The Federal Home Loan Bank System said Tuesday that the 12 Home Loan banks' second-quarter profit rose 14.5% from a year earlier as income from their growing investment portfolios helped offset a loss at the Chicago bank.

Investments soared 12.6% from Dec. 31, to $334 billion, as net income climbed to $719 million, according to preliminary figures released by the Federal Home Loan Bank System's finance office in Reston, Va. The banks' portfolios mainly hold mortgage-backed securities, commercial paper, and the debt of government-sponsored enterprises, the finance office said.

In March the 12 banks' regulator doubled a limit on their mortgage-bond investments to six times capital to try to stabilize the market amid reduced demand. The Chicago bank lost $74 million in the second quarter after writing down subprime-mortgage bonds, the finance office said Tuesday.

Some other Home Loan banks may "experience reduced yields or losses" in future quarters from investments in certain mortgage securities if delinquencies rise and home prices decline, the finance office said.

No other bank besides Chicago expects to report "material" losses on mortgage-bond investments for the second quarter, the office said, and none expect "credit losses that would have a material adverse effect on its financial condition."

The Home Loan Bank System's lending rose 4.4% from Dec. 31, to $914 billion. Advances jumped last year as banks faced higher borrowing costs and mortgage bonds became harder to sell. Mortgages bought under programs in which the lender retains credit risk fell 2.7% from Dec. 31, to $89 billion.

As of June 30 about 98% of the Home Loan banks' investments were rated triple-A, and less than 1% carried non-investment-grade ratings, the office said. The banks, which raise money as a group in the agency bond market, are the largest U.S. borrower after the federal government, with $1.25 trillion of debt on June 30, up 6% from Dec. 31.

The Home Loan banks have never suffered a credit loss on their advances. The San Francisco bank had $10.1 billion of loans to IndyMac Bancorp Inc., the Pasadena, Calif., thrift company that failed this month. The lending was secured by $21.6 billion of mortgage loans and related securities, the bank said July 11.

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