FHLB profit back in black

BOSTON – The Federal Home Loan Bank of Boston, a critical source of mortgage funding for many banks and credit unions in the region, posted net income of $106.59 million for 2010 – compared with a $186.75 million loss a year earlier.
The FHLB of Boston also declared that it would pay a dividend equal to an annual yield of 0.30 percent. The bank, a wholesale bank that lends to other banks at discount interest rates, had suspended dividends in 2009 after severe losses in its investment portfolio.
Local bankers tend to keep close tabs on the FHLB because its financial fortunes can have a wide-ranging impact. The bank’s investment portfolio has been ravaged by turbulence in the financial market in recent years.
The FHLB’s board of directors said it anticipated that it will continue to declare modest quarterly cash dividends through 2011, but cautioned that will change if credit losses increased or income declined.
Based on its preliminary results, the bank expects to allocate $10.2 million to fund the 2011 Affordable Housing Program.
“We have been working diligently toward our publicly stated goal of returning the bank to a position where it can pay dividends, repurchase excess stock, and more fully fund the Affordable Housing Program,” said Edward A. Hjerpe III, bank president and CEO. “I am pleased to report that we have now produced five consecutive quarters of profitability, reintroduced a modest dividend payment and increased AHP funds available for 2011. 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.”
Meanwhile, the FHLB of Boston said total assets declined 6.1 percent to $58.6 billion as of Dec. 31, down from $62.5 billion at year-end 2009, mostly because of a decrease in demand for advances to member banks. A $9.6 billion decrease in advances and a $300 million decrease in mortgage loans were offset by a $6.2 billion increase in investments.
Advances to banks for mortgage lending decreased 25.4 percent to $28.0 billion, compared with $37.6 billion at year-end 2009. The FHLB said the reduction in advances largely was attributable to continued high deposit levels at member banks.