Federal Home Loan Bank of Boston Announces 2021 Second Quarter Results, Declares Dividend

The Bank's board of directors has declared a dividend equal to an annual yield of 1.52 percent, the daily average of the Secured Overnight Financing Rate for the second quarter of 2021 plus 150 basis points. The dividend, based on average stock outstanding for the second quarter of 2021, will be paid on August 3, 2021. As always, dividends remain at the discretion of the board.

“High levels of deposits and excess liquidity at our depository members continued to temper demand for advances in the second quarter. Despite declining advances and the near-zero interest-rate environment, the Bank remains well positioned to provide liquidity and a broad range of funding products to our members, support our affordable housing and economic development programs, and pay a dividend of SOFR plus 150 basis points to our shareholders,” said President and Chief Executive Officer Edward A. Hjerpe III.

The Bank’s overall results of operations are influenced by the economy and financial markets and, in particular, by members' demand for advances. During the first half of 2021, interest rates remained significantly below pre-pandemic levels and we experienced a moderate reduction in demand for advances from our members. Depository member institutions continued to report significantly elevated deposit balances, which has reduced demand for our advances and other forms of wholesale funding.

Net income for the quarter ended June 30, 2021, was $6.2 million, compared with net income of $2.8 million for the same period in 2020. The increase in net income for the quarter was primarily due to a reduction of net unrealized losses on trading securities of $4.2 million, and an increase of $3.7 million in net interest income after provision for credit losses, offset by an increase to other expense of $3.0 million. These results led to a $687 thousand statutory contribution to the Bank's Affordable Housing Program for the quarter. In addition, the Bank made a voluntary contribution of $1.7 million to the Affordable Housing Program.

Net interest income after provision for credit losses for the three months ended June 30, 2021, was $43.1 million, compared with $39.4 million for the same period in 2020. The $3.7 million increase in net interest income after provision for credit losses is attributable to several factors, including a $2.7 million reduction in credit loss provision expense, an increase in net interest margin and net interest spread as further discussed in the paragraph below, and a $1.5 billion increase in the average balance of U.S. Treasury obligations held as investment securities. These favorable factors were partially offset by reductions to net interest income resulting from a $16.5 billion decrease in the average balance of advances, a $922.4 million decrease in the average balance of mortgage loans, an $804.2 million decrease in the average balance of mortgage-backed securities, a $4.9 million increase in net unrealized losses from fair value hedges, and a $3.3 million decrease in accretion of significant improvement in projected cash flows resulting from sales of previously impaired private-label MBS as all private-label MBS were sold in 2020. In addition, the average balance of outstanding capital stock declined $707.8 million in the second quarter of 2021 compared to the second quarter of 2020, and net interest income was therefore negatively affected by lower income from investing the Bank’s capital.

Net interest spread was 0.44 percent for the quarter ended June 30, 2021, an 18-basis-point increase from the same period in 2020, and net interest margin was 0.48 percent, a 17-basis-point increase from the same period in 2020. The increase in both net interest spread and net interest margin mainly reflect significant improvement in funding costs relative to the same period in 2020, during which a significant amount of short-term debt issued prior to the Federal Reserve’s 150 basis point rate cuts in March 2020 remained outstanding through May 2020, resulting in sharp, temporary margin compression. In addition, net amortization of premium on mortgage-backed securities and mortgage loans decreased by $5.1 million.

Net gains and losses on derivatives and hedging activities for the three months ended June 30, 2021, totaled a net gain of $447 thousand, compared with a net loss of $1.2 million for the same period in 2020. The $447 thousand net gain for the current quarter consisted of a $6.1 million unrealized gain from changes in fair value on economic hedges offset by $5.6 million of interest expense on economic hedges. Additionally, unrealized losses on trading securities totaled $14.6 million for the three months ended June 30, 2021. Together, these realized and unrealized gains and losses provided an economic offset primarily to interest income from trading securities, which totaled $15.1 million for the three months ended June 30, 2021.

Total assets decreased $2.8 billion, or 7.2 percent, to $35.7 billion at June 30, 2021, down from $38.5 billion at year-end 2020. During the six months ended June 30, 2021, advances decreased $3.6 billion, or 19.3 percent, to $15.2 billion, compared with $18.8 billion at year-end 2020.

Total investments were $16.1 billion at June 30, 2021, up from $13.3 billion at the prior year end, primarily attributable to the $2.3 billion increase in U.S. Treasury obligations and a $1.2 billion increase in mortgage-backed securities. Investments in mortgage loans totaled $3.5 billion at June 30, 2021, a decrease of $459.7 million from year-end 2020 driven by increased mortgage refinancing activity amid continued low mortgage rates. Cash and due from banks totaled $496.9 million at June 30, 2021, a decrease of $1.6 billion from the prior year end.

GAAP capital at June 30, 2021, was $2.6 billion, a decrease of $137.6 million from $2.8 billion at year-end 2020. During the second quarter of 2021, capital stock decreased by $186.1 million, primarily attributable to the decrease in advances and a reduction in the amount of capital stock shareholders are allowed to hold in excess of their total stock investment requirement under the Bank’s excess stock repurchase program. Total retained earnings grew by $17.1 million, or 1.1 percent, from December 31, 2020. Restricted retained earnings remained at $368.4 million at June 30, 2021, as this amount exceeds the contribution requirement of one percent of the average daily balance of consolidated obligations. Accumulated other comprehensive income totaled $47.6 million at June 30, 2021, an increase of $31.5 million, or 195.2 percent, from December 31, 2020.

The Bank was in compliance with all regulatory capital ratios at June 30, 2021, 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 March 31, 2021.

To read the entire release, go here.