Federal Home Loan Bank of San Francisco Announces Third Quarter Operating Results.SAN FRANCISCO San Francisco (săn frănsĭs`kō), city (1990 pop. 723,959), coextensive with San Francisco co., W Calif., on the tip of a peninsula between the Pacific Ocean and San Francisco Bay, which are connected by the strait known as the Golden -- The Federal Home Loan Bank of San Francisco today announced its operating results for the third quarter of 2009. These results have been prepared from unaudited financial information. For the third quarter of 2009, the Bank had a net loss of $85 million, compared with net income of $101 million for the third quarter of 2008. The loss in the third quarter of 2009 was primarily due to credit-related other-than-temporary impairment Impairment 1. A reduction in a company's stated capital. 2. The total capital that is less than the par value of the company's capital stock. Notes: 1. This is usually reduced because of poorly estimated losses or gains. 2. (OTTI OTTI Office of Travel and Tourism Industries OTTI Other Than Temporarily Impaired OTTI Ostbayrisches Technologie Transfer Institut ) losses on certain private-label residential mortgage-backed securities Residential mortgage-backed securities (RMBS) are a type of bond commonly issued in American security markets. They are a type of Mortgage-backed security which are backed by mortgages on residential rather than commercial real estate. (MBS See Mb/sec. MBS - mobile broadband services ) in the Bank's held-to-maturity securities Held-to-Maturity Securities Debt securities that a firm has the ability and intent to hold until maturity. Notes: These are reported at amortized cost, therefore, they are not affected by swings in the financial markets. See also: Debt, Maturity portfolio and to net losses associated with derivatives, hedged items, and financial instruments carried at fair value. Net interest income for the third quarter of 2009 was $458 million, compared with net interest income of $393 million for the third quarter of 2008. Most of the increase in net interest income was related to economically hedged assets and liabilities. Net interest income on economically hedged assets and liabilities is generally offset by net interest expense on derivative instruments Derivative instruments Contracts such as options and futures whose price is derived from the price of an underlying financial asset. used in economic hedges, which is reflected in other income. Net interest income for the third quarter of 2009 also reflected lower earnings on the Bank's invested capital, which declined relative to the same period in 2008 because of the lower interest rate environment in the third quarter of 2009. Other income for the third quarter of 2009 was a net loss of $543 million, compared to a net loss of $225 million for the third quarter of 2008. The losses in other income for the third quarter of 2009 reflected a credit-related OTTI charge of $316 million on certain private-label residential MBS; a net loss of $94 million associated with derivatives, hedged items, and financial instruments carried at fair value; and net interest expense of $134 million on derivative instruments used in economic hedges, which was generally offset by net interest income on the economically hedged assets and liabilities. The credit-related OTTI charge of $316 million resulted from an increase in projected losses on the loan collateral underlying the Bank's private-label residential MBS. Each quarter, the Bank updates its OTTI analysis to reflect current and anticipated housing market conditions and updated information on the loans supporting the Bank's private-label residential MBS and revises the assumptions in its collateral loss projection models based on more recent information. The increase in projected collateral loss rates in the Bank's OTTI analysis for the third quarter of 2009 was caused by increases in projected loan defaults and in the projected severity of losses on defaulted loans. Several factors contributed to these increases, including lower forecasted housing prices, greater-than-expected deterioration de·te·ri·o·ra·tion n. The process or condition of becoming worse. in the credit quality of the loan collateral, and changes to the Bank's collateral loss projection model assumptions that resulted in slower projected prepayment speeds Prepayment speed Also called speed, the estimated rate at which mortgagors pay off their loans ahead of schedule, critical in assessing the value of mortgage pass-through securities. -- leading to a higher level of projected loan defaults -- and in higher projected losses on defaulted loans. The non-credit-related component of the OTTI on the affected securities in the third quarter of 2009 was $1.1 billion, which was recognized in other comprehensive income. The non-credit-related impairment was primarily related to securities that were identified as other-than-temporarily impaired for the first time in the third quarter of 2009 as a result of the updated OTTI analysis. The continued severe lack of liquidity in the private-label residential MBS market adversely affected the valuation of these private-label residential MBS, contributing to the large non-credit-related OTTI charge recorded in accumulated other comprehensive income In 1997 the Financial Accounting Standards Board issued a Statement on Financial Accounting Standards entitled “Comprehensive Income”. This statement required all income statement items to be reported either as a regular item in the income statement and or a special item as . The amount of the non-credit-related impairment for each security will be accreted prospectively, based on the amount and timing of future estimated cash flows, over the remaining life of the security as an increase in the carrying value Carrying Value Also know as "book value," it is a company's total assets minus intangible assets and liabilities, such as debt. Notes: This is different than market value, as it can be higher or lower depending on the circumstances. of the security, with no effect on earnings unless the security is subsequently sold or there are additional decreases in the cash flows expected to be collected. The $94 million net loss associated with derivatives, hedged items, and financial instruments carried at fair value for the third quarter of 2009 decreased relative to the $179 million net loss for the third quarter of 2008. This decrease was primarily driven by changes in overall interest rate spreads and an increase in swaption Swaption Options on interest rate swaps. The buyer of a swaption has the right to enter into an interest rate swap agreement by some specified date in the future. The swaption agreement will specify whether the buyer of the swaption will be a fixed-rate receiver or a fixed-rate volatilities. Net gains and losses on these financial instruments are primarily a matter of timing and will generally reverse through changes in future valuations and settlements of contractual interest cash flows over the remaining contractual terms A contractual term is "[a]ny provision forming part of a contract"[1] Each term gives rise to a contractual obligation, breach of which will can give rise to litigation. to maturity, or by the exercised call or put dates. As of June 30, 2009, the Bank had a cumulative net gain of $232 million associated with derivatives, hedged items, and financial instruments carried at fair value. Most of the losses in the third quarter of 2009 reflected reversals of prior-period net gains. To preserve the Bank's capital, the Bank will not pay a dividend for the third quarter of 2009 and will not repurchase excess capital stock during the fourth quarter of 2009. As of September 30, 2009, the Bank was in compliance with all of its regulatory capital requirements Capital requirements Financing required for the operation of a business, composed of long-term and working capital plus fixed assets. . The Bank's total regulatory capital-to-assets ratio was 6.85%, exceeding the 4.00% requirement, and its risk-based capital was $14.5 billion, exceeding its $7.3 billion requirement. During the first nine months of 2009, total assets decreased $110 billion, or 34%, to $211.2 billion from $321.2 billion at December 31, 2008. Advances decreased $80.7 billion, or 34%, to $155.0 billion at September 30, 2009, from $235.7 billion at December 31, 2008. Members decreased their use of Bank advances during the first nine months of 2009 for a variety of reasons, including increases in core deposits, reduced lending activity, the use of Troubled Asset Relief Program funds, active Temporary Liquidity Guarantee Program issuances, access to the Federal Reserve Bank discount window, and reductions in the borrowing capacity of collateral pledged to the Bank. [TABLE OMITTED] [TABLE OMITTED] Federal Home Loan Bank of San Francisco The Federal Home Loan Bank of San Francisco delivers low-cost funding and other services that help member financial institutions make home mortgage loans to people of all income levels and provide credit that supports neighborhoods and communities. The Bank also funds community investment programs that help members create affordable housing and promote community economic development. The Bank's members -- its shareholders and customers -- are commercial banks, credit unions, savings institutions, thrift and loans, and insurance companies headquartered in Arizona, California, and Nevada. Safe Harbor Safe Harbor 1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated. 2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. Statement under the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995 This press release contains forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, including statements related to the Bank's dividend rates and other-than-temporary impairment charges. These statements are based on our current expectations and speak only as of the date hereof. These statements may use forward-looking terms, such as "will" and "expected" or their negatives or other variations on these terms. The Bank cautions that by their nature, forward-looking statements involve risk or uncertainty and that actual results could differ materially from those expressed or implied in these forward-looking statements or could affect the extent to which a particular objective, projection, estimate, or prediction is realized. These forward-looking statements involve risks and uncertainties including, but not limited to, the application of accounting standards relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc , among other things, the amortization of discounts and premiums on financial assets Financial assets Claims on real assets. , financial liabilities, and certain fair value gains and losses; hedge accounting Why is hedge accounting necessary? Many financial institutions and corporate businesses (entities) use derivative financial instruments to hedge their exposure to different risks (eg interest rate risk, foreign exchange risk, commodity risk, etc). of derivatives and underlying financial instruments; the fair values of financial instruments, including investment securities and derivatives; and other-than-temporary impairment of investment securities. We undertake no obligation to revise or update publicly any forward-looking statements for any reason. |
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