Seattle FHLB Breaks Into The Black
SEATLE -- The financially troubled Federal Home Loan Bank of Seattle reported Tuesday that it shed its red ink in the second quarter, with earnings of $2.5 million for the period, compared to a loss of $15.7 million for the second quarter last year. However, the Seattle Bank, which has struggled with huge losses on its hedging portfolio, said net interest income remains under pressure, with net interest income for the second quarter down 36% to $14 million, compared to the second quarter last year, and by 30% from this year's first quarter. The reduction in net interest income over the past year is because of the Bank's investments in low-yielding consolidated obligations of other Home Loan Banks that were funded with a mix of long-term non-callable debt. The flattening yield curve has caused interest rates on the short-term bullet debt that funded these investments to re-price at a cost higher than the yield of the investments. Because of its financial difficulties, the Seattle Bank entered into a rare supervisory agreement with its regulator, the Federal Housing Finance Board, that entails elimination of its secondary mortgage market program, called Mortgage Purchase Program, and the suspension of all dividends to its 370 members (including 79 credit unions) for three years.