LOBSECTOR IN-DEPTH 7 DECEMBER 2015ANALYST CONTACTSNataliya Loengard 212-553-4902 Associate Analyst nataliya.loengard@moodys.comJason Grohotolski 212-553-1067 VP-Senior Analyst jason.grohotolski@moodys.comBrian L. Harris 212-553-4705Senior Vice President brian.harris@moodys.comFederal Home Loan BanksAdvances and Retained Earnings Continued to Grow While Capital and Net Income Decline Federal Home Loan Banks CombinedThe Federal Home Loan Banks (FHLBanks) reported third quarter net income of $484 million compared with $625 million in the prior year quarter. The 23% decrease was driven by a $167 million drop in non-interest income, coming primarily from losses on derivatives and hedging activities, due to changes in the fair value of derivatives not designated as qualifying accounting hedges under GAAP. During the quarter, net interest income after provision for credit losses increased modestly by 1% to $879 million. Net interest margin was 0.38%, a decline of 1 basis point compared to the previous year quarter. Expenses had a $2 million rise (+1%) in non-interest expense from a year earlier.GAAP capital was $46.3 billion as of 30 September 2015 compared to $46.7 billion a year earlier. The decline was primarily due to a $1.0 billion drop (-3%) in capital stock outstanding, partially offset by $959 million growth (+7%) in retained earnings. The percentage of capital to total assets fell for 9 FHLBanks over the 12 month measurement period. The median capital to total assets percentage across the FHLBanks as of Q3 2015 was 4.99% versus 5.23% as of Q3 2014, resulting from lower GAAP capital and higher total assets balances. The FHLBanks are in the process of steadily reducing capital to more normal levels as opposed to the higher levels that have existed for the past several years.As of 30 September 2015, total assets were $919.6 billion, up from $883.1 billion a year earlier. The 4% increase in total assets was mainly driven by $46.9 billion of advance growth from higher demand. Consolidated obligations climbed 5% consisting of an increase in discount notes due to the growth in advances.MOODY'S INVESTORS SERVICE LOBThis publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.2 7 DECEMBER 2015 FEDERAL HOME LOAN BANKS: ADVANCES AND RETAINED EARNINGS CONTINUED TO GROW WHILE CAPITAL AND NET INCOME DECLINEExhibit 1Return on Average Assets*Baseline Credit Assessments are listed for all banks **ROAA was calculated using the average of asset balances as of 9/30 and 6/30 and net income during the quarter annualized1. Dallas ROAA Q3 2015 Q3 2014 YoY Change0.06% 0.12% -54.64%Return on assets for the third quarter of 2015 decreased compared to the prior year quarter due to a decline in net income (-45%) and an increase in average assets (+2...
