WASHINGTON - When corporate credit unions shortly release their 2007 year-end financials, it is not expected most will be reporting any significant losses as a result of failed investments in mortgage-backed securities, according to a spokesperson.
Although Lenexa, Kan.-based U.S. Central has seen a its ratings downgraded by Fitch in recent weeks (CU Journal, March 24), the remainder of the corporate network will likely not report any significant problems in their own portofolios, according to Brad Miller, executive director of the Association of Corporate Credit Unions.
Miller stressed in an interview with Credit Union Journal that he could not comment on specific corporates’ balance sheets and was speaking of the corporate network as a whole, and that his comments were also coming prior to the release of year-end financials.
“The corporates that hold mortgage-backed securities directly on their balance sheet, and not all corporates do, the vast majority of these MBS are very highly rated securities,” said Miller. “Subprime exposure within corporate portfolios represents a very small percentage of assets. Further, corporates that hold MBS perform rigorous internal pre-purchase and ongoing analysis on all the assets in their portfolios and this includes stress-testing and analysis of delinquencies and defaults based on current performance data from monthly remittance reports, so corporates are confident of the quality and strength of their balance sheets.”
Similar to comments Bob Siravo, CEO of WesCorp, San Dimas, Calif., made one week earlier to Credit Union Journal, Miller said the corporates have played their historical role in shielding credit union from disruptions in the mortgage and capital markets.
“Investments in corporates allow credit unions to avoid the mark-to-market adjustments and direct impacts related to the current market disruption,” said Miller.
Miller acknowledged that as the result of the widening of credit spreads in all fixed-income markets, some corporates have experienced increases in unrealized losses, but those losses reflect accounting methodology and are not permanent changes in equity but rather represent temporary adjustments.
Miller noted that aggregated data for corporate CUs based on December 2007 call reports show the corporate system had a “banner year,” with capital (reserves and undivided earnings, paid-in-capital, and membership capital shares) increasing to more than $5.96 billion, or an average increase in capital growth of 10.56% among corporates year over year.
The corporate network’s total capital ratio, based on 12-month average assets, is 6.61%–comfortably exceeding regulatory requirements of 4%.
U.S. Central represents an additional $2.4 billion in assets.
Net interest income was solid at 44 basis points, non-interest income added 20 basis points while operating expenses were managed at 39 basis points, bringing return on assets to an average of 25 basis points of average assets for the year, Miller added.
As for U.S. Central specifically, Miller reiterated points made by CEO Francis Lee that it continues to have an extremely high credit quality portfolio, despite some write-offs.
