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| 8-K - 8-K - Federal Home Loan Bank of Cincinnati | fhlbcinq32020earningsr.htm |
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| Contact: | News Release | ||||
Laura Gaffin, FHLB Cincinnati | FOR IMMEDIATE RELEASE | ||||
513.852.7086 (office) or 513.265.5431 (cell) | October 29, 2020 | ||||
FHLB CINCINNATI ANNOUNCES THIRD QUARTER 2020 RESULTS
Cincinnati, Ohio – The Federal Home Loan Bank of Cincinnati (the FHLB) today released unaudited financial results for the third quarter ended September 30, 2020.
Operating Results
▪For the third quarter, net income was $57 million and return on average equity (ROE) was 4.70 percent. This compares to net income of $63 million and ROE of 5.36 percent for the same period of 2019. For the first nine months of 2020, net income was $236 million and ROE was 6.28 percent, compared to net income of $200 million and ROE of 5.35 percent for the same period of 2019.
▪The low interest rate environment impacted results for the third quarter and first nine months of 2020. The historically low long-term interest rates resulted in a higher volume of mortgage refinance activity, which led to elevated levels of mortgage loan repayments and related premium amortization. Additionally, sharp reductions in short-term interest rates lowered the earnings generated from investing the FHLB’s capital. However, net income in the year-to-date period was higher as a result of gains on the sale of certain derivatives during the first quarter of 2020.
Balance Sheet Highlights
▪Total assets at September 30, 2020 were $74.1 billion, a decrease of $19.4 billion (21 percent) from year-end 2019. The decrease in total assets was primarily driven by lower Advance balances. Advance principal balances decreased $20.6 billion (44 percent) from year-end 2019 primarily due to a reduction in borrowings from a few large-asset members.
▪Mission Asset Activity – comprising major activities with members including Advances, Letters of Credit (off-balance sheet), and the Mortgage Purchase Program – was $60.2 billion at September 30, 2020, a decrease of $15.2 billion (20 percent) from year-end 2019. The decrease in Mission Asset Activity was primarily driven by lower Advance balances as noted above, which was partially offset by a $6.8 billion increase in Letters of Credit balances.
▪Total investments at September 30, 2020 were $34.5 billion, an increase of $0.1 billion from year-end 2019. Total investments included $11.2 billion of mortgage-backed securities and $23.3 billion of liquidity investments. The FHLB continued to maintain a robust amount of liquidity in order to meet the borrowing needs of members and to meet all current and anticipated financial commitments.
▪The FHLB exceeded all minimum regulatory capital and liquidity requirements. On September 30, 2020, GAAP capital was $4.2 billion, a decrease of five percent from year-end 2019, which was primarily driven by repurchases of excess capital stock. The GAAP and regulatory capital-to-assets ratios were 5.68 percent and 5.72 percent, respectively, at September 30, 2020. Retained earnings grew in the first nine months of 2020, continuing a trend over the last several years. Retained earnings were $1.3 billion at September 30, 2020, an increase of 17 percent from year-end 2019.
Dividend
▪The FHLB paid its stockholders a cash dividend on September 17, 2020 at a 2.00 percent annualized rate, which is 1.83 percentage points above third quarter average short-term interest rates. The FHLB computes average short-term interest rates as a blend of 3-month LIBOR and the Federal funds effective rate.
Housing and Community Investment
▪The FHLB annually sets aside a portion of its profits for grants supporting affordable housing. These funds assist members in serving very low-, low-, and moderate-income households and community economic development. The FHLB's net income for the first nine months of 2020 resulted in an accrual of $27 million to the Affordable Housing Program (AHP) pool of funds available to members. Since the inception of the AHP in 1990, the FHLB has awarded nearly $762 million in subsidies towards the creation of approximately 96,000 units of affordable housing.
▪In addition to the required AHP assessment, the FHLB awarded nearly $2.9 million in the first nine months of 2020 through three voluntary housing programs. These programs provided funds to cover accessibility and emergency repairs for special needs and elderly homeowners, funds for the replacement or repair of homes damaged or destroyed by natural disasters within the Fifth District, and Advances at zero percent interest for COVID-19 related assistance.
Global Pandemic Update
▪The COVID-19 pandemic continues to impact communities and businesses worldwide, including those in the Fifth District. The FHLB remains in a primarily remote work environment, while maintaining full business operations. Additionally, various relief options to homeowners affected by COVID-19 are currently being offered within the Mortgage Purchase Program.
The FHLB expects to file its third quarter 2020 Form 10-Q with the Securities and Exchange Commission on or about November 12, 2020.
About the FHLB
The FHLB is a AA+ rated wholesale cooperative bank owned by 629 member financial institutions, including commercial banks, thrifts, credit unions, insurance companies and community development financial institutions in Kentucky, Ohio and Tennessee. The FHLB provides members access to products and services (primarily Advances, which are a readily available, low-cost source of funds, purchases of certain mortgage loans from members, and issuance of Letters of Credit to members) and a competitive return through quarterly dividends on their capital investment in the FHLB. The FHLB funds these products and services by raising private-sector capital from member-stockholders and, with the other Federal Home Loan Banks (FHLBanks) in the FHLBank System, issuing high-quality debt in the global capital markets. The FHLB also funds community investment programs that help its members create affordable housing and promote community economic development.
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This news release may contain forward-looking statements that are subject to risks and uncertainties that could affect the FHLB’s financial condition and results of operations. These include, but are not limited to: the effects of economic, financial, and market conditions, including the discontinuation of the London InterBank Offered Rate; legislative or regulatory developments concerning the FHLBank System; financial pressures affecting other FHLBanks; the current COVID-19 global pandemic; competitive forces; and other risks detailed from time to time in the FHLB’s annual report on Form 10-K and other filings with the Securities and Exchange Commission. The forward-looking statements speak as of the date made and are not guarantees of future performance. Actual results or developments could differ materially from the expectations expressed or implied in the forward-looking statements, and the FHLB undertakes no obligation to update any such statements.
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Federal Home Loan Bank of Cincinnati
Financial Highlights (unaudited)
Dollars in millions
SELECTED BALANCE SHEET ITEMS
| September 30, 2020 | December 31, 2019 | Percent Change (2) | |||||||||||||||
| Total assets | $ | 74,077 | $ | 93,492 | (21) | % | |||||||||||
| Advances (principal) | 26,648 | 47,264 | (44) | ||||||||||||||
| Mortgage loans held for portfolio (principal) | 10,413 | 10,981 | (5) | ||||||||||||||
| Total investments | 34,514 | 34,389 | — | ||||||||||||||
| Consolidated Obligations | 68,100 | 87,524 | (22) | ||||||||||||||
| Mandatorily redeemable capital stock | 17 | 22 | (18) | ||||||||||||||
| Capital stock | 2,935 | 3,367 | (13) | ||||||||||||||
| Total retained earnings | 1,282 | 1,094 | 17 | ||||||||||||||
| Total capital | 4,205 | 4,445 | (5) | ||||||||||||||
Regulatory capital (1) | 4,234 | 4,483 | (6) | ||||||||||||||
| Capital-to-assets ratio (GAAP) | 5.68 | % | 4.75 | % | |||||||||||||
Capital-to-assets ratio (Regulatory) (1) | 5.72 | 4.79 | |||||||||||||||
OPERATING RESULTS
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||||
| 2020 | 2019 | Percent Change (2) | 2020 | 2019 | Percent Change (2) | ||||||||||||||||||||||||||||||||||||
| Total interest income | $ | 239 | $ | 591 | (60) | % | $ | 1,051 | $ | 1,938 | (46) | % | |||||||||||||||||||||||||||||
| Total interest expense | 146 | 504 | (71) | 726 | 1,631 | (56) | |||||||||||||||||||||||||||||||||||
Net interest income | 93 | 87 | 7 | 325 | 307 | 6 | |||||||||||||||||||||||||||||||||||
| Non-interest income (loss) | (7) | 5 | NM | 8 | (17) | NM | |||||||||||||||||||||||||||||||||||
| Non-interest expense | 22 | 22 | — | 70 | 68 | 4 | |||||||||||||||||||||||||||||||||||
Affordable Housing Program assessments | 7 | 7 | (9) | 27 | 22 | 18 | |||||||||||||||||||||||||||||||||||
| Net income | $ | 57 | $ | 63 | (8) | $ | 236 | $ | 200 | 18 | |||||||||||||||||||||||||||||||
| Return on average equity | 4.70 | % | 5.36 | % | 6.28 | % | 5.35 | % | |||||||||||||||||||||||||||||||||
| Return on average assets | 0.26 | 0.26 | 0.33 | 0.27 | |||||||||||||||||||||||||||||||||||||
| Net interest margin | 0.43 | 0.36 | 0.46 | 0.41 | |||||||||||||||||||||||||||||||||||||
| Annualized dividend rate | 2.00 | 4.50 | 2.30 | 5.36 | |||||||||||||||||||||||||||||||||||||
(1)Regulatory capital includes capital stock, mandatorily redeemable capital stock (classified as a liability) and retained earnings.
(2)Amounts used to calculate the change column are based on dollars in thousands. Accordingly, recalculations based upon the disclosed amounts (millions) may not produce the same results. Changes of 100% or greater are shown as “NM” (not meaningful).
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