LENEXA, Kan. – U.S. Central FCU yesterday reported that the continuing deterioration in the mortgage markets had a key role in restated earnings for 2007 – showing instead of a $6.9 million net for the year, as reported earlier, it had a $50.7 million loss.
The red ink, believed to be first annual loss ever for U.S. Central, compares to net income of $63 million for 2006.
Executives at the central bank for credit unions attributed the restated losses to $86.6 million in additional impairment charges, primarily on mortgage backed securities. The additional impairments were calculated after the appointment of a third-party expert, Clayton Holdings, and in consultation with U.S. Central’s auditors, Ernst & Young, according to Kathryn Brick, chief financial officer. “We’ve had an additional six months with which to analyze the results for ’07 , under market conditions that we haven’t seen in this country for many, many years,” Brick told The Credit Union Journal yesterday.
The results for 2007 would have been even worse, but U.S. Central obtained approval from its auditors to eliminate a $29 million loss it accrued from an off-balance sheet conduit, known as Sandlot Funding LLC, it had been advised to combine in its comprehensive earnings statement last year.
Preliminary results for the first six months of 2008 are somewhat brighter, with $30 million in net income, but U.S. Central still is sitting on a huge portfolio of underwater securities, primarily residential mortgage backed securities. Those securities are expected to show a market value loss of as much as $3 billion when U.S. Central reports its second quarter earnings next Monday.
David Dickens, head of asset liability management for U.S. Central, said it still expects to hold those securities to maturity, which would erase most of those losses. He said U.S. Central has adequate liquidity sources, and therefore it should not be forced to liquidate any of those holdings before maturity.
CFO Brick said the corporate has increased its regulatory capital from $2.3 billion at the beginning of the year to $2.6 billion, and does not contemplate any additional capital raising measures. “We’re not looking at raising capital at this point. We think that $2.6 billion is adequate for the make-up of our balance sheet,” she said.
U.S. Central is a critical liquidity provider for the credit union system and manages almost $45 billion in credit union funds.
