The Federal Home Loan Banks (FHLBs) continued to improve system-wide capital ratios in the second quarter of 2010 (Q210), with several banks still struggling to maintain profitability, according to a market report from FTN Financial‘s Jim Vogel. The FHLB System, which technically falls under the classification of a government-sponsored enterprise (GSE), continued to improve both capital-to-asset and regulatory capital ratios in Q210. Fellow GSE Fannie Mae posted a loss this week and will likely be followed by Freddie Mac on Monday. The FHLB System reported net income of $326m in Q210, up from $325m in the previous quarter but down from $1.1bn in the year-ago quarter. The advance volume of $540bn in the quarter marks the lowest level in at least six years — showing “the impact of deleveraging across the banking system and its customer base,” Vogel said. Of the larger banks in the system, only three consistently report quarterly profits, he noted. Chicago’s gain in net interest income due to lower rates pushed quarterly results up significantly in Q210, while Pittsburgh sat at the opposite end of the spectrum, recording impairments in the quarter: “As Washington gears up for GSE reform discussions in 2011, the banks are making slow progress toward improving core profitability and cleaning up residual credit losses from 2006-2008 purchases,” Vogel said. The FHLB System is not the only GSE struggling under financial distress. Freddie Mac is likely to post Q210 earnings sometime Monday — the last day for the company to be timely in filing its quarterly results. The earnings will likely show ongoing distress in mortgage finance and mortgage-backed securities (MBS) markets after Freddie posted a $6.7bn Q110 loss and requested $10.6bn in aid from the Treasury Department. This week, Fannie Mae posted a net Q210 loss of $1.2bn. The GSE will also seek an additional $1.5bn in funds from the Treasury under the terms of the senior preferred stock purchase agreement to eliminate the company’s net worth deficit. Write to Diana Golobay.