Press Release
Contact: Terri McKay, FHLBank Pittsburgh: 412-288-2830; cell 412-523-8511tmckay@fhlb-pgh.com
FHLBANK PITTSBURGH ANNOUNCES SECOND QUARTER 2010 FINANCIAL RESULTS
PITTSBURGH, July 29, 2010 – The Federal Home Loan Bank of Pittsburgh (FHLBank) today announced unaudited financial results for second quarter 2010. The Bank recorded a net loss for the quarter. All regulatory capital requirements were exceeded at June 30, 2010.
Operating Results
For the second quarter of 2010, the Bank recorded a net loss of ($68.2) million compared to net income of $32.1 million in second quarter 2009. This decline in results was driven by higher other-than-temporary impairment (OTTI) credit losses on the Bank’s private-label mortgage-backed securities (MBS) portfolio. OTTI credit losses were $110.7 million for second quarter 2010 compared to $39.3 million for second quarter 2009.
For the six months ended June 30, 2010, the Bank recorded a net loss of ($58.3) million compared to net income of $8.5 million for the same prior-year period primarily due to higher OTTI credit losses year-over-year.
The credit portion of the Bank’s OTTI losses is based on projected losses on the collateral underlying certain of the Bank’s private-label residential MBS. Each quarter, working with the FHLBank System OTTI Governance Committee, the Bank updates its OTTI analysis to reflect loan performance and current housing market assumptions in its collateral loss projection models, which generate these forecasted losses.
During the second quarter of 2010, this update process resulted in more pessimistic input assumptions based on current and forecasted economic trends affecting the underlying loans. Such trends include continued high unemployment, ongoing pressure on housing prices and limited refinancing opportunities for borrowers whose houses are now worth less than the balance of their mortgages.
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601 Grant Street • Pittsburgh, PA 15219-4455 • 412-288-3400 • www.fhlb-pgh.com
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FHLBank Pittsburgh Reports Second Quarter 2010 Results – page two
Prime 2007 and 2006 vintage bonds had the most severe impact, representing $91.8 million of the $110.7 million second quarter 2010 OTTI credit losses. In addition to assumption changes, certain prime 2007 and 2006 vintage bonds have experienced performance deterioration in the form of higher loan level delinquencies and/or a reduction in the level of credit enhancement available to the securities.
The Bank continues to actively monitor the credit quality of its private-label MBS. The magnitude of additional OTTI charges in future periods depends on the actual performance of the underlying loan collateral as well as the Bank’s future modeling assumptions. Many factors could influence the Bank’s future modeling assumptions including economic, financial market and housing market conditions. If performance of the underlying loan collateral deteriorates and/or the Bank’s modeling assumptions become more pessimistic, the Bank could experience further losses on its portfolio.
The vast majority of the securities in the Bank’s private-label MBS portfolio were AAA-rated at the time of purchase. Based on the performance of certain securities, among other information, it appears that the underwriting standards represented in the offering materials for these securities were not followed. As a result, the Bank owns certain private-label MBS, which it otherwise would not have owned, on which it has recognized losses. The Bank has filed lawsuits against certain issuers, underwriters and rating agencies related to these misrepresentations.
Balance Sheet Highlights
Advances totaled $36.1 billion at June 30, 2010, a decrease of $5.1 billion, or 12.4%, from a balance of $41.2 billion at December 31, 2009. Demand for advances has continued to decline primarily due to higher member deposits and low member demand. At June 30, 2010, total assets were $60.6 billion, a decrease of $4.7 billion, or 7.1%, from a balance of $65.3 billion at December 31, 2009. Total capital at June 30, 2010 was $4.0 billion, an increase of $254.8 million, or 6.9%, from $3.7 billion at December 31, 2009. The portion of OTTI losses previously reported as noncredit losses in accumulated other comprehensive income (loss) (AOCI) improved from ($691.5) million at December 31, 2009 to ($373.7) million at June 30, 2010. This improvement was due to paydowns, price appreciation in the private-label MBS portfolio, and the reclassification of certain noncredit losses to credit losses in second quarter 2010. Retained earnings at June 30, 2010 were $330.7 million, down $58.3 million due to the year-to-date June 2010 net loss. At June 30, 2010, the Bank had regulatory capital of $4.4 billion and exceeded all regulatory capital requirements.
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FHLBank Pittsburgh Reports Second Quarter 2010 Results – page three
On December 23, 2008, the Bank’s management and Board of Directors announced the suspension of both dividend payments and the repurchase of excess capital stock until such time as it becomes prudent to reinstate either or both. These suspensions remain in effect and, therefore, no dividends were declared or paid in the first six months of 2010.
Detailed financial information regarding the second quarter and year-to-date June 2010 results will be available in the Bank’s second quarter 2010 Form 10-Q filing, which the Bank anticipates filing on August 9, 2010. Detailed financial information regarding 2009 is available in the 2009 Form 10-K, which can be accessed through the Bank’s web site atwww.fhlb-pgh.com or on the SEC’s web site atwww.sec.gov.
FHLBank Pittsburgh is a wholesale bank that serves the housing finance and community and economic development needs of its owner-members. FHLBank Pittsburgh provides reliable access to low-cost funds, competitive pricing in the purchase of mortgage loans, correspondent banking, technical assistance, affordable housing grants and other programs so members can better serve their own communities. FHLBank Pittsburgh is privately capitalized and funded, does not use taxpayer dollars, and enjoys a triple-A rating. At June 30, 2010, it had 316 members in its district of Delaware, Pennsylvania and West Virginia and approximately $61 billion in assets. FHLBank Pittsburgh is one of twelve Banks in the Federal Home Loan Bank System, established by Congress in 1932 to support the residential mortgage and community development activities of local financial institutions.
This release contains forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. These statements are based upon our current expectations and speak only as of the date hereof. These statements may use forward-looking terms, such as “projected,” “expects,” “may,” or their negatives or other variations on these terms. FHLBank Pittsburgh cautions that, by their nature, forward-looking statements involve risk or uncertainty and that actual results could differ materially from those expressed or implied in these forward-looking statements or could affect the extent to which a particular objective, projection, estimate, or prediction is realized. These forward-looking statements involve risks and uncertainties including, but not limited to, other than temporary impairment of investment securities, regulatory and accounting rule adjustments or requirements, changes in interest rates, changes in projected business volumes, changes in prepayment speeds on mortgage assets, the cost of our funding, changes in our membership profile, the withdrawal of one or more large members, competitive pressures, shifts in demand for our products and consolidated obligations, general economic conditions (including effects on among other things, mortgage-backed securities), the Bank’s ability to maintain adequate capital levels (including meeting applicable regulatory capital requirements), business and capital plan adjustments and amendments, legislative and regulatory actions or approvals, interest-rate volatility, our ability to appropriately manage our cost of funds and the cost-effectiveness of our funding, hedging and asset-liability management activities. We undertake no obligation to revise or update publicly any forward-looking statements for any reason.
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FHLBank Pittsburgh Reports Second Quarter 2010 Results – page four
Unaudited Statements of Condition and Operations
(in millions)
June 30, | December 31, | |||||||||||
Statement of Condition | 2010 | 2009 | ||||||||||
ASSETS: | ||||||||||||
Investments (1) | $ | 19,246.0 | $ | 17,173.5 | ||||||||
Advances | 36,058.4 | 41,177.3 | ||||||||||
Mortgage loans held for portfolio, net | 4,895.7 | 5,162.8 | ||||||||||
All other assets | 429.6 | 1,777.3 | ||||||||||
Total Assets | $ | 60,629.7 | $ | 65,290.9 | ||||||||
LIABILITIES: | ||||||||||||
Consolidated obligations, net | $ | 54,443.9 | $ | 59,312.8 | ||||||||
All other liabilities | 2,217.9 | 2,265.0 | ||||||||||
Total Liabilities | 56,661.8 | 61,577.8 | ||||||||||
CAPITAL: | ||||||||||||
Total capital stock | 4,012.2 | 4,018.0 | ||||||||||
Retained earnings | 330.7 | 389.0 | ||||||||||
Accumulated other comprehensive loss | (375.0 | ) | (693.9 | ) | ||||||||
Total Capital | 3,967.9 | 3,713.1 | ||||||||||
Total Liabilities and Capital | $ | 60,629.7 | $ | 65,290.9 | ||||||||
(1) | Includes held-to-maturity securities, available-for-sale securities, trading securities, interest-bearing deposits and Federal funds sold |
For the three months | For the six | |||||||||||||||||||||||
ended June 30, | months ended June | |||||||||||||||||||||||
30, | ||||||||||||||||||||||||
Statement of Operations | 2010 | 2009 | 2010 | 2009 | ||||||||||||||||||||
Total interest income | $ | 245.5 | $ | 388.6 | $ | 491.5 | $ | 866.4 | ||||||||||||||||
Total interest expense | 186.4 | 312.7 | 373.4 | 734.1 | ||||||||||||||||||||
Net interest income | 59.1 | 75.9 | 118.1 | 132.3 | ||||||||||||||||||||
Provision (benefit) for credit losses | (1.3 | ) | 1.1 | (1.4 | ) | 1.5 | ||||||||||||||||||
Total OTTI losses | (20.4 | ) | (460.2 | ) | (22.6 | ) | (785.0 | ) | ||||||||||||||||
Portion of OTTI losses recognized in other | ||||||||||||||||||||||||
comprehensive loss | (90.3 | ) | 420.9 | (115.7 | ) | 715.2 | ||||||||||||||||||
Net OTTI losses | (110.7 | ) | (39.3 | ) | (138.3 | ) | (69.8 | ) | ||||||||||||||||
All other income (loss) | (6.3 | ) | 14.9 | (8.2 | ) | (19.0 | ) | |||||||||||||||||
All other expense | 15.1 | 15.3 | 31.3 | 30.5 | ||||||||||||||||||||
Income (loss) before assessments | (71.7 | ) | 35.1 | (58.3 | ) | 11.5 | ||||||||||||||||||
Affordable Housing Program | (1.1 | ) | 0.9 | - | 0.9 | |||||||||||||||||||
REFCORP | (2.4 | ) | 2.1 | — | 2.1 | |||||||||||||||||||
Total assessments | (3.5 | ) | 3.0 | 0.0 | 3.0 | |||||||||||||||||||
Net Income (Loss) | ($68.2 | ) | $ | 32.1 | ($58.3 | ) | $ | 8.5 | ||||||||||||||||
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