Net losses totaled $1.1 billion year to date through June 30, the result of year-to-date OTTI totaling $1.2 billion.
The second-quarter losses further depleted U.S. Central's member capital shares, which will trickle down to member corporates and, for some, to their natural person credit union members.
U.S. Central's retained earnings were fully exhausted during 2008, and so far in 2009, OTTI charges have completely wiped out PIC I and PIC II balances and depleted member capital shares by an additional $789 million. The losses leave U.S. Central with only $452 million in MCS as of June 30, representing a 63% MCS impairment.
The NCUA is still using November 2008 capital ratios for regulatory purposes. However, when applying actual capital balances, U.S. Central has a 3.8% regulatory capital ratio and a 0% retained earnings ratio.
U.S. Central's nonagency MBS continue to drive losses. The fair value of its nonagency portfolio has sunk to less than half of its amortized cost: a $6.2 billion fair value compared to a book value of $16 billion. Nonagency MBS represent slightly more than half of U.S. Central's total investment portfolio book value of $30.5 billion. The securities are responsible for less than a third of the corporate's reported portfolio fair value.
Ratings on U.S. Central's investments have fallen considerably since Dec. 31, when only $2.8 billion worth of securities were rated lower than BBB. As of June 30, that figure had risen to more than $11 billion. Only $12.7 billion of U.S. Central's securities remain AAA-rated, compared to nearly $20 million as of Dec. 31, 2008.
Like other corporates, U.S. Central's OTTI can be partially blamed on the failure of monoline insurers. In particular, securities wrapped by Financial Guaranty Insurance Co. experienced OTTI charges. FGIC was responsible for previous OTTI at U.S. Central, and some second-quarter OTTI was on bonds that had been previously impaired due to FGIC.
However, spokesman Austin Braithwaite confirmed that U.S. Central has not recorded OTTI charges on bonds insured by monoline insurers other than FGIC.
Some interesting factors contributed to net interest income figures during the second quarter. Net interest income totaled nearly $70 million for the quarter, compared to $48 million same period last year. However, the 2009 figure includes a $46.8 million "level yield adjustment in accordance with (FASB rules) for securities previously subject to OTTI charges," U.S. Central reported in its management's analysis that accompanied the financial statements.
Net interest revenue has decreased significantly this year for all corporates, thanks to a much lower Libor. In addition, U.S. Central is saddled with interest payments on money owed to the NCUSIF; the corporate paid $11.1 million in interest to the share insurance fund during the second quarter.
Operating expenses were down 21.4% for the second quarter compared to same period last year.