Pittsburgh FHLBank Earnings Plunge

The Pittsburgh Federal Home Loan Bank experienced a sharp drop in earnings in the second quarter, mainly due to heavy refinancings and ineffective hedging of its $9.8 billion mortgage portfolio.The FHLBank posted a $2.4 million profit in the second quarter, down 82% from $15.3 million in the first quarter. The Pittsburgh bank dipped into retained earnings for $10 million to pay its quarterly dividend. "Earnings currently reflect historically low interest rates, the residual effects of higher cost debt, and sharply accelerated premium amortization in the mortgage portfolio resulting from unprecedented refinancings," according to a letter to shareholders. FHLBank spokeswoman Lynn Robb said the bank is "disappointed, but our main business measures [advances and mortgage purchases] are still strong and growing." The bank is committed to the Mortgage Partnership Finance program, and it increased its investments in one- to four-family mortgages fourfold in one year. In the Aug. 12 letter to shareholders, FHLBank president Roy Green warned that the "wave of prepayments" could "constrain" earnings in the third quarter.