BOSTON, Feb. 19, 2021 /PRNewswire/ — The Federal Home Loan Bank of Boston announced its preliminary, unaudited fourth quarter and annual financial results for 2020, reporting net income of $22.2 million for the quarter and $120.3 million for the year. The Bank expects to file its annual report on Form 10-K for the year ending December 31, 2020, with the U.S. Securities and Exchange Commission next month.
As previously announced, the board has been reevaluating the Bank’s dividend strategy in light of the pending cessation of LIBOR as the Bank’s dividend benchmark rate, as well as the ongoing financial challenges resulting from the COVID-19 pandemic, near-zero interest rates and significantly lower advances balances and their impact on the Bank’s current and projected earnings. Beginning with this announcement, the board has adopted the Secured Overnight Financing Rate (SOFR) as the Bank’s dividend benchmark rate.
The Bank’s board of directors has declared a dividend equal to an annual yield of 1.59 percent, the approximate daily average SOFR yield for the fourth quarter of 2020 plus 150 basis points. The dividend, based on average stock outstanding for the fourth quarter of 2020, will be paid on March 2, 2021. As always, dividends remain at the discretion of the board.
“FHLBank Boston, our members, and the New England communities they serve faced unprecedented challenges in 2020. Recent U.S. government monetary policy and fiscal stimulus programs in response to the pandemic and resulting economic downturn have led to near-zero interest rates and increased liquidity on member balance sheets,” said President and Chief Executive Officer Edward A. Hjerpe III. “Advance balances and net income declined as a result, and are expected to remain at reduced levels until the environment changes. Given the pending cessation of LIBOR and the challenging environment, we are changing the index to which we tie our dividend from three-month LIBOR to SOFR and reducing the spread to the new index. The Bank remains very well capitalized and maintains its steadfast commitment to fulfilling its mission.”
Economy, Financial Markets, and Operational Status
The COVID-19 pandemic, which began to affect businesses and the economy in March 2020, continues, and interest rates remain historically low. The Bank’s overall results of operations are influenced by the economy and financial markets and, in particular, by members’ demand for advances and the Bank’s ability to maintain sufficient access to funding at relatively favorable costs.
Generally, investor demand for high credit quality, fixed-income investments, including the Federal Home Loan Banks’ (FHLBanks’) consolidated obligations, continued to be strong relative to other investments, and the Bank continued to meet its funding needs during this time. Spreads between the yields of FHLBanks’ consolidated obligations and like-term U.S. Treasury securities have tightened significantly in recent months.