Institutions Defect Financially TroubledFHLB Of Seattle

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SEATTLE - (06/01/06) -- The financially ailing Federal HomeLoan Bank of Seattle reported Wednesday that 14 member institutionshave applied to withdraw and membership has shrunk from 373 banksand credit unions at the end of the first quarter to 371. TheSeattle bank, which has been struggling with troubles caused by itsill-fated foray into the secondary mortgage market, said itcontinues to cope with a massive loss on its hedging portfolio,which was at $370 million at the end of the first quarter. This iseven as the bank was reversing last year's first quarter losses toreport a profit of $8 million for the first quarter. But thefinancial troubles, which have forced the bank to bar all dividendpayments for three years and restrict early redemption of stock,has apparently caused the defection of some members. The losses onits hedging portfolio are expected to depress the financiallyailing FHLB's net income over future periods and entail lowerdividends paid to the bank's credit union and bank owners, the banksaid. At March 31 there were 83 credit union members of thebank.

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