The Federal Home Loan Bank of Boston reported net income of $53.5 million for the fourth quarter and $207.1 million for the year. The annual net income of $207.1 million represents an increase of $47.5 million, or 29.7 percent, over net income of $159.6 million for 2011.
Based on its preliminary results, the bank expects to allocate $21.5 million to fund the 2013 Affordable Housing Program, a decrease of $2 million compared to 2012.
"These positive results strengthen our ability to provide the funding members need to serve their communities in every economic environment," President and Chief Executive Officer Edward A. Hjerpe III said in a statement. "We continue to add to our record-high retained earnings and declare a dividend above the approximate daily average three-month LIBOR yield, and we’re pleased to commit more than $21 million to fund our Affordable Housing Program."
The bank’s board of directors also declared a dividend equal to an annual yield of 0.37 percent, the approximate daily average three-month LIBOR yield for the fourth quarter of 2012 plus five basis points. The dividend, based on average stock outstanding for the fourth quarter of 2012, will be paid on March 4, 2013. In declaring the dividend, the board stated that it anticipates that it will declare cash dividends through 2013 consistent with dividend declarations in 2012, although a quarterly loss or a significant adverse event or trend would cause a dividend to be suspended.
In addition, the board of directors approved a repurchase of excess capital stock to be completed on March 11, in a targeted amount of $300.0 million. This will be the bank’s second such repurchase since a moratorium was established in December 2008 and is the only such repurchase the bank intends to make in 2013.
However, the positive whole-year results were not reflective of the fourth quarter. Net income for the quarter ending Dec. 31, 2012, declined by more than $11 million, dropping to $53.5 million, compared with net income of $64.7 million for the fourth quarter of 2011.
The FHLB attributed the drop to the fact that its 2011 fourth quarter results had been boosted by an $8.5 million gain on the sale of held-to-maturity securities, while the fourth quarter of 2012 had seen a $6.5 million expense for the early retirement of debt. In addition, during the fourth quarter of 2011 the bank had sold securities back to a dealer as those securities did not conform to the terms of the purchase agreement and no similar transaction occurred in 2012.
The bank cautioned in its report that asset growth would be uncertain in 2013 after a sluggish year in 2012. Total assets declined 19.5 percent to $40.2 billion at December 31, 2012, down from $50.0 billion at year-end 2011. During the year, investments declined by $5.8 billion, or 27.2 percent, and advances decreased $4.4 billion to $20.8 billion, compared with $25.2 billion at year-end 2011.
According to the FHLB, its member banks experienced only modest growth in demand for their mortgage loans, and were flush with deposits, lessening their reliance on FHLB funding.
The FHLB also said it was continuing to lose money on bad loans made during the boom, with the value of a portfolio of private-label mortgage-backed securities held by the bank declining $347.9 million to $2.2 billion at year-end 2012. The value of the portfolio had peaked at $6.4 billion in September 2007.
Overall, investments in mortgage loans totaled $3.5 billion at the end of 2012, an increase of $369.7 million from year-end 2011.
"Notwithstanding the growth we experienced in 2012, the bank cannot predict whether this portfolio will change significantly in 2013, based on continued uncertainty about the mortgage loan market, unknown legislative and regulatory developments, and the sluggish economy," the FHLB wrote in its summary of its results.
