Federal Home Loan Bank of Seattle Announces 2008 Financial Results

SEATTLE--(Business Wire)--
Today, the Federal Home Loan Bank of Seattle (Seattle Bank) filed its 2008 Form
10-K with the Securities and Exchange Commission, which included its audited
financial results for the year ending December 31, 2008. The Seattle Bank
reported net losses of $241.2 million for fourth-quarter 2008 and $199.4 million
for the year, compared to net income of $18.6 million and $70.7 million for the
same periods in 2007.

The Seattle Bank attributes its 2008 net loss primarily to $304.2 million of
other-than-temporary impairment (OTTI) charges on certain of its private-label
mortgage-backed securities that are classified as held-to-maturity. In addition,
the Seattle Bank incurred $21.7 million of net realized losses on early
retirements of high-cost debt and a $4.2 million net loss on the termination of
derivative contracts with Lehman Brothers Special Financing. These losses were
partially offset by an increase in net interest income primarily resulting from
reduced interest expense and net prepayment fee income.

Due to its net loss for 2008, the Seattle Bank also reported a $78.9 million
accumulated deficit as of December 31, 2008, compared with retained earnings of
$148.7 million as of December 31, 2007.

The Seattle Bank`s 2008 results reflect the effects of mark-to-market accounting
treatment for private-label mortgage-backed securities in an illiquid and highly
distressed market. The Seattle Bank currently estimates an $11.9 million
principal loss over the life of the private-label mortgage-backed securities it
impaired, which have a total par value of $546.5 million. Assuming that the
performance of the underlying mortgages does not materially decline beyond
currently forecasted levels, the difference between the OTTI charge and the
estimated principal loss will be accreted to interest income over the remaining
life of the securities.

"The past year has presented significant challenges for the financial services
industry, and the Federal Home Loan Bank of Seattle has been no exception," said
Seattle Bank President and CEO Richard M. Riccobono. "As we work through this
difficult time, however, we remain focused on our mission: providing the
liquidity and funding our members need to manage their businesses and support
their communities."

Other Financial Highlights

* Net interest income was $178.6 million for 2008, compared to $171.0 million
for 2007. The increase in net interest income was due primarily to a significant
decline in short-term interest rates, which resulted in a larger decrease in the
bank`s total interest expense than in its total interest income.
* The Seattle Bank had $36.9 billion of advances outstanding as of December 31,
2008, compared to $45.5 billion as of December 31, 2007. The decrease in
advances outstanding was primarily the result of maturing advances with the
Seattle Bank`s largest members, partially offset by a general increase in
activity across its membership in 2008.
* Total assets declined to $58.4 billion as of December 31, 2008, from $64.2
billion as of December 31, 2007, primarily as a result of the decrease in
advances outstanding at year-end 2008.
* As of December 31, 2008, the Seattle Bank had a total capital-to-assets ratio
of 4.6 percent and a leverage ratio of 6.8 percent and remains in compliance
with both requirements. The distressed prices of certain of the bank`s
held-to-maturity mortgage-backed securities, however, resulted in a risk-based
capital deficiency of $159.2 million at year-end 2008 and as of February 28,
2009.

The Seattle Bank paid $28.2 million in cash dividends on its capital stock
outstanding in 2008, although it did not pay dividends based on third or fourth
quarter results due to the OTTI charges and its desire to conserve capital. The
Seattle Bank does not know when it will resume paying dividends.

The Seattle Bank also provided net awards of $4.4 million to support the
purchase, construction, and rehabilitation of affordable housing in 2008, and as
of December 31, 2008, had $579.6 million outstanding in low-interest loans for
community investments.

Please refer to the Selected Financial Data at the end of the press release and
the Seattle Bank`s 2008 Form 10-K for additional information.

About the Seattle Bank

The Federal Home Loan Bank of Seattle is a financial cooperative that provides
liquidity, funding, and services to enhance the success of its members and
support the availability of affordable homes and economic development in the
communities they serve. Our funding and financial services enable approximately
380 member institutions to provide their customers with greater access to
mortgages, commercial lending, and affordable housing. The Seattle Bank commits
10 percent of its annual profits to help fund affordable housing and
homeownership.

The Seattle Bank serves eight states, American Samoa, Guam, and the Northern
Mariana Islands. Our members include commercial banks, credit unions, thrifts,
industrial loan corporations, and insurance companies.

The Seattle Bank is one of 12 Federal Home Loan Banks in the United States.
Together, the Federal Home Loan Banks represent one of the country`s largest
private sources of liquidity and funding for community financial institutions,
as well as funding for affordable housing.

Federal Home Loan Bank of Seattle

Selected Financial Data

(in millions)

As of December 31,
2008 2007
ASSETS
Advances $36,943.9 $45,524.5
Investments (1) 16,005.2 12,537.9
Mortgage loans held for portfolio, net 5,087.3 5,665.6
Total assets 58,361.7 64,207.0

LIABILITIES
Consolidated obligations, net 54,468.7 59,975.5
Mandatorily redeemable capital stock 917.9 82.3
CAPITAL
Total capital stock 1,848.1 2,428.6
Retained earnings (78.9) 148.7
Total capital 1,766.3 2,575.9
Total liabilities and capital 58,361.7 64,207.0

For the Years Ended December 31,
2008 2007
Total interest income $2,246.4 $3,006.2
Total interest expense 2,067.8 2,835.1
Net interest income 178.6 171.0
Other-than temporary-impairment 304.2

(OTTI) charges (1)
Affordable Housing Program 7.9
REFCORP 17.7
Total assessments 25.6
Net (loss) / income (199.4) 70.7

(1) OTTI, which stands for other-than-temporary impairment, is an accounting term. Under generally accepted accounting principles in the United States (GAAP), a company must evaluate its investment securities portfolio
to determine whether any of the investment securities are other-than-temporarily impaired. If the company determines that it does not expect to collect all of the contractual amounts due on an individual investment
security over the life of the investment security, the company must mark the investment security down from its carrying value to its current fair value, even if the company intends to hold the investment security to
maturity. An OTTI accounting loss must be recorded during the period that the investment security is determined to be other-than-temporarily impaired, even if the estimated credit loss is not expected to be incurred for
some time, even years later. The amount of the OTTI charge for an individual investment security is not the amount of the estimated credit loss. Instead, the charge equals the difference between the carrying amount of
the investment security and its current fair value.

The fair value is generally related to the value of the investment security in the current market, even if the investment security is to be held to maturity. Once the investment security is marked to fair value, any
increase in fair value in future periods does not increase the carrying value of the investment security or increase the company`s income. Instead, the difference between the OTTI charge and the estimated aggregate
credit loss on the investment security is accreted (added) to interest income over the remaining life of the investment security.

The Seattle Bank believes that the OTTI charges recorded during 2008 exceed its estimated principal losses because the fair values of the affected investment securities were determined in an illiquid, distressed market.
In today`s inactive mortgage-backed securities market, the fair values of non-agency mortgage-backed securities have declined dramatically. The OTTI charge of $304.2 million on the bank`s affected investment securities
(which have a par value of $546.5 million) is greater than the current estimated principal loss of $11.9 million on these securities as of December 31, 2008.

The Seattle Bank has the ability and intent to hold these investment securities for a sufficient time to allow for any anticipated recovery of unrealized losses as it receives future cash flows from these instruments.
The bank will accrete the difference between the new cost basis and the estimated principal loss over the life of the securities through an adjustment to the yield on the securities. Subsequent changes in estimated cash
flows and other changes in the estimated principal loss will also be accounted for as an adjustment to the yield on these securities.

The Seattle Bank continues to monitor its investments, and further deterioration in delinquency and loss rates and real estate values may cause an additional increase in estimated and actual principal losses and OTTI
charges. The assumptions the bank uses to determine the values of these investments may also have a significant effect on reported fair values and estimated principal losses of private-label mortgage-backed securities,
and the income and expense related thereto. As a result, the use of different assumptions, as well as changes in market conditions, could result in materially different net income and retained earnings.

This press release contains forward-looking statements. Forward-looking
statements are subject to known and unknown risks and uncertainties. Actual
performance may differ materially from that expected or implied in
forward-looking statements because of many factors. Such factors may include,
but are not limited to, changes in general economic and market conditions
(including effects on, among other things, mortgage-related securities), the
Seattle Bank's ability to meet adequate capital levels, regulatory and
legislative actions and approvals (including those of the Finance Agency),
accounting adjustments or requirements (including changes in assumptions used in
our financial models), business and capital plan adjustments and amendments,
demand for advances, changes in the bank's management and Board of Directors,
competitive pressure from other Federal Home Loan Banks and alternative funding
sources, interest-rate volatility, shifts in demand for our products and
consolidated obligations, changes in projected business volumes, our ability to
appropriately manage our cost of funds, the cost-effectiveness of our funding,
changes in our membership profile or the withdrawal of one or more large
members, and hedging and asset-liability management activities. Additional
factors are discussed in the Seattle Bank's 2008 annual report on Form 10-K
filed with the SEC, which is available on the Seattle Bank`s Web site at
www.fhlbsea.com. The Seattle Bank does not undertake to update any
forward-looking statements made in this announcement.

Federal Home Loan Bank of Seattle
Connie Waks, 206.340.2305
cwaks@fhlbsea.com

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