Federal Home Loan Bank of Seattle Addresses Ratings Agency Revisions: S&P Sets AA+/A-1+ Mark for Bank, Moody's Reaffirms Aaa/P-1 Status

Business Wire, Dec 13, 2004

SEATTLE -- Today, Standard & Poor's Ratings Services (S&P) and Moody's Investors Service (Moody's) issued ratings opinions for the Federal Home Loan Bank of Seattle (Seattle Bank). S&P changed the Seattle Bank's rating from AAA/A-1 to AA /A-1 with a "stable" outlook. Moody's Investors Service affirmed the bank's existing deposit rating of Aaa/P-1, the ratings agency's highest rating. Norman B. Rice, president and chief executive officer of the Seattle Bank, provided the following statement in response to the ratings announcements:

"The Seattle Bank continues to be a profitable, safe and sound enterprise. We believe our excellent credit history, capital levels in excess of minimum regulatory requirements, and continued focus on improving risk management will help prepare us for the challenges facing our bank. Moody's noted that the Seattle Bank maintains healthy capital levels. In addition, both Moody's and S&P reaffirmed that Federal Home Loan Bank System consolidated obligation bonds and discount notes hold the highest possible credit ratings. As part of this Federal Home Loan Bank System, the Seattle Bank retains uninterrupted access to AAA-rated funding.

"In contrast to Moody's, analysts at S&P cited a larger portion of mortgage assets on our balance sheet and the inherent risk associated with adding such assets in making a ratings adjustment. The Mortgage Purchase Program (MPP) is currently our third-largest business segment by volume and represents about 20 percent of the bank's total assets. The Seattle Bank's ratings are consistent with prevailing industry standards for government-sponsored enterprises involved in the secondary mortgage market. We understand that the mortgage program presents our bank with unique challenges. That is why, ever since launching the MPP in 2001, our bank's strategy has been to pursue appropriate mortgage growth within a secure and stable financial structure.

"S&P also indicated the downward trend in the bank's earnings, the recent agreement with our regulator, and difficulty managing interest-rate volatility as factors influencing their ratings adjustment. The bank has been proactively taking steps to address these issues. Throughout 2004, we have been building infrastructure and systems designed to enhance our capacity to deal with an unpredictable interest-rate environment. We are working diligently to increase retained earnings and total capital levels, decrease debt expenses, and reduce reliance on our investment portfolio. We are also striving to create a more balanced enterprise by emphasizing a strong, multi-faceted advances business along with a healthy mortgage program.

"In issuing a 'stable' outlook for the Seattle Bank, S&P recognized the bank's commitment to enhancing its capital structure, risk management, and business mix moving forward."

About the Federal Home Loan Bank of Seattle: With over $53 billion in assets, the Federal Home Loan Bank of Seattle provides funding and other financial services that allow its more than 370 financial institution members to make more housing and business loans at more competitive rates. The Seattle Bank is a member-owned cooperative, and the value generated by the company benefits its member banks and the communities they serve. The Seattle Bank serves financial institutions in Alaska, Hawaii, Idaho, Montana, Oregon, Utah, Washington, Wyoming, American Samoa, Guam, and the Northern Mariana Islands.

This release contains forward-looking statements and regarding the bank's credit standing, risk profile, operations, and financial performance. Forward-looking statements are subject to known and unknown risks and uncertainties. Actual performance may differ materially from projected results because of many factors. Such factors may include, but are not limited to, additional regulatory requirements, changes in the bank's credit rating, the bank's ability to maintain sufficient capital and achieve higher capital levels, the withdrawal of one or more members, shifts in the demand for the bank's products and services, interest-rate volatility, changes in projected prepayment speeds on mortgage assets, the bank's ability to appropriately manage its cost of funds, competitive pressure from other Federal Home Loan Banks and secondary mortgage market participants, constraints on our ability to offer consolidated obligations, and general economic conditions. Additional factors are discussed in the Seattle Bank's annual report, available at www.fhlbsea.com. The Seattle Bank does not undertake to update any forward-looking statements made in this announcement.