The Federal Home Loan Bank (FHLB) of Boston recorded net income of $85.3 million for the fourth quarter and $212.3 million for the year in 2013, due in large part to $53.3 million in litigation settlements related investments in private-label mortgage-backed securities.
Net interest income after provision for credit losses for the fourth quarter totaled $60.2 million, compared with $82.8 million for the same period in 2012. A decrease in net prepayment fees from investments and advances accounted for $15.7 million of that $22.7 million decline. Those fees totaled $21.6 million in the fourth quarter of 2012, compared with $5.9 million last year.
A drop in average earning assets, from $42.8 billion during the fourth quarter in 2012 to $40.3 billion last year, also contributed to that decline in net interest income.
Net interest spread was 0.52 percent for the fourth quarter, a 14 basis point decrease from the same period in 2012, and net interest margin was 0.59 percent, a year-over-year decreases of 17 basis points. The decrease in net interest spread reflects a 27 basis point decrease in the average yield on earning assets and a 13 basis point decrease in the average yield on interest-bearing liabilities.
The decreases in net interest margin and net interest spread reflect the decline in prepayment fees.
The bank expects net interest margin and net interest spread to continue to decline based on the continuing low interest-rate environment. The decline in its average earning assets over the last few years is likely to ding future earnings, particularly since reinvestment opportunities are not as profitable in this low interest-rate environment.
However, the bank said in its quarterly statement, it does not believe that prepayment fee income represents a trend. Based on those preliminary results, the bank said it plans to allocate $24.2 million to fund the Affordable Housing Program this year, which would be the largest allocation to that program in the bank’s history.
The board of directors also approved the repurchase of $500 million in excess capital stock, to be completed May 1. This will be its third such repurchase since a moratorium was established in December 2008. The board said it might approve a second partial repurchase later this year.
