San Francisco FHLB Adopts OTTI Rule, Reports Profit

The Federal Home Loan Bank of San Francisco reported a $123 million profit in the first quarter after adopting new accounting guidance that slashed its impairment charge on $25 billion in private-label MBS to $88 million. The FHLBank had a $103 million loss in the fourth quarter after taking a $569 million "other than temporary impairment" charge on $25 billion in private-label mortgage securities. Nearly $17 billion of the MBS is backed by Alt-A mortgages and the rest are prime loans. Adoption of the Financial Accounting Standards Board's new OTTI guidance allowed the San Francisco bank to take a $1.1 billion write down on the MBS and record it in "other comprehensive income," which reduces the bank's capital but not earnings. The $88 million impairment charge is for actual credit losses, which are reflected in earnings. "To continue building retained earnings and preserve the Bank's capital, the Bank did not pay a dividend for the first quarter and did not repurchase excess capital stock in April 2009," the FHLBank said.