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U.S. Central records 39M net loss in 2Q
LENEXA, Kan. (8/3/10)--U.S. Central FCU recorded a $39.4 million net loss for second quarter, compared with a net loss of $475.4 million for second quarter 2009. Both figures are attributed mainly to other-than-temporary-impairment (OTTI) charges, U.S. Central said in its financial report for the quarter ended June 30. The financial report is on U.S. Central's website (use the link). In it, U.S. Central noted that prices on fixed income securities generally improved during the quarter, and projections of aggregate principal losses in its existing investment portfolio declined somewhat. However, loss projections for certain non-agency residential mortgage-backed securities (RMBs) worsened, requiring an additional $44.9 million in OTTI charges for the quarter. That compares with $487.3 million in OTTI charges for the same period in 2009. While accounting guidance requires OTTI charges be recorded based on securities' projected losses, U.S. Central also tracks actual principal losses on its portfolio. Actual principal losses on 65 of its impaired securities totaled $128.1 million during second quarter of 2010. Through June 30, actual principal losses for 71 securities totaled $396.8 million. Excluding OTTI charges, U.S. Central said it recorded net losses on financial instruments of $5.8 million for the quarter, compared with net gains of $3.9 million for the same period a year earlier. "Although accounting rules don't allow OTTI charges to be reversed when securities improve, it appears that overall expected credit losses declined "somewhat" during the second quarter. That is a good sign," said Bill Hampel, chief economist at the Credit Union National Association. "This report reminds us that the vast bulk of the actual losses that will be borne on securities held by corporates are yet to occur," Hampel told News Now. "Although U.S. Central has expensed about $7 billion in OTTI charges on its portfolio, through June it has only recorded actual losses of $400 million," he said. "This does not, however, mean the OTTI charges have over-estimated the actual losses. The actual losses just have not happened yet. They could end being around $7 billion, they could be much more, or they could be much less. Only time will tell." Assets as of June 30 totaled $30.2 billion, a decline of $4.9 billion, or 13.9%, from $35.1 billion assets recorded for Dec. 31, 2009. As of June 30, 2010, U.S. Central's regulatory capital ratio was 7.2%, compared with 6.9% on June 30, 2009. Its retained earnings ratio was 1.9%, compared with 1.8% for the period last year. Using actual capital balances as of this past June 30, U.S. Central's capital ratio and retained earnings ratio were 0.8% and 0.0%, respectively. Those compare with 3.8% and 0.0%., respectively, as of June 30, 2009.

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