The Federal Home Loan Bank of Boston will continue to issue "modest" dividends, but said in quarterly filings its total assets continued to decline, dropping by 11 percent in the first six months of 2011 compared to the same period last year.
Total assets declined to $52.2 billion as of June 30, down from $58.6 billion at year-end. The slump had already begun in 2010 but its pace continued this year because of a decrease in advances and investments, according to a statement from the FHLBB. From Dec. 31 through June 30, advances decreased by $1.8 billion, investments by $5 billion and mortgage loans declined by $113 million. The reduction in advances, the statement added, is because member institutions are highly liquid in the current environment.
Net income in the second quarter totaled $21.8 million, up from $18.7 million in the second quarter of 2010.
The FHLBB provides liquidity to member banks throughout New England, but with so many rich in deposits, extra liquidity isn’t necessary, resulting in a decline in advances.
Investments dropped by $5 billion, mostly because of a $4 billion decline in short-term investments and the $1.3 billion decrease in agency and FDIC-guaranteed corporate debentures. The par value of private-label mortgage-backed securities (MBS) declined to $2.7 billion at June 30, from $3 billion as of year-end 2010. The carrying value of private-label MBS declined to $1.7 billion from $1.9 billion six months before. The statement notes that the current portfolio has "declined significantly" from its peak par value of $6.4 billion in September 2007.
The FHLBB’s board declared a dividend equal to an annual yield of 0.27 percent, to be paid Aug. 2. In another echo from last quarter’s filings, the board cautions that, while it is likely to continue dividend payments for the foreseeable future, adverse events such as credit losses on the bank’s private-label MBS portfolio could lead to another halt in dividends. The FHLBB had put its dividend payments on ice from 2008 through the end of 2010 after suffering through difficult years thanks largely to losses on its mortgage-backed securities portfolio.
Still, CEO Edward A. Hjerpe III noted that the institution’s improvements continue.
"We are pleased to report a seventh consecutive quarter of profitability and a third consecutive dividend payment, both of which demonstrate consistent core profitability and growing strength in the bank’s capital base and balance sheet," he said. "We continue to put over 85 percent of earnings into retained earnings, and are focused on managing risk and expenses while still meeting the evolving funding and balance-sheet needs of our members."
