Calling 2009 "arguably the most challenging in the bank’s history," the Federal Home Loan Bank of Boston’s CEO reported a $186.8 million loss for the bank in 2009, compared to $115.8 million deficit in 2008.
In a letter to member banks Monday, Edward A. Hjerpe III wrote that the loss was because of ongoing troubles with its mortgage-backed securities portfolio, an albatross that has weighed down the bank’s earnings.
Without consistent profitability, the bank’s board is unlikely to restart declaring quarterly dividends, a practice it discontinued after 2008’s tough results. The bank will likely need at least a couple quarters of profitability before the board can breathe easily enough to re-start declaring dividends, Hjerpe told Banker & Tradesman in an interview Monday.
Although the bank’s core business is strong, its balance sheet is dependent on an often-fluctuating housing market, he said. Still, "We tried to highlight here that we do hope and expect that things will be improved in the coming years relative to what we went through this year."
Credit loss for the bank’s MBS totaled $444.1 million for the year, compared to a loss of $381.7 million in 2008. Net interest income was also down in 2009, with income of $311.7 million compared to $332.7 million for 2008.
Income slumped because the FHLBB has cut back on advances to member banks. Hjerpe said demand for loans was extremely high during 2007 and especially during the credit crisis of 2008. Now, with more banks able to get capital from other places, demand for loans – and the interest income that goes along with it – is down. In addition, low interest rates helped keep income lower than 2008.
One bright spot: The fourth quarter 2009 brought income, rather than another loss. In Q4, the bank brought in $6.3 million compared to the net loss of $274.2 million in 2008’s fourth quarter.
Although he couldn’t predict how 2010 would go, Hjerpe called the recent performance a hopeful sign. He added that it was unlikely the bank would have to make any more significant budget cuts like 2009’s layoff of 18 employees.
"We are hopeful that we have done the majority of our operating expense reductions," he said.
