The combined earnings of the 12 Federal Home Loan Banks (FHLBs) totaled $358 million in the first quarter, up 10% from a year ago, the FHLB Office of Finance reported Friday morning.But bad investments in private-label MBS continue to be a drag on earnings at several banks and it pushed the Seattle bank into the loss column again.

Low demand for advances (the main money maker for the FHLBs) and low interest rates also hurt earnings.  The first quarter report shows advances totaled $445.1 billion as of March 31, down 7% from the first quarter of 2010.  Interest income on advances was down 25% to $898 million.

A year ago, all 12 FHLBs reported a profit even if was by very slim margins.  The Chicago, Seattle and Pittsburgh banks posted earnings of $1 million, $6 million and $10 million respectively.

On Thursday, the Seattle bank reported a $12.1 million loss for the first quarter after taking a $22.7 million credit-related loss on its private-label MBS portfolio.

The Seattle bank cited "revised assumptions" for the additional losses on its private label securities.  The bank noted "ongoing pressure on housing prices and current and forecasted borrower defaults and foreclosures" is having a negative impact on the performance of the underlying mortgages.

The Pittsburgh bank reported net income of $2.5 million in the first quarter, down from $10 million a year ago, after taking a $20.5 million credit-related loss on its private-label MBS investments.

“Despite continued weakness in our private-label mortgage-backed securities portfolio, the Pittsburgh Bank was pleased to earn a profit for the quarter, manage improvement in key risk metrics and repurchase excess capital stock,” said FHLB president and chief executive Winthrop Watson.

Overall, credit-related losses on the FHLBs' combined private-label MBS portfolios totaled $275 million in the first quarter, up 18% from a year ago.

Meanwhile, the Chicago bank reported a $26 million profit for the first quarter, up from $1 million a year ago, despite a $20 million credit-related loss on its private-label MBS.

"While the results discussed here are preliminary and unaudited, we are pleased to report that we had our sixth consecutive profitable quarter and continued to build our retained earnings, which exceed $1.1 billion," said Chicago FHLB president and chief executive Matthew Feldman.

Overall, credit related losses on the Federal Home Loan Banks combined private-label MBS totaled $275 million in the first quarter, up 18% from a year ago.

The FHLBanks of Chicago, Indianapolis, Pittsburgh, Seattle and San Francisco have each filed lawsuits against various issuers of private-label MBS to recover losses.

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