2010 Member News
Federal Home Loan Bank of Seattle Files Form 10-K With SEC
March 30, 2010
Dear Seattle Bank Members,
On March 22, 2010, the Federal Home Loan Bank of Seattle’s (Seattle Bank’s) Form
10-K, reporting audited financial results for the year ended December 31, 2009,
was accepted for filing by the Securities and Exchange Commission (SEC). As announced
in our press release regarding our preliminary operating highlights on February
22, 2010, we recorded a 2009 net loss of $161.6 million, primarily due to $311.2
million of credit-related charges associated with expected losses on certain of
our investments in private-label mortgage-backed securities (MBS) that have been
classified as other-than-temporarily impaired (OTTI).
As we have previously stated, increasing mortgage delinquencies and foreclosures,
particularly over the past two years, have adversely impacted the mortgages underlying
the Seattle Bank’s private-label MBS. The credit-related charges on these securities
are based on the securities’ expected performance over their projected lives, which
may span 20 years or more.
The Seattle Bank reported a net loss of $199.4 million for the year ended December
31, 2008, also primarily due to other-than-temporary impairments of private-label
MBS. Our 2008 and 2009 results should not be directly compared, however, due to
a change in accounting treatment of other-than-temporary impairments of debt securities,
issued by the Financial Accounting Standards Board (FASB) and adopted by the Seattle
Bank effective January 1, 2009, and that affected the bank’s 2009 results.
The Seattle Bank’s 2009 net interest income increased by $36.6 million to $215.2
million from $178.6 million for 2008, primarily due to reduced funding costs. As
compared to our 2008 results, our 2009 results were also favorably impacted by a
$16.1 million reduction in charges related to the early extinguishment of debt and
reduced total other expenses of $6.4 million primarily related to a derivative counterparty
credit loss incurred in 2008. These improvements were partially offset by increased
charges of $14.7 million on derivatives and hedging activities.
Although it will take some time to work through the challenges we face, we are focused
on ensuring our capital adequacy to mitigate the risks associated with our private-label
MBS. As of December 31, 2009, we held $2.8 billion of regulatory capital—a modest
increase from December 31, 2008—and we met all of our regulatory capital requirements.
We remain classified as “undercapitalized” by our regulator, the Federal Housing
Finance Agency (Finance Agency), however, due in part to the Finance Agency’s concern
that declines in the values of our private-label MBS could again cause our risk-based
capital to fall below our requirement. We have submitted a capital restoration plan
to the Finance Agency, which we hope will be approved in the near future. As we
have previously stated, our ability to repurchase and redeem stock and return to
paying a dividend will depend on our successful implementation of an approved plan.
We are also carefully managing our expenses, which, as you know, can present some
tough choices—and some interesting opportunities. Among the tough choices is our
decision not to host a Management Conference in 2010. This educational and networking
event has been very popular, but we appreciate the time and expense involved for
you, as well as for the bank, and we have decided to forego this event in 2010.
We look forward to resuming our conference next year, but will deliver our 2010
educational programming primarily through our online Web seminars. We will also
look forward to seeing you at a variety of other industry events.
Even though we will not hold a 2010 Management Conference, we will host a 2010 annual
meeting. This event will be held on July 30, 2010, in Seattle, and we will invite
all members to attend. Understanding that many of you will not be able to join us
in person, we will simultaneously webcast the event—a first for the Seattle Bank—so
that those who cannot attend in person can still participate. Our annual reports,
which we have traditionally printed, will be provided in an online version only
in 2010.
We know that this has been difficult year, not only for our cooperative, but also
for many of you. Although your liquidity needs have declined in recent months, our
focus on our mission has not, and we remain ready to meet your liquidity and funding
needs, just as we have throughout the economic challenges of the past several years.
As a Federal Home Loan Bank, we enjoy direct access to the capital markets, and
as a cooperative, we continue to carefully manage our balance sheet with this primary
purpose in mind.
We appreciate your ongoing support of the Seattle Bank cooperative. We encourage
you to read our 2009 Form 10-K and to contact me, any member of our senior management
team, or your Seattle Bank relationship manager with any questions you may have.
Sincerely,
Richard M. Riccobono
President and CEO
2009 Form 10-K
This Member News contains forward-looking statements, including statements regarding
the Seattle Bank’s financial condition and performance. Forward-looking statements
are subject to known and unknown risks and uncertainties. Actual performance and
other events may differ materially from that expected or implied in forward-looking
statements because of many factors. Such factors may include, but are limited to,
regulatory and legislative actions and approvals (including those of the Finance
Agency), business and capital plan adjustments and amendments (including regarding
a capital restoration plan), demand for advances, changes in our membership profile
or the withdrawal of one or more large members, shifts in demand for our products
and consolidated obligations, competitive pressure from other Federal Home Loan
Banks and alternative funding sources, interest-rate volatility, changes in projected
business volumes, our ability to appropriately manage our cost of funds, and the
cost-effectiveness of our funding, hedging, and asset-liability management activities.
Additional factors are discussed in the Seattle Bank’s 2009 Form 10-K. The Seattle
Bank does not undertake to update any forward-looking statements made in this announcement.
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