LENEXA, Kan. – U.S. Central FCU last week reported it had a disastrous third quarter when the mortgage market crashed, which caused net income to plunge 89% for 2007 to $6.9 million, from $62.9 million the year before.
David Dickens, chief financial officer for U.S. Central, attributed the decline in fiscal year earnings to the third quarter, when losses on its mortgage-backed securities holdings forced the corporates’ corporate to report a $46.2 million loss for the period. In fact, things improved in the fourth quarter, when U.S. Central reported $10.6 million in net income.
U.S. Central is a critical player in the payments system for credit unions and manages $45 billion for 26 corporate credit unions.
The major problems in the portfolio occurred last August when the mortgage market was in full meltdown. That’s when U.S. Central realized a $38 million loss on $104 million in MBSs. It also was when U.S. Central was forced by the declining market to buy back an off-balance-sheet, asset-backed commercial paper conduit from its investors, which currently has an unrealized loss of $31 million.
For the full year, U.S. Central reported net losses on financial instruments of $99.9 million, compared to net gains of $600,000 for 2006.
Last week, Standard & Poor’s, noting U.S. Central wrote down the value of its $20 billion MBS portfolio by $760 million, downgraded the credit union from the agency’s top AAA (Triple A) to AA+.
Dickens said U.S. Central hopes that by writing-down the value of some of its mortgage backed securities and realizing some losses on them, it will have dealt with most of its problems, and it doesn’t expect the losses to affect the services it provides for 26 corporate credit union members, in either lower dividend rates or higher fees.
