BOSTON,– The Federal Home Loan Bank of Boston announced its preliminary, unaudited third quarter results for 2019, reporting net income of $32.1 million. The Bank expects to file its quarterly report on Form 10-Q for the quarter ending September 30, 2019, with the U.S. Securities and Exchange Commission next month.
The Bank’s board of directors also declared a dividend equal to an annual yield of 5.73 percent, the approximate daily average three-month LIBOR yield for the third quarter of 2019 plus 350 basis points. The dividend, based on average stock outstanding for the third quarter of 2019, will be paid on November 4, 2019.
“The Bank’s consistent financial performance continues to support a broad range of liquidity and funding products for our members, a strong dividend, and ongoing support of programs that stimulate small business lending and improve housing affordability across New England,” said President and Chief Executive Officer Edward A. Hjerpe III.
Third Quarter 2019 Operating Highlights
Net income for the quarter ending September 30, 2019, was $32.1 million, compared with net income of $64.7 million for the same period in 2018. The decrease in net income was primarily due to a decrease of $21.1 million in net interest income after provision for credit losses and a $12.8 million decrease in litigation settlement income. These results led to a $3.6 million contribution to the Bank’s Affordable Housing Program for the quarter.
Net interest income after provision for credit losses for the quarter ending September 30, 2019, was $56.3 million, compared with $77.5 million for the same period in 2018. The $21.1 million decrease in net interest income after provision for credit losses was mainly a result of an $8.7 billion decrease in average earning assets, as well as higher premium amortization on U.S. Agency mortgage-backed securities resulting from an expected increase in mortgage refinancing activity following a significant drop in mortgage rates during the third quarter of 2019. The decrease in average earning assets primarily consisted of a $6.5 billion decrease in average advances, a $2.7 billion decrease in average short-term investments, and a $1.1 billion decrease in average mortgage-backed securities. These decreases were partially offset by a $1.4 billion increase in average U.S. Treasury Notes.
Net interest spread was 0.30 percent for the three months ended September 30, 2019, an eight basis point decrease from the same period in 2018, and net interest margin was 0.43 percent, a seven basis point decrease from the same period in 2018. The decrease in net interest spread reflects a 16 basis point increase in the average yield on earning assets and a 24 basis point increase in the average yield on interest-bearing liabilities. The decreases in both net interest spread and net interest margin mainly reflect the negative impact of higher premium amortization on U.S. Agency mortgage-backed securities.
September 30, 2019 Balance-Sheet Highlights
Total assets decreased $6.7 billion, or 10.5 percent, to $56.9 billion at September 30, 2019, down from $63.6 billion at year-end 2018. During the nine months ended September 30, 2019, advances decreased $4.7 billion, or 10.8 percent, to $38.5 billion, compared with $43.2 billion at year-end 2018. The decrease in advances was primarily concentrated in variable-rate advances.
Total investments were $13.6 billion at September 30, 2019, down from $15.9 billion at the prior year end. The decrease was primarily due to a decline of $4.4 billion in short-term money market investments, offset by an increase of $490.5 million in mortgage-backed securities and the purchase of $1.5 billion of U.S. Treasury Notes in 2019.
Investments in mortgage loans totaled $4.5 billion at September 30, 2019, an increase of $159.7 million from year-end 2018.
Mandatorily redeemable capital stock decreased $14.8 million to $17.1 million as of September 30, 2019, from $31.9 million as of year-end 2018. GAAP capital at September 30, 2019, was $3.2 billion, a decrease of $370.9 million from $3.6 billion at year-end 2018. Capital stock decreased by $497.2 million from December 31, 2018, primarily attributable to the decrease in advances and a reduction in the membership stock investment requirement. Total retained earnings grew to $1.4 billion, an increase of $25.6 million, or 1.8 percent, from December 31, 2018. Of this amount, restricted retained earnings totaled $335.1 million at September 30, 2019. Accumulated other comprehensive loss totaled $215.8 million at September 30, 2019, an improvement of $100.7 million, or 31.8 percent, from December 31, 2018.
The Bank was in compliance with all regulatory capital ratios at September 30, 2019, and in the most recent information available was classified “adequately capitalized” by its regulator, the Federal Housing Finance Agency, based on the Bank’s financial information at June 30, 2019.(1)
About the Bank
The Federal Home Loan Bank of Boston is a cooperatively owned wholesale bank for housing finance in the six New England states. Its mission is to provide highly reliable wholesale funding and liquidity to its member financial institutions in New England. The Bank also develops and delivers competitively priced financial products, services, and expertise that support housing finance, community development, and economic growth, including programs targeted to lower-income households.