September 27, 2004

The Federal Home Loan Bank of Seattle’s Board of Directors has declared a Class B(1) stock dividend at the annualized rate of 3.5 percent for the third quarter of 2004

The bank’s dividend rate is based on anticipated third-quarter earnings. The Seattle Bank will release its third-quarter financial statements in November 2004

While the dividend remains competitive with other market-rate investments, it reflects the fact that our core earnings remain under pressure. This is due not only to lower-than-anticipated Mortgage Purchase Program (MPP) volume, but also to the continuing impact of low interest rates, which include lower returns on invested capital and accelerated recognition of premium amortization expense on mortgage loans and securities

Additionally, at its September meeting, the Seattle Bank’s Board of Directors–following further guidance from the bank’s regulator, the Federal Housing Finance Board–adopted a revised retained earnings policy. The revised policy will require that the bank set aside a higher level of its earnings over the next three years to provide a cushion against unexpected financial losses. Under the revised retained earnings policy, which is subject to Finance Board review and approval, the current target for the Seattle Bank’s retained earnings balance will be $89 million, as compared to an initial target of $35 million set earlier this year by the Seattle Bank board. At the close of third quarter 2004, the Seattle Bank expects to hold a retained earnings balance of approximately $58 million

As a result of the change in our retained earnings policy, it is likely that the Seattle Bank’s fourth quarter 2004 annualized dividend rate will be less than the rate paid for the third quarter of this year. We also expect that the Seattle Bank’s annual dividend rate over the next three years could be approximately 50 basis points lower than would otherwise have been anticipated, as the bank builds its retained earnings balance toward the new target level.

The Seattle Bank continues to be a well-capitalized, safe and sound institution, with capital levels that exceed our regulatory capital requirements

The Seattle Bank previously reported in its 2003 Annual Report and in earlier announcements that each Federal Home Loan Bank would be expected to adopt a retained earnings policy in 2004. The bank also advised that, if the policy required an increase in the level of retained earnings, future quarterly dividend rates could be lower, depending on the amount of retained earnings required and the length of time the bank had to reach the desired level. The Seattle Bank has steadily increased its level of retained earnings since 2002.

Third quarter dividends will be paid on capital stock outstanding between June 30 and September 30, 2004. For stock purchased or redeemed during the quarter, the dividend will be computed based on the actual number of days that the stock was owned during the third quarter. The dividend will be paid in the form of capital stock, with fractional shares paid in cash and credited to shareholders’ demand deposit accounts.

If you have questions regarding this information, please contact Colin Johnson, financial communications manager, at 206-340-2302

On behalf of the board and management, I thank you for your ongoing partnership with the Seattle Bank.

Norman B. Rice
President and Chief Executive Officer

This dividend announcement contains specific forward-looking statements and estimates regarding the Seattle Bank's dividend, dividend rates, third quarter 2004 results, and future financial performance. Actual dividend levels, reductions in dividend payouts, and financial performance may differ materially from projections because of many factors. These factors include, but are not limited to, retained earnings adjustments, capital revisions, regulatory and accounting rule changes, prepayment speeds on mortgage assets, changes in interest rates, changes in projected business volumes, and general economic conditions. Additional factors are discussed in the Seattle Bank's annual report, available on the bank's Web site, www.fhlbsea.com. In addition, the Seattle Bank does not undertake to update any forward-looking statements made in the dividend report.

This Member News contains forward-looking statements regarding events that may impact the bank's future financial performance. Forward-looking statements are subject to known and unknown risks and uncertainties. Actual performance may differ materially from projections because of many factors. Such factors may include, but are not limited to factors that affect the Seattle Bank’s net income, including without limitation demand for advances, business and capital plan adjustments, 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, the bank's ability to maintain adequate capital levels, changes in projected business volumes, our ability to appropriately manage our cost of funds, changes in our membership profile or the withdrawal of one or more large members, the cost-effectiveness of our funding, hedging, and asset-liability management activities, shifts in demand for our products and 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.