An $8.6 million decrease in net prepayment fees from investment and advances contributed to a decline in net income for the third quarter at the Federal Home Loan Bank of Boston.
Net income for the three months ending Sept. 30, was $38.1 million, compared with net income of $50.8 million for the same period in 2012. These results led to a $4.3 million contribution to the bank’s Affordable Housing Program for the quarter.
Net interest income after provision for credit losses for the quarter ending Sept. 30 was $58.3 million, compared with $73.3 million for the third quarter of 2012. Contributing to the $15 million decrease in net interest income after provision for credit losses was a decrease in net prepayment fees of $8.6 million, from $12 million in the third quarter of 2012 to $3.4 million in the third quarter of 2013. Additionally, the decline in net interest income after provision for credit losses was due to a drop in average earning assets, which declined $6.4 billion to $40.7 billion for the third quarter of 2013 from $47.1 billion for the third quarter of 2012. The decline in average earning assets was driven by a $3.3 billion drop in average investments balances and a $3.2 billion decrease in average advances balances.
Additionally, $5.9 million of the bank’s interest income represented the accretion of discount from securities that were other-than-temporarily impaired in prior quarters, but for which a significant improvement in projected cash flows has subsequently been recognized, an increase of $3.3 million from $2.6 million recorded the third quarter of 2012.
Net interest spread was 0.49 percent for the quarter ended Sept. 30, a four basis-point decrease from the same period in 2012, and net interest margin was 0.57 percent, a four basis point decrease from the same period in 2012. The decrease in net interest spread reflects a 15 basis point decrease in the average yield on earning assets offset by the 11 basis point decrease in 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 the bank’s average earning assets over the last few years is likely to negatively impact future earnings, particularly since reinvestment opportunities are not as profitable in this low interest-rate environment.
