After surviving a brutal 2009, the Federal Home Loan Bank of Boston saw a much brighter 2010, with net income of $106.6 million and the long-awaited return of dividend payments.
The FHLB of Boston released its annual earnings report today, remaining cautious despite the institution’s strong rally last year. The board of directors declared a "modest" dividend equal to an annual yield of 0.3 percent, to be awarded on March 2. That is the first since such payments were suspended in 2008, and the board believes they will continue throughout 2011.
However, the financial release noted the institution might not entirely be out of the woods: "Adverse events" such as a downturn on the bank’s mortgage-backed securities portfolio, a sizable decline in income, or regulatory disapproval, could lead the board to reconsider those payments once again, the report said.
It was losses on its mortgage-backed securities portfolio that triggered much of the FHLB of Boston’s troubles in 2008, and led to a tough slog in 2009, a year that CEO Edward A. Hjerpe III called "arguably the most challenging in the bank’s history," at the time.
In contrast, things are looking better after 2010. Hjerpe noted that the bank has had five consecutive quarters of profitability, leading to net income of $106.6 million in 2010, compared to a loss of $186.8 million in 2009. The institution owes the improvement largely to a $359.3 million decrease in impairment charges on its private-label mortgage-backed securities.
Total assets actually declined, however, down 6 percent to $58.6 billion as of year-end 2010, mostly because fewer banks have requested advances. The FHLB of Boston provides liquidity to member banks throughout New England, but with so many still flush with deposits, extra liquidity simply isn’t necessary.
Total investments were $27.1 billion at year-end, an increase of $6.2 billion compared to year-end 2009. The increase was mainly because of a $3.6 billion increase in short-term investments, a $2.3 billion increase in agency and FDIC-guaranteed corporate debentures, and a $320.2 million increase in mortgage-backed securities.
In addition, the FHLB of Boston increased payments to its Affordable Housing Program, intending to allocate $10.2 million in 2011.
Hjerpe, in the statement, said he was pleased with the year’s outcome: "We plan to continue to focus on primary products and services for our members, core operations, building retained earnings, and beginning to repurchase excess stock in the coming years."
