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New words:
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Abernathy, accelerated, accommodate, advancing, aggregating, Ally, anticipation, Ardmore, Banc, bracket, Bridger, bulge, capitalization, cessation, circumstance, complicated, Cox, credited, criterion, Custom, database, desire, Donald, Equality, FCA, fewer, guarantor, Hinton, Huntington, introduction, merged, modeled, modest, momentum, MUFG, nonvoting, partial, pulled, quartile, recapitalization, refinanced, relief, retiring, side, slope, slowdown, statistic, Stonier
Financial report summary
?Management Discussion
- Net income increased $129.7 million, or 53.9 percent, to $370.5 million for the year ended December 31, 2023 compared to $240.7 million for the year ended December 31, 2022 primarily attributed to a $97.1 million increase in net interest income, as discussed in greater detail below, and a $60.5 million increase related to fluctuations in the fair value of derivatives and trading securities.
- Net Interest Income: Net interest income increased $97.1 million, or 26.7 percent, to $460.1 million for the year ended December 31, 2023 compared to $363.0 million for the year ended December 31, 2022. Balance sheet composition, market interest rates and trends, and net interest spread affect net interest income and net interest margin on earning assets, including advances, mortgage loans, and investments. Net interest margin increased one basis point during 2023 compared to 2022, to 0.61 percent for the year ended December 31, 2023 from 0.60 percent for the prior year due to increased average balances on advances and investments at higher interest rates, combined with the impact of higher interest rates and spreads on fair value hedges (see Table 8). Additionally, prepayments continued to slow on mortgage-related assets, which also increased interest income due to less premium amortization between periods. However, slower prepayments generally extend the weighted average life of mortgages, which can result in long-term interest rate spread compression if funding needs to be reissued (or replaced) at higher interest rates, as our liabilities funding mortgage-related assets are generally shorter term.
- Net interest margin increased despite the decreases in net interest spread between the yield on average interest-earning assets and the cost of average interest-bearing liabilities. This compression of net interest spread was due to changes in balance sheet composition and the increase in the cost of rate-sensitive liabilities, primarily as it relates to the mortgage loan portfolio. Advances and short-term investments are typically our lowest spread assets, so net interest spread declines as short-term advance and short-term investment balances comprise a larger percentage of total assets. The mortgage loan portfolio is fixed rate and funded with a combination of callable debt, fixed rate debt, and short-term debt, and the increase in funding costs, especially short-term debt, reduced the net interest spread on the mortgage loan portfolio. The increase in funding costs was due to upward repricing of variable rate debt, including fixed rate debt swapped to a variable rate, and the issuance of fixed rate debt at higher market interest rates. For further discussion of investments, advances and mortgage loans, see this Item 7 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition.”