(Source: PrimeNewswire)
CINCINNATI, Oct. 29, 2009 (GLOBE NEWSWIRE) -- The Federal Home Loan Bank of Cincinnati (FHLBank) today released unaudited financial results for the third quarter ended September 30, 2009. We believe our financial condition and results of operations remained strong in the face of the conditions affecting the entire economy, including the credit, banking and mortgage markets. Although our Advances have decreased significantly in 2009, we continue to fulfill our role as an important provider of reliable and attractively priced wholesale funding to members. Highlights include:
* For the third quarter, net income was $61 million and Return on
Average Equity (ROE) was 5.70 percent compared to net income of
$66 million and ROE of 6.26 percent in the third quarter of 2008.
For the first nine months net income was $219 million and ROE
was 6.75 percent compared to net income of $180 million and ROE
of 5.92 percent in the first nine months of 2008. The quarterly
reduction between years was due mainly to adjustments in
derivative valuations and increased net amortization expense.
The year-to-date increase was driven by wider portfolio spreads
on many short-term and adjustable-rate assets relative to their
funding costs and the replacement of higher cost longer-term
callable debt with new debt at lower rates.
* Assets decreased to $77.0 billion from $98.2 billion at December
31, 2008. Average asset balances, which influence the level of
net income, showed similar reductions. The decline resulted
primarily from lower Advance demand due to 1) members'
decreasing their loans outstanding while growing their deposit
base, both as a result of the economic contraction, and 2)
continued government funding and liquidity alternatives
available to members from various federal agencies, including
most importantly, the Federal Reserve System and Treasury
Department.
* No credit risk-related or impairment charges were required.
* We paid stockholders a dividend in cash on September 17, 2009 at
a 5.00 percent annualized rate, an increase from the prior two
quarters. The dividend was 4.59 percentage points above average
3-month LIBOR for the third quarter of 2009. The year-to-date
average dividend paid through September was at an annualized
rate of 4.67 percent, 3.84 percentage points above average 3-
month LIBOR for the comparable period.
* Retained earnings grew $12 million in the third quarter and $81
million, or 25 percent, during the first nine months of 2009.
* Total capital decreased $222 million, or 5 percent, during the
first nine months of 2009 due to our repurchase of stock subject
to members' redemption requests. The GAAP capital ratio ended
the quarter at 5.27 percent of total assets. Our regulatory
capital-to-assets ratio of 5.39 percent at the end of September
was well above the required minimum of 4.00 percent. Our
financial leverage, as represented by this ratio, decreased in
the first three quarters of 2009 due primarily to the reduction
in Advances. Our capital adequacy continued to be in full
compliance with all regulatory requirements.
* In the first nine months of 2009, $25 million was accrued for
future use in the Affordable Housing Program. The FHLBank has
also voluntarily disbursed over $15 million to support
affordable housing initiatives since 2003. The voluntary
contributions are over and above the regulatory Affordable
Housing Program requirements.
* Our liquidity position remains strong and our ability to access
funds from the capital markets at acceptable costs is sufficient
to meet operational needs.
Operating Results and Profitability
Third quarter net income was $61 million, a decrease of 7 percent from $66 million in the third quarter of 2008. Net income for the nine months ended September 30, 2009 was $219 million, up 22 percent compared to the $180 million in the same period of 2008. ROE was 5.70 percent for the third quarter and 6.75 percent for the first nine months of 2009, compared to 6.26 percent and 5.92 percent, respectively, for the same periods in 2008. The ROE spreads to 3-month LIBOR and overnight Federal funds are two market benchmarks we believe our stockholders use to assess the competitiveness of return on their capital investment in the FHLBank. These spreads were significantly above those in the same periods of 2008 as shown in the table below.
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
2009 2008 2009 2008
---- ---- ---- ----
ROE spread to 3-month
LIBOR 5.29 3.35 5.92 2.94
ROE spread to overnight
Federal funds 5.55 4.32 6.58 3.52
Most of the decrease in net income and ROE for the three-month period resulted from two factors:
* There was a $5 million reduction in fair value gains from
accounting for derivatives activity. We consider this amount of
derivative-related volatility to be in the normal range for our
business.
* Recognition of noncash amortization expense (e.g., purchase
premiums and discounts on mortgage assets and Consolidated
Obligations) was $3 million higher in the third quarter of 2009
versus the third quarter of 2008.
The higher net income for the nine-month period resulted primarily from three factors:
* Beginning in late 2008 and continuing in the first nine months
of 2009, in response to the decline in intermediate- and long-
term interest rates, we retired before their final maturities
approximately $14 billion of high-cost long-term debt (Bonds),
which we had issued primarily to fund mortgage assets, and
replaced them with new debt at substantially lower costs.
* We earned wider portfolio spreads on many short-term and
adjustable-rate assets relative to their funding costs.
* Market yield curves became significantly steeper as short-term
interest rates fell to historical lows of close to zero.
