income, driven both by lower interest rates and by increases in credit spreads, was primarily attributable to an increase of $43 million in net fair value losses on designated fair value hedges, from $10 million for the first quarter of 2019 to $53 million for the first quarter of 2020. The decrease in net interest income also reflected a retrospective adjustment of the effective yields on mortgage loans of $15 million, driven by faster projected prepayments because of lower mortgage rates. Finally, the decrease in net income/(loss) also reflected a provision for current expected credit losses of $39 million for the first quarter of 2020 associated with certain private-label residential mortgage-backed securities classified as available-for-sale (AFS), primarily resulting from a significant decline in fair values.
The decrease in net interest income was partially offset by a decline in Affordable Housing Program (AHP) assessments. Because of the net loss in the first quarter of 2020, the Bank recorded no AHP assessment for the quarter. In the first quarter of 2019, the AHP assessment was $12 million.
Total assets increased $18.1 billion during the first three months of 2020, to $124.9 billion at March 31, 2020, from $106.8 billion at December 31, 2019. Total advances increased $12.5 billion, to $77.9 billion at March 31, 2020, from $65.4 billion at December 31, 2019. During March 2020, the Bank experienced increased demand for advances to support its members' liquidity needs in response to the pandemic and maintained its liquidity investments in compliance with Finance Agency guidance. As interest rates declined significantly during the quarter, investor demand for high credit quality, fixed income investments, including the Bank’s consolidated obligations, increased, and the Bank continued to meet its funding needs during this time. Investments increased $5.4 billion, to $43.0 billion at March 31, 2020, from $37.6 billion at December 31, 2019. The increase in investments primarily reflected an increase of $6.5 billion in Federal funds sold, an increase of $2.6 billion in trading securities, and an increase of $1.3 billion in interest-bearing deposits, partially offset by a decrease of $5.0 billion in securities purchased under agreements to resell.
Accumulated other comprehensive income/(loss) decreased by $502 million during the first three months of 2020, to accumulated other comprehensive loss of $228 million at March 31, 2020, from accumulated other comprehensive income of $274 million at December 31, 2019, primarily as a result of lower fair values of mortgage-backed securities classified as AFS.
As of March 31, 2020, the Bank was in compliance with all of its regulatory capital requirements. The Bank’s total regulatory capital ratio was 5.4%, exceeding the 4.0% requirement. The Bank had $6.7 billion in permanent capital, exceeding its risk-based capital requirement of $1.4 billion. Total retained earnings as of March 31, 2020, were $3.4 billion.
On April 27, 2020, the Bank’s Board of Directors declared a quarterly cash dividend on the capital stock outstanding during the first quarter of 2020 at an annualized rate of 5.00%. 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%