FEDERAL HOME LOAN BANK OF BOSTON ANNOUNCES 2022 THIRD QUARTER RESULTS, DECLARES DIVIDEND

BY PR Newswire | AGENCY | 10/21/22 02:04 PM EDT

BOSTON, Oct. 21, 2022 /PRNewswire/ -- The Federal Home Loan Bank of Boston announced its preliminary, unaudited third quarter financial results for 2022, reporting net income of $60.0 million for the quarter. The Bank expects to file its quarterly report on Form 10-Q for the quarter ending September 30, 2022, with the U.S. Securities and Exchange Commission next month.

The Bank's board of directors has declared a dividend equal to an annual yield of 5.16%, the daily average of the Secured Overnight Financing Rate for the third quarter of 2022 plus 300 basis points. The dividend, based on average stock outstanding for the third quarter of 2022, will be paid on November?2, 2022. As always, dividends remain at the discretion of the board.

"Earnings were strong in the third quarter due to a sustained increase in the demand for advances by members and an overall increase in rates," said President and CEO Timothy J. Barrett. "FHLBank Boston's balance sheet growth reflects increased engagement with all our members to help meet their evolving liquidity and funding needs especially given the challenges posed by higher interest rates and uncertain economic conditions. We are pleased that our strong net income bolsters our ability to support the critical Affordable Housing Program our members rely upon to support housing development throughout New England."

Third Quarter 2022 Operating Highlights

The Bank's overall results of operations are influenced by the economy, financial markets and, in particular, by members' demand for advances. During the third quarter of 2022, the Federal Open Market Committee (FOMC) raised the target range for the federal funds rate to between 300 and 325 basis points and signaled its intentions to raise the target range further. Long term rates and rate volatility rose sharply during the quarter reflecting concerns over high inflation and economic uncertainty. Additionally, the Bank experienced a continuing increase in demand for advances from our members during the quarter ended September?30, 2022.

Net income for the quarter ending September?30, 2022, was $60.0 million, compared with net income of $16.5 million for the same period in 2021, primarily the result of a $32.0 million increase in net interest income after provision for credit losses and a decrease of $11.2 million in net losses on trading securities. These results led to a $6.7 million statutory contribution to the Bank's Affordable Housing Program for the quarter.

Net interest income after provision for credit losses for the three months ended September?30, 2022, was $83.1 million, compared with $51.1 million for the same period in 2021. The?$32.0 million increase in net interest income after provision for credit losses was driven by growth in our advances and investments portfolios, growth in capital, as well as an increase in yields in the quarter ended September?30, 2022 resulting from higher market interest rates. Net interest spread was 0.41% for the quarter ended September?30, 2022, a decrease of 15 basis points from the same period in 2021, and net interest margin was 0.58%, unchanged from the same period in 2021.

September?30, 2022?Balance-Sheet Highlights

Total assets increased $26.3 billion, or 80.9%, to $58.9 billion at September?30, 2022, up from $32.5 billion at year-end 2021. During the nine months ended September?30, 2022, advances increased $21.3 billion, or 172.8%, to $33.7 billion, compared with $12.3 billion at year-end 2021. The significant increase in advances was concentrated in variable-rate advances and short-term fixed-rate advances, reflecting rising demand for wholesale funding at member institutions.

Total investments were $21.7 billion at September?30, 2022, up from $16.4 billion at December?31, 2021, with most of the increase concentrated in short term investments that support liquidity needs resulting from higher demand for advances. Investments in mortgage loans totaled $2.8 billion at September?30, 2022, a decrease of $299.5 million from year-end 2021 as paydowns continued to outpace new purchases in a challenging mortgage refinance market.

GAAP capital at September?30, 2022, was $3.1 billion, an increase of $598.5 million from $2.5 billion at year-end 2021. During the first nine months of 2022, capital stock increased by $764.1 million, primarily attributable to the increase in advances. Total retained earnings grew to $1.7 billion at September?30, 2022, an increase of $107.4 million, or 6.9%, from December?31, 2021. Of this amount, restricted retained earnings(1) totaled $388.6 million at September?30, 2022. During the quarter ended September?30, 2022, the Bank contributed $12.0 million of third quarter 2022 net income to restricted retained earnings. Accumulated other comprehensive loss totaled $244.1 million at September?30, 2022, a decrease of $273.0 million, from accumulated other comprehensive income of $29.0 million at December?31, 2021, mainly attributable to declines in value of available-for-sale investment securities as interest rates rose sharply during the first nine months of 2022.

The Bank was in compliance with all regulatory capital ratios at September?30, 2022, 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, 2022.(2)

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.

Contact:
Adam Coldwell
617-292-9774
adam.coldwell@fhlbboston.com

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Federal Home Loan Bank of Boston
Balance Sheet Highlights
(Dollars in thousands)
(Unaudited)




9/30/2022


6/30/2022


12/31/2021

ASSETS







Cash and due from banks


$????????????? 35,913


$????????????? 65,965


$??????????? 204,993

Advances


33,665,311


30,318,486


12,340,020

Investments (3)


21,748,784


28,254,534


16,372,499

Mortgage loans held for portfolio, net


2,820,696


2,897,373


3,120,159

Other assets


598,835


527,636


507,621

Total assets


$?????? 58,869,539


$?????? 62,063,994


$?????? 32,545,292








LIABILITIES







Consolidated obligations, net


$?????? 54,502,730


$?????? 57,817,835


$?????? 28,888,352

Deposits


938,551


1,066,459


884,032

Other liabilities


298,772


231,688


241,897








CAPITAL







Class B capital stock


1,717,748


1,557,243


953,638

Retained earnings - unrestricted


1,267,192


1,230,558


1,179,986

Retained earnings - restricted (1)


388,621


376,620


368,420

Total retained earnings


1,655,813


1,607,178


1,548,406

Accumulated other comprehensive (loss) income


(244,075)


(216,409)


28,967

Total capital


3,129,486


2,948,012


2,531,011

Total liabilities and capital


$?????? 58,869,539


$?????? 62,063,994


$?????? 32,545,292








Total regulatory capital-to-assets ratio


5.7?%


5.1?%


7.7?%

Ratio of market value of equity (MVE) to par value of capital stock (4)


183?%


189?%


253?%

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Income Statement Highlights
(Dollars in thousands)
(Unaudited)



For the Three Months Ended


For the Nine Months Ended


9/30/2022


6/30/2022


9/30/2021


9/30/2022


9/30/2021











Total interest income

$??????? 362,243


$??????? 174,401


$??????? 100,912


$??????? 640,087


$??????? 322,969

Total interest expense

278,623


105,084


49,847


428,308


168,325

Net interest income

83,620


69,317


51,065


211,779


154,644

Net interest income after provision for credit losses

83,120


69,416


51,145


211,478


155,751

Net gains (losses) on trading securities

120


(252)


(11,094)


(767)


(40,536)

Other income

4,170


4,070


641


9,941


1,216

Operating expense

17,400


17,022


16,297


52,080


48,860

Other expense

3,321


10,645


6,033


25,381


19,160

AHP assessment

6,682


4,567


1,842


14,349


4,852

Net income

$????????? 60,007


$????????? 41,000


$????????? 16,520


$??????? 128,842


$????????? 43,559











Performance Ratios: (5)










Return on average assets

0.41?%


0.35?%


0.18?%


0.38?%


0.16?%

Return on average equity (6)

7.97?%


6.13?%


2.50?%


6.32?%


2.17?%

Net interest spread

0.41?%


0.52?%


0.56?%


0.51?%


0.54?%

Net interest margin

0.58?%


0.60?%


0.58?%


0.62?%


0.58?%



(1)

The Bank's capital plan and a joint capital enhancement agreement among all Federal Home Loan Banks require the Bank to allocate a certain amount, generally not less than 20% of each of quarterly net income and adjustments to prior net income, to a restricted retained earnings account until a total required allocation is met. Amounts in the restricted retained earnings account are unavailable to be paid as dividends, which may be paid from current net income and unrestricted retained earnings. For additional information, see Item 5 ? Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities in the 2021 Annual Report.



(2)

For additional information on the Bank's capital requirements, see Item 7 ? Management's Discussion and Analysis of Financial Condition and Results of Operations ? Liquidity and Capital Resources ? Capital in the Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 18, 2022 (the 2021 Annual Report).



(3)

Investments include available-for-sale securities, held-to-maturity securities, trading securities, interest-bearing deposits, securities purchased under agreements to resell, and federal funds sold.



(4)

MVE equals the difference between the theoretical market value of assets and the theoretical market value of liabilities, and the ratio of MVE to par value of Bank capital stock can be an indicator of future net income to the extent that it demonstrates the impact of prior interest-rate movements on the capacity of the current balance sheet to generate net interest income. However, this ratio does not always provide an accurate indication of future net income. Accordingly, investors should not place undue reliance on this ratio and are encouraged to read the Bank's discussion of MVE, including discussion of the limitations of MVE as a metric, in Item 7A ? Quantitative and Qualitative Disclosures About Market Risk ? Measurement of Market and Interest Rate Risk in the 2021 Annual Report.



(5)

Yields for quarterly periods are annualized.



(6)

Return on average equity is net income divided by the total of the average daily balance of outstanding Class?B capital stock, accumulated other comprehensive income, and total retained earnings.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995

This release, including the unaudited balance sheet highlights and income statement highlights, uses forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, which include statements with respect to the Bank's plans, objectives, projections, estimates, or predictions. These statements are based on the Bank's expectations as of the date hereof. The words "preliminary," "will," "continue," and similar statements and their plural and negative forms are used in this notification to identify some, but not all, of such forward-looking statements. For example, statements about future declarations of dividends and expectations for advances balances, mortgage-loan investments, and net income are forward-looking statements, among other forward-looking statements herein.

The Bank cautions that, by their nature, forward-looking statements involve risks and uncertainties, including, but not limited to, the application of accounting standards relating to, among other things, the amortization and accretion of premiums and discounts on financial assets, financial liabilities, and certain fair value gains and losses; hedge accounting of derivatives and underlying financial instruments; the fair values of financial instruments, including investment securities and derivatives; the allowance for credit losses on investment securities and mortgage loans; instability in the credit and debt markets; economic conditions (including, among other things, global or domestic recessions); changes in demand for advances or consolidated obligations of the Bank or the Federal Home Loan Bank system; changes in interest rates; volatility of market prices, rates, and indices that could affect the value of financial instruments; the expected discontinuance of LIBOR and the adverse consequences it could have for market participants, including the Bank; the effects of COVID-19 and the emerging variants of the virus that causes COVID-19 on regulatory developments, economic conditions and markets; the Bank's ability to execute its business model and pay future dividends; and prepayment speeds on mortgage assets. In addition, the Bank reserves the right to change its plans for any programs for any reason, including but not limited to, legislative or regulatory changes, changes in membership, or changes at the discretion of the board of directors. Accordingly, the Bank cautions that actual results could differ materially from those expressed or implied in these forward-looking statements or could impact the extent to which a particular plan, objective, projection, estimate or prediction is realized, and you are cautioned not to place undue reliance on such statements. The Bank does not undertake to update any forward-looking statement herein or that may be made from time to time on behalf of the Bank.

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SOURCE Federal Home Loan Bank of Boston

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Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

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