FHLB CINCINNATI ANNOUNCES THIRD QUARTER 2023 RESULTS

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Federal Home Loan Bank of Cincinnati

Oct 30, 2023, 09:13 ET

CINCINNATI, Oct. 30, 2023 /PRNewswire/ -- – The Federal Home Loan Bank of Cincinnati (the FHLB) today released unaudited financial results for the third quarter ended September 30, 2023.

Overview

The FHLB delivered on its dual mission of providing access to critical liquidity funding to member financial institutions and expanding support for affordable housing and community investment. The FHLB made contributions of $15 million to voluntary housing programs and $57 million to the required Affordable Housing Program set aside enabled by strong earnings in the first nine months of 2023.

Operating Results

For the third quarter, net income was $170 million and return on average equity (ROE) was 10.16 percent. This compares to net income of $91 million and ROE of 6.43 percent for the same period of 2022. For the first nine months of 2023, net income was $515 million and ROE was 9.73 percent, compared to net income of $148 million and ROE of 3.99 percent for the same period of 2022.
Net income increased in both comparisons primarily because of significantly higher interest rates and average Advance balances. In particular, during the three and nine months ended September 30, 2023, higher average interest rates increased the earnings generated from investing the FHLB's capital and contributed to improved spreads earned on mortgage loans held for portfolio. Average Advance balances were higher in both comparisons in part from depository members' greater demand for liquidity. Additionally, average Advance balances were significantly higher in the year-to-date comparison as member demand increased in March 2023 given the turmoil in the banking industry and financial markets. Most of these Advances have matured or were prepaid by the end of the third quarter of 2023.
The increase in net income in the nine-months comparison was also driven by higher non-interest income as changes in net unrealized market values on interest rate swaps and related financial instruments carried at fair value improved earnings by approximately $31 million.

Financial Condition Highlights

Total assets at September 30, 2023 were $118.6 billion, an increase of $10.0 billion (nine percent) from year-end 2022.
Mission Assets and Activities – comprising the major products we offer to members including Advances, Letters of Credit (off-balance sheet), and the Mortgage Purchase Program – were $122.8 billion at September 30, 2023, an increase of $7.0 billion (six percent) from year-end 2022. The growth in Mission Assets and Activities was driven by increases in Letters of Credit and Advance balances. Letters of Credit increased as members continue to use them primarily to secure higher levels of public unit deposits. The growth in Advances resulted from greater member demand as noted above. The FHLB's business model is designed to support significant changes in asset levels without having to undergo material changes in staffing, operations, risk practices, or general resource needs.
Total investments at September 30, 2023 were $40.8 billion, an increase of $7.2 billion (21 percent) from year-end 2022, which was primarily driven by higher liquidity investments. Total investments included $19.1 billion of mortgage-backed securities (MBS) issued by Fannie Mae, Freddie Mac or Ginnie Mae and $21.7 billion of liquidity investments. A higher amount of liquidity investments were held at September 30, 2023 in light of the increased Advance demand. The FHLB uses its liquidity portfolio to ensure it can 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, 2023, GAAP capital was $6.1 billion, a decrease of $0.4 billion (six percent) from year-end 2022. The GAAP and regulatory capital-to-assets ratios were 5.15 percent and 5.21 percent, respectively, at September 30, 2023. Retained earnings were $1.6 billion at September 30, 2023, an increase of 16 percent from year-end 2022.

Dividend

The FHLB paid its stockholders a cash dividend on September 21, 2023 at an 8.00 percent annualized rate, which was 2.75 percentage points above third quarter average overnight interest rates. The FHLB computes average overnight interest rates as a blend of the Secured Overnight Financing Rate and Federal funds effective rate.

Housing and Community Investment

The FHLB is required to annually set 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 2023 resulted in an accrual of $57 million to the Affordable Housing Program (AHP) pool of funds available to members. The AHP consists of a competitive program and homeownership program called Welcome Home, which assists homebuyers with down payments and closing costs. Since the inception of the AHP in 1990, the FHLB has awarded over $859 million in subsidies towards the creation of more than 106,000 units of affordable housing.
The FHLB's Board of Directors also affirmed its commitment to affordable housing by approving voluntary housing contributions of more than $14 million to the AHP and Carol M. Peterson (CMP) Housing Fund in the first nine months of 2023. These funds are in addition to the required AHP contributions.
- The CMP Housing Fund received contributions of $7 million in the first nine months of 2023. This program provides grants to cover accessibility rehabilitation and emergency repairs for special needs and elderly homeowners within the Fifth District.
- The Welcome Home program was funded with $7 million of voluntary housing contributions in the first nine months of 2023.
The FHLB's Board of Directors also continued its commitment to the voluntary Disaster Reconstruction Program, which disbursed $0.8 million in the first nine months of 2023 for the replacement or repair of homes damaged or destroyed by natural disasters within the Fifth District.

The FHLB expects to file its third quarter 2023 Form 10-Q with the Securities and Exchange Commission on or about November 9, 2023.

About the FHLB

The FHLB is a AA+ rated wholesale cooperative bank owned by 610 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.

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; legislative or regulatory developments concerning the FHLBank System; financial pressures affecting other FHLBanks; pandemics; 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.

Federal Home Loan Bank of Cincinnati Financial Highlights (unaudited) Dollars in millions

SELECTED BALANCE SHEET ITEMS
	September 30, 2023	December 31, 2022	Percent Change ⁽²⁾
Total assets	$ 118,588	$ 108,610	9 %
Advances (principal)	70,426	67,428	4
Mortgage loans held for portfolio (principal)	6,927	7,006	(1)
Total investments	40,813	33,605	21
Consolidated Obligations	110,355	100,359	10
Mandatorily redeemable capital stock	19	17	7
Capital stock	4,535	5,151	(12)
Total retained earnings	1,619	1,401	16
Total capital	6,104	6,502	(6)
Regulatory capital ⁽¹⁾	6,173	6,569	(6)

Capital-to-assets ratio (GAAP)	5.15 %	5.99 %
Capital-to-assets ratio (Regulatory) ⁽¹⁾	5.21	6.05

OPERATING RESULTS
	Three Months Ended September 30,				Nine Months Ended September 30,
	2023	2022	Percent Change ⁽²⁾		2023	2022	Percent Change ⁽²⁾
Total interest income	$ 1,718	$ 668	157	%	$ 5,214	$ 1,113	369	%
Total interest expense	1,496	527	184		4,565	819	457
Net interest income	222	141	57		649	294	121
Non-interest income (loss)	(5)	(14)	59		21	(51)	141
Non-interest expense	28	26	5		98	78	25
Affordable Housing Program assessments	19	10	83		57	17	241
Net income	$ 170	$ 91	87		$ 515	$ 148	249

Return on average equity	10.16 %	6.43 %			9.73 %	3.99 %
Return on average assets	0.52	0.32			0.49	0.21
Annualized dividend rate	8.00	5.00			7.18	3.50
(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.