FHLBs Suffer Slight Decline in Earnings

The 12 Federal Home Loan Banks reported combined earnings of $345 million in the first quarter, a 6% decline from the same period last year. However, some of the regional banks that were suffering from losses on private-label securities moved into the black with stronger FHLBs reporting reduced profits due to a variety of reasons. The PLS-encumbered banks of Chicago, Seattle and Pittsburgh reported earnings of $1 million, $6 million and $10 million, respectively, compared to losses a year ago. They benefited from a big decline in credit-related charges on private-label mortgage-backed securities. Systemwide, the 12 banks took credit-related "other than temporarily impaired" charges of $233 million in the first quarter, down 55% from the same period in 2009. Meanwhile, stalwart GSEs like the New York and Cincinnati FHLBs reported a decline in profits. The New York bank posted $53.6 million in earnings, down 64% from the first quarter of 2009. The bank attributed the performance to a 15% decline in advances from record levels a year ago and higher borrowing costs. The Cincinnati bank said earnings came in at $43 million, down 48% from a year ago. The FHLB bank cited "extremely wide spreads between Libor and short-term consolidated discount notes" and other factors for the decline. "The first quarter of 2010's earnings were more normal relative to historical experience," the Cincinnati bank said. The 12 FHLBs combined have $966 billion in assets.