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Federal Home Loan Bank of Seattle Announces Third Quarter 2014 Unaudited Preliminary Financial Highlights

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SEATTLE–(BUSINESS WIRE)–

Today, the Federal Home Loan Bank of Seattle (Seattle Bank) announced
preliminary financial highlights for the three and nine months ended
September 30, 2014, reporting $15.3 million and $40.8 million of net
income, compared to $21.2 million and $47.6 million for the same periods
in 2013, and an increase in its retained earnings balance to $327.2
million as of September 30, 2014, from $287.1 million as of December 31,
2013.

Based on the bank’s third quarter 2014 financial results, the Seattle
Bank’s Board of Directors declared a $0.025 per share cash dividend, to
be paid on October 31, 2014. Dividends will be paid based on
average Class A and Class B stock outstanding during third quarter 2014.
In addition, the bank announced that it will repurchase up to $100
million of excess capital stock during fourth quarter 2014. The Seattle
Bank repurchased $98.5 million and $296.9 million of excess capital
stock during the three and nine months ended September 30, 2014.

“We’re pleased that the Seattle Bank has remained profitable and that it
continues to grow its retained earnings, which is its principal form of
loss-absorbing capital,” stated Seattle Bank President and CEO Michael
L. Wilson. “But advance demand remains tepid, and as a consequence, the
bank continues to rely primarily on investments to drive its net income.
This is one of the reasons that the proposed merger with the Federal
Home Loan Bank of Des Moines is a strategically attractive option for
our members.”

Key features of the Seattle Bank’s operating results for the three and
nine months ended September 30, 2014, included:

Higher net interest income. Net interest income after provision
(benefit) for credit losses for the three and nine months ended
September 30, 2014, increased to $40.5 million and $105.4 million,
from $36.4 million and $105.1 million for the same periods in 2013,
primarily due to increased interest income on investments and lower
cost of funding partially offset by lower interest income on mortgage
loans held for portfolio and advances. The changes in interest income
on investments and advances were primarily yield driven. Additionally,
lower prepayment fees on advances contributed to a decrease in
interest income. The change in interest income on mortgage loans held
for portfolio was primarily driven by the continued decline in the
average balances outstanding during the three- and nine-month periods
ended September 30, 2014, as the remaining mortgage loans in the
portfolio continued to pay down.

Lower non-interest income (loss). Non-interest income (loss)
decreased $5.1 million and $3.0 million for the three and nine months
ended September 30, 2014, compared to previous periods. Non-interest
income (loss) was negatively impacted by higher credit-related losses
on other-than-temporarily impaired private-label mortgage-backed
securities and lower gains on derivative and hedging activities and
early debt extinguishments during the three and nine months ended
September 30, 2014, compared to the previous periods.

Higher other non-interest expense. The Seattle Bank’s other
non-interest expense increased $5.5 million and $4.8 million for the
three and nine months ended September 30, 2014, compared to the same
periods in 2013, due to an increase in compensation and benefits and
other operating expenses. Included in operating expenses for the three
months ended September 30, 2014, is $3.3 million of merger-related
costs. The increase on a year-to-date basis was partially offset by
the impact of a one-time $4.0 million write-off of software during the
second quarter of 2013 without similar activity in 2014.

Other Financial Information

Total assets decreased to $35.0 billion as of September 30, 2014, from
$35.9 billion as of December 31, 2013.

Advances outstanding decreased to $10.2 billion as of September
30, 2014, from $10.9 billion as of December 31, 2013, primarily due to
the maturity of advances with Bank of America, N.A., in the first
quarter of 2014, partially offset by an increase in advances in the
second and third quarters of 2014.

Mandatorily redeemable capital stock decreased by $204.2 million as of
September 30, 2014, compared to December 31, 2013, primarily due to
the Seattle Bank’s repurchases of excess capital stock during the
first three quarters of 2014, partially offset by a redemption request
resulting from a merger between two members.

Accumulated other comprehensive income (loss) improved to a gain of
$23.7 million as of September 30, 2014, from a loss of $71.8 million
as of December 31, 2013, primarily due to improvements in the market
values of the bank’s available-for-sale securities including those
previously determined to be other-than-temporarily impaired.

Total capital increased to $1.2 billion as of September 30, 2014, from
$1.1 billion as of December 31, 2013.

The Seattle Bank paid cash dividends (including interest on
mandatorily redeemable capital stock) totaling $644,000 and $2.0
million during the three and nine months ended September 30, 2014.
During the three months ended September 30, 2013, the Seattle Bank
paid cash dividends of $683,000. No cash dividends were paid during
the first half of 2013.

 

Unaudited Selected Financial Data ($ in thousands)

 

 

Selected Statements of Condition Data

As of September 30, 2014

As of December 31, 2013

Advances

$

10,225,898

$

10,935,294

Investments (1)

22,944,890

22,545,976

Mortgage loans held for portfolio, net

684,935

797,620

Total assets

35,017,001

35,870,314

Consolidated obligations

31,551,587

32,402,896

Mandatorily redeemable capital stock

1,543,500

1,747,690

Total capital stock

858,843

922,977

Retained earnings

327,153

287,090

Accumulated other comprehensive income (loss)

23,668

(71,768

)

Total capital (2)

1,209,664

1,138,299

 

 

 

For the Three Months Ended

For the Nine Months Ended

September 30,

September 30,

Selected Statements of Income Data

2014

 

 

2013

 

2014

 

 

2013

 

Net interest income

$

40,219

$

35,393

$

105,486

$

104,052

Provision (benefit) for credit losses

(273

)

(989

)

84

 

(1,018

)

Net interest income after provision (benefit) for credit losses

40,492

36,382

105,402

105,070

Non-interest income (loss):

Other-than-temporary impairment credit loss

(1,556

)

(1,495

)

(3,185

)

(1,837

)

Derivatives and hedging activities

175

2,720

2,584

2,730

Other non-interest income (loss) (3)

435

2,879

1,751

3,217

Other non-interest expense

22,474

16,935

61,126

56,293

Total assessments

1,749

 

2,400

 

4,672

 

5,334

 

Net income

$

15,323

 

$

21,151

 

$

40,754

 

$

47,553

 

 

 

 

Selected Performance Measures

As of September 30, 2014

As of December 31, 2013

Regulatory capital (4)

$

2,729,496

$

2,957,757

Risk-based capital surplus (5)

$

1,383,650

$

1,483,070

Regulatory capital-to-assets ratio

7.79

%

8.25

%

Leverage capital-to-assets ratio

11.56

%

12.21

%

Market value of equity (MVE) to par value of capital stock (PVCS)
ratio

114.36

%

107.67

%

Return on PVCS vs. one-month London Interbank Offered Rate (LIBOR) (6):

Return on PVCS

2.12

%

2.26

%

Average annual one-month LIBOR

0.15

%

0.19

%

Core mission activity (CMA) assets to consolidated obligations (7)

41.10

%

41.51

%

 

(1)

 

Consists of securities purchased under agreements to resell, federal
funds sold, available-for-sale securities, and held-to-maturity
securities.

(2)

Excludes mandatorily redeemable capital stock, which totaled $1.5
billion and $1.7 billion as of September 30, 2014 and December 31,
2013.

(3)

Depending upon activity within the period, may include the
following: gain (loss) on sale of available-for-sale or
held-to-maturity securities, gain (loss) on financial instruments
held under fair value option, gain (loss) on early extinguishments
of consolidated obligations, service fees, and other non-interest
income.

(4)

Includes total capital stock, retained earnings, and mandatorily
redeemable capital stock.

(5)

Defined as the excess of the bank’s permanent capital (which
consists of Class B capital stock, including Class B capital stock
classified as mandatorily redeemable, and retained earnings) over
its risk-based capital requirement.

(6)

Return on PVCS is computed as year-to-date net income divided by
year-to-date average PVCS, annualized. Average annual one-month
LIBOR is the year-to-date average one-month LIBOR.

(7)

Defined as advances, acquired member assets (such as mortgage
loans), and certain housing finance agency obligations as a
percentage of consolidated obligations.

The Seattle Bank expects to file its third quarter 2014 quarterly report
on Form 10-Q with the Securities and Exchange Commission (SEC) on or
around November 6, 2014.

Proposed Merger with the Des Moines Bank

On September 25, 2014, the Seattle Bank and the Federal Home Loan Bank
of Des Moines (Des Moines Bank) entered into a definitive agreement to
merge the two banks. Material details of the merger agreement are
included in the banks’ related Form 8-K filings with the SEC. The next
step in the process is for the banks to submit a merger application to
the Federal Housing Finance Agency (FHFA). Following regulatory approval
of the merger application, the Seattle and Des Moines Banks’ members
will receive detailed information about the proposed merger. The
proposed merger must be ratified by the members of both banks through a
voting process that is expected to occur in the first half of 2015.

Consent Arrangement

The Seattle Bank continues to address the requirements of the Consent
Order issued by the FHFA, effective November 22, 2013 (collectively,
with related understandings with the FHFA, the Amended Consent
Arrangement), which superseded the previous Consent Order and related
understandings put in place in October 2010 (2010 Consent Arrangement).
In addition to continued compliance with the terms of the plans and
policies adopted and implemented to address the 2010 Consent
Arrangement, the Amended Consent Arrangement requires development and
implementation of a plan acceptable to the FHFA to increase advances and
other CMA assets as a percentage of the bank’s consolidated obligations,
Board of Directors’ monitoring for compliance with the terms of such
plans and policies, and continued non-objection from the FHFA prior to
repurchasing or redeeming any excess capital stock or paying dividends
on the bank’s capital stock. With FHFA non-objection, the Seattle Bank
has repurchased up to $25 million of excess capital stock on a quarterly
basis since the third quarter of 2012 and paid modest quarterly
dividends to its shareholders based on the bank’s quarterly net income
since July 2013. In addition to the three quarterly repurchases of up to
$25 million of excess capital stock, with FHFA non-objection, during the
first nine months of 2014, the Seattle Bank redeemed an additional
$224.6 million of excess capital stock on which the redemption waiting
periods had been satisfied. The FHFA reviews the bank’s requests to
repurchase and pay dividends on its capital stock on a quarterly basis.

About the Seattle Bank

The Seattle Bank 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. The Seattle Bank’s funding and financial
services enable our member institutions to provide their customers with
greater access to mortgages, commercial loans, and funding for
affordable housing and economic development.

The Seattle Bank is one of 12 Federal Home Loan Banks in the United
States. The Seattle Bank serves Alaska, Hawaii, Idaho, Montana, Oregon,
Utah, Washington, and Wyoming, the U.S. territories of American Samoa
and Guam, and the Commonwealth of the Northern Mariana Islands. Members
include commercial banks, credit unions, thrifts, industrial loan
corporations, insurance companies, and non-depository community
development financial institutions.

This press release contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995,
including preliminary highlights of financial statements and information
as of and for the three and nine months ended September 30, 2014, and
information regarding a potential merger with the Des Moines Bank.
Forward-looking statements are subject to known and unknown risks and
uncertainties. Actual financial performance and condition for the three
and nine months ended September 30, 2014, and other actions or
transactions, including those relating to the ability of the Seattle
Bank and the Des Moines Bank to obtain FHFA and member approvals
relating to the proposed merger, the completion of the proposed merger,
and the Amended Consent Arrangement and payments of dividends and
repurchases of shares, may differ materially from those expected or
implied in forward-looking statements because of many factors. Such
factors may include, but are not limited to, finalization of the
financial statements, regulatory and legislative actions and approvals
(including those of the FHFA relating to the stock repurchases,
dividends and the proposed merger), the ability to obtain the required
approvals from the banks’ members relating to the proposed merger, the
ability of the parties to complete a transaction pursuant to the terms
of the merger agreement, changes in general economic and market
conditions (including effects on, among other things, U.S. debt
obligations and mortgage-related securities), demand for advances,
changes in the bank’s membership profile or the withdrawal of one or
more large members, shifts in demand for the bank’s products and
consolidated obligations, business and capital plan and policy
adjustments and amendments, competitive pressure from other Federal Home
Loan Banks and alternative funding sources, the Seattle Bank’s ability
to meet adequate capital levels, accounting adjustments or requirements
(including changes in assumptions and estimates used in the bank’s
financial models), interest-rate volatility, changes in projected
business volumes, the bank’s ability to appropriately manage its cost of
funds, changes in the bank’s management and Board of Directors, and
hedging and asset-liability management activities. Additional factors
are discussed in the Seattle Bank’s most recent annual report on Form
10-K, subsequent quarterly reports on Form 10-Q, and other filings made
with the Securities and Exchange Commission. The Seattle Bank does not
undertake to update any forward-looking statements made in this
announcement.

Members of the Seattle Bank will be provided a Disclosure Statement
in connection with the anticipated member vote on the ratification of
the merger agreement. Members are urged to read the Disclosure Statement
carefully when it becomes available.

FinanceInvestment & Company Informationinterest incomeSeattle
Contact:

Federal Home Loan Bank of Seattle

Connie Waks, 206-340-2305

cwaks@fhlbsea.com

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Federal Home Loan Bank of Seattle Announces Third Quarter 2014 Unaudited Preliminary Financial Highlights

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