No New OTTI at Southwest

The $9 billion Southwest Corporate Federal Credit Union reported no third-quarter investment impairments on its nonagency mortgage-backed securities portfolio after conducting a quarterly Clayton portfolio review, according to its October financial reports.The news comes after the $8.5 billion Members United Corporate FCU recorded a $77 million OTTI on its nonagency mortgage-backed securities, according to its third-quarter Clayton report. The $28 billion U.S. Central FCU recorded a $320 million third-quarter OTTI on its nonagency MBS portfolio, citing a significant increase in the nation’s unemployment rate and rising mortgage delinquencies during that period.Southwest Corporate recorded $113.5 million in OTTIs as of June 30 but said no OTTIs were recorded in October “based on the results” of its latest Clayton report, which evaluated its portfolio as of Sept. 30.Chief Financial Officer Melissa Wardell told Credit Union Times that the cooperative’s MBS portfolio experienced a significant degree of deterioration in the second quarter, but in the third quarter, it “saw a divergence among loss projections.”“Southwest Corporate didn’t record additional OTTI at Sept. 30 as our assessment was to continue to determine the need for more OTTI through year-end in order to better gauge if loss projections were stabilizing, declining or if subsequent increases would necessitate additional impairment charges,” she said.Wardell also said the timing of when corporate portfolio reviews are performed also affects reported losses and the ability to compare quarterly losses among corporates.The NCUA isn’t concerned about the variance, according to spokesman John McKechnie. He said the regulator is familiar with Southwest’s use of Clayton’s third-party valuations in determining credit losses and said it’s his understanding that “valuations and results reported by Southwest were arrived at according to GAAP.”Southwest did take some hard GAAP lumps in October, depleting nearly 40% of its MCAs to eliminate its Aug. 31 $159 million retained deficit, per NCUA guidance.However, U.S. Central’s third-quarter losses and subsequent member capital shares depletion prevented Southwest Corporate from wiping its retained earnings slate clean, leaving a $37 million retained deficit as of Oct. 31. Wardell said Southwest Corporate will apply the new U.S. Central losses to Southwest Corporate member capital in January.“We are also continuing to assess our own portfolio for potential impairments through year-end, and we will deplete additional member capital in January if our year-end portfolio assessment results in further impairment charges.” –[email protected]