Less than a month after posting a hefty drop in quarterly earnings, the Federal Home Loan Bank of Seattle agreed yesterday with its regulator on steps to improve its performance...

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Less than a month after posting a hefty drop in quarterly earnings, the Federal Home Loan Bank of Seattle agreed yesterday with its regulator on steps to improve its performance.

The bank, headed by former Seattle mayor Norman Rice, said in November that it would lower dividend rates to members and set aside a larger portion of earnings to strengthen its finances.

Its written agreement with the Federal Housing Finance Board yesterday outlines how the home-loan bank will improve its governance, risk management and financial performance.

“We have been working this past year on these issues, but we had some due dates and we haven’t met all of those,” Rice said in an interview. “We need to make sure we’re pushing faster and harder to get there.”

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The Finance Board decided after its annual examination that a written agreement was necessary to spur changes at the Seattle bank, said Stephen Cross, director of the Office of Supervision at the board.

“We don’t enter into written agreements lightly,” Cross said. “In light of what we found to be weak profitability and concerns about the bank’s risk profile and portfolio composition, a written agreement was appropriate.”

Under that agreement, the bank must submit a three-year business and capital-management plan to its regulator by Feb. 28.

The Seattle home-loan bank is one of 12 nationwide that lend money at below-market rates to financial institution members such as Washington Mutual and Wells Fargo. Unlike Freddie Mac and Fannie Mae, which also are sponsored by the government, the federal home-loan banks are owned by their members and do not trade publicly.

In November, the Seattle home-loan bank announced a 53 percent drop in third-quarter earnings, to $16.8 million. Profit for the first nine months was down 40 percent from a year ago.

Part of the bank’s agreement with regulators included raising its minimum capital-to-assets ratio from 4 percent to 4.15 percent. As of Thursday, its ratio was 4.52 percent but “not as large a cushion” as other federal home loan banks, said Steve Horton, the Seattle bank’s interim chief financial officer.

The agreement with its regulator also calls for an independent review of the bank’s risk-management policies, governance practices, management capabilities and organizational needs.

Information from Bloomberg is included in this report.

Melissa Allison: 206-464-3312 or mallison@seattletimes.com