The Federal Home Loan Bank of Seattle (Seattle Bank) today announced financial results for the third quarter of 2008 and the filing of its third quarter 2008 Form 10-Q with the Securities and Exchange Commission (SEC). The Seattle Bank reported a net loss of $18.8 million and net income of $41.8 million for the three and nine months ended September 30, 2008, compared to net income of $26.9 million and $52.1 million for the same periods in 2007.
The Seattle Bank attributes the decrease in its third quarter net income primarily to a $49.8 million other-than-temporary impairment charge on three private-label mortgage-backed securities that are classified as held-to-maturity. In addition, the bank reported a $4.2 million net loss on the termination of derivatives contracts with Lehman Brothers Special Financing and $2.5 million of net realized losses on the early retirement of high cost debt during the third quarter of 2008.
The decrease in net income for the nine months ended September 30, 2008, was due primarily to the other-than-temporary impairment charge recognized in the third quarter and to $25.2 million of net realized losses on early debt retirements. Year-to-date losses were partially offset by an increase in net interest income resulting from reduced interest expense, net prepayment fee income, and the reinvestment of proceeds from maturing low-yielding investments into market-rate investments.
The Seattle Bank estimates a principal loss of $4.9 million over the life of the three other-than-temporarily impaired mortgage-backed securities, which have a total par value of $132.9 million. The estimated loss is significantly less than the $49.8 million impairment charge, and the difference will be accreted to interest income over the remaining life of the securities.
"With the continued turmoil in the credit and mortgage markets, member demand for liquidity and our access to short-term funding remain strong," said Seattle Bank President and CEO Richard M. Riccobono. "At the same time, market conditions have depressed the fair value of our mortgage-backed securities and, in turn, our earnings. As we navigate through these challenging times, we remain, first and foremost, focused on ensuring our members' continued access to liquidity. We are carefully managing our credit and market risk positions, opportunistically reducing our cost of funds, and maintaining a secure short-term investment portfolio."
Other Highlights
The Seattle Bank had $46.3 billion of advances outstanding as of September 30, 2008, compared to $45.5 billion as of December 31, 2007. The percentage of advances maturing in one year or less increased to 71.0 percent as of September 30, 2008, from 54.4 percent as of December 31, 2007, reflecting increased member demand for short-term funding.
Net interest income was $43.2 million and $158.0 million for the three and nine months ended September 30, 2008, compared to $45.6 million and $110.1 million for the same periods in 2007. Significantly lower prevailing interest rates impacted most of the bank's interest-earning assets and interest-bearing liabilities, but resulted in a larger decrease in the average cost on interest-bearing liabilities than in the average yield on interest-earning assets, compared to the same periods in 2007.
The Seattle Bank continued to meet all regulatory capital requirements, with total regulatory capital of $3.2 billion as of September 30, 2008, an increase of $ 524.5 million from the balance as of December 31, 2007. This increase was driven primarily by increases in outstanding Class B and Class A stock and in the amount of retained earnings.
- Retained earnings as of September 30, 2008 increased to $162.3 million, compared to $148.7 million as of December 31, 2007.
- Total assets as of September 30, 2008 increased to $76.2 billion, compared to $64.2 billion as of December 31, 2007.
- The Seattle Bank's capital-to-assets ratio was 4.18 percent as of September 30, 2008.
SEC Form 10-Q for Quarter Ended September 30, 2008
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.
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 market conditions, demand for advances, business and capital plan adjustments and amendments, changes in the bank's management and Board of Directors, regulatory actions or approvals, competitive pressure from other Federal Home Loan Banks and alternative funding sources, accounting adjustments or requirements, interest-rate volatility, shifts in demand for our products and consolidated obligations, the bank's ability to maintain adequate capital levels, 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, hedging and asset-liability management activities, and general economic conditions. Additional factors are discussed in the Seattle Bank's 2007 annual report on Form 10-K and 2008 quarterly reports on Form 10-Q filed with the SEC. These reports are 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.