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OTTI projections improve at Members United Corporate
WARRENVILLE, Ill. (6/29/10)--Members United Corporate FCU saw an improvement in its other-than-temporary-impairment (OTTI) figures as of May 31, according to its unaudited financials posted this week. The corporate did not record any OTTI charges during May, said the financial statements posted on Members United's website. OTTI charges to date total about $600 million and consist of $562 million of charges related to residential mortgage-backed securities (RMBS) and losses related to Lehman Bros. corporate notes. Actual cash losses range from $85 million to $95 million, depending on the ultimate treatment of the implied losses in calculation of cash loss reporting. This includes the $40 million cash losses from the Lehman corporate notes. OTTI in excess of current loss projections ranges from $35 million to $60 million, depending on the accounting model selected. "Said differently, the long-term OTTI projections have actually improved for a few investments," said Members United's financial statement. "However, under current accounting rules Members United is not able to record the benefits of these improved projections as a one-time gain in the income statement." Instead, the improved projections must be recovered over the life of the investment as an adjustment to the interest yield. Members United noted the accounting treatment is similar to how a company would account for a discount on an investment. "Once OTTI calculations stabilize for a couple of quarters, Members United will evaluate adjusting the net interest income yield to recapture the $35 million to $60 million difference," said the financial report. OTTI is recorded as the net present value of estimated credit losses. The future value of credit losses is about $70 million more than the OTTI losses recorded to-date. The next OTTI review is expected to be completed by August. If that review requires any additional OTTI, those charges would be included in the July financial results, which will be published at the end of August. For the month ended May 31, Members United earned $8.4 million, increasing total capital to $22.2 million. It also "recorded extraordinary gains of $7.7 million, while core operations generated $0.7 million in income, said the financial statement.
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