FHLBANK TOPEKA ANNOUNCES 2020 THIRD QUARTER RESULTS
October 29, 2020 - FHLBank Topeka (FHLBank) is reporting net income computed in accordance with U.S. generally accepted accounting principles (GAAP) of $40.0 million for the three months ended September 30, 2020 compared to $48.5 million for the three months ended September 30, 2019. For the nine months ended September 30, 2020, FHLBank is reporting net income of $72.1 million compared to $133.0 million for the nine months ended September 30, 2019. The $8.5 million decrease for the three-month period was driven by the decline in net interest income due to a significant decrease in the average balance of advances and substantially lower interest rates. The decrease for the nine-month period was largely due to net losses on derivatives and hedging activities and trading securities that occurred during the first quarter of 2020 due to the market disruption caused by the COVID-19 pandemic, although some stabilization was observed during the second and third quarters of 2020 as the financial markets began a modest and uneven recovery.
Net interest income decreased $9.6 million for the quarter, from $74.4 million for the three months ended September 30, 2019 to $64.8 million for the three months ended September 30, 2020. Net interest income decreased $10.1 million for the comparative nine-month periods, from $186.7 million for the nine months ended September 30, 2019 to $176.6 million for the nine months ended September 30, 2020. In addition to the decline in the average balance of advances, the decrease in net interest income for both the three- and nine-month periods is attributed to net interest settlement expense on fair value hedges and increased premium amortization on mortgage-related assets, but the declines were partially offset by a decrease in FHLBank's cost of debt.
FHLBank expects to file its Form 10-Q for the quarter ended September 30, 2020 with the Securities and Exchange Commission (SEC) on or about November 10, 2020.
•Net interest income/margin: Net interest income of $64.8 million for the quarter ended September 30, 2020 decreased $9.6 million compared to the same period in 2019. Net interest margin of 47 basis points for the quarter ended September 30, 2020 decreased 4 basis points compared to the prior year period despite a 4 basis point increase in net interest spread attributed to the lower funding costs. The decrease in long-term market interest rates allowed FHLBank to replace approximately $13 billion of callable debt at a lower cost through the third quarter of 2020, which has reduced funding costs for current and future periods. The low interest rate environment has also allowed FHLBank to shift debt composition from discount notes to floating rate term debt, which more closely matches asset composition and reprices to market quickly.
•Total assets: Total assets declined from $63.3 billion as of December 31, 2019 to $53.0 billion as of September 30, 2020, driven mostly by the $7.6 billion decline in advances between periods.
•Advances: Advances declined from $30.2 billion as of December 31, 2019 to $22.6 billion as of September 30, 2020. Advance demand by members has dropped significantly since the beginning of the second quarter of 2020 as many members have experienced significant deposit inflows and excess liquidity as a result of economic stimulus packages passed by Congress along with the Federal Reserve Bank’s easing of monetary policy, security purchase programs, and lending facilities in response to the COVID 19 pandemic.The average balance of advances declined $7.6 billion, or 25.8 percent, and $3.4 billion, or 11.8 percent, for the three- and nine-months ended September 30, 2020, respectively, when compared to the prior year periods.
•Mortgage loans: Mortgage loans decreased by $0.5 billion during the first nine months of 2020, representing 19.1 percent of total assets as of September 30, 2020, compared to 16.8 percent as of December 31, 2019. Mortgage loans increased as a percent of total assets due to the decline in advance balances. The average balance of mortgage loans increased $1.0 billion, or 11.0 percent, and $1.9 billion, or 20.5 percent, for the three- and nine-months ended September 30, 2020, respectively, when compared to the prior year periods. Despite the increase in average mortgage loan balances, accelerated premium amortization from prepayments and mortgage loan purchases at lower interest rates kept interest income relatively flat for the nine months ended September 30, 2020 compared to the prior year period.
•Performance ratios: Return on average equity (ROE) decreased to 6.34 percent for the quarter ended September 30, 2020 compared to 7.54 percent for the prior year period due to the aforementioned declines caused by pandemic-related market volatility and balance sheet contraction, while average capital held steady. Adjusted ROE (a non-GAAP measure) of 5.43 percent for the quarter ended September 30, 2020 compared to 7.03 percent in the prior year period similarly reflects the decrease in adjusted income.
•Dividends: The Class A Common Stock dividend rate of 0.25 percent and the Class B Common Stock dividend rate of 5.25 percent combined for a weighted average dividend rate for the quarter ended September 30, 2020 of 3.69 percent, compared to a weighted average dividend rate of 6.61 percent for the same period in 2019. Our dividend rates have historically moved in tandem with short-term market rates, so the decrease reflects the decline in market interest rates resulting from Federal Open Market Committee rate cuts in March 2020 to stimulate the U.S. economy.
The following information was filed by Federal Home Loan Bank Of Topeka on Thursday, October 29, 2020 as an 8K 2.02 statement, which is an earnings press release pertaining to results of operations and financial condition. It may be helpful to assess the quality of management by comparing the information in the press release to the information in the accompanying 10-Q Quarterly Report statement of earnings and operation as management may choose to highlight particular information in the press release.