Arrowhead Cuts Losses, 'Showing Signs Of Progress,' NCUA Says

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SAN BERNARDINO, Calif. — Arrowhead Credit Union, which was battered by huge losses in 2008 and 2009, managed to cut its 2010 net loss to just $4.4 million.

The CU has been run by NCUA under conservatorship since June 25, 2010. "Arrowhead is showing signs of progress," NCUA Spokesperson John McKechnie told Credit Union Journal. "Net worth is at 3.3%, and the credit union's losses decreased by nearly 90%, ending the year at $4.5 million compared to $47 million lost in 2009."

Among the factors cited by McKechnie for Arrowhead's improved financial status was a decline in loan delinquencies.

"The difficult economic climate has affected lending, but the cost-cutting measures that we have implemented have put the institution on a path for recovery," he said. "Members are continuing to receive a full-range of financial services from Arrowhead Credit Union."

The regulator has taken several "specific steps to improve the credit union's financial condition," McKechnie continued, including branch closures and reductions in staff. Through these measures, he said, "NCUA has positioned Arrowhead Credit Union for future profitability without any interruption in service to its members. The variables that we can control we have controlled; NCUA cannot control loan losses, which is a direct consequence of the economic stress encountered by Arrowhead for the last several years."

In 2008, Arrowhead posted a loss of $28.6 million, which was caused in part by placing $53.6 million in its provision for loan and lease losses. In 2009, provision for loan and lease losses swelled to $79.5 million, and its full-year net loss was $47 million.

In 2010 provision for loan and lease losses was scaled back to $36.9 million, and net loss excluding NCUA assessments was only $2.5 million. Arrowhead paid $905,484 for its NCUSIF premium and $1,050,628 to the temporary corporate stabilization fund.

The credit union once reached $1.1-billion in assets, but that figure had declined to $671 million as of Dec. 31. Arrowhead closed or sold eight branches on Dec. 31, leaving it with just 11.

The conservatorship of Arrowhead CU was one of the more controversial stories of 2010 and led to the dismissal of its well-known CEO, Larry Sharp. After posting epic losses in 2008-2009, management said it eked out a gain of $752,000 during the fourth quarter of 2009, followed by net income of $2,591,932 in Q1 2010. But NCUA countered that the March financial data submitted by Arrowhead was "inaccurate…specifically regarding losses in the loan portfolio. The credit union presented a safety and soundness concern, necessitating last week's conservatorship," the regulator said at the time.

What Critics Have Said

Critics of the conservatorship countered that NCUA was asking for millions of additional dollars to go into Arrowhead's allowance for loan losses, but the credit union's management said there was a sufficient amount. Chip Filson of Callahan & Associates pointed out Arrowhead's ALL as a percent of total loans was four times the industry average, and its coverage ratio was 275% higher than average, all while loan delinquencies had declined 41% from their peak in 2009.

Asked if Arrowhead CU will emerge as a standalone credit union or if it will be merged, McKechnie replied, "The NCUA Board has not made any determination about Arrowhead's future, beyond working to preserve member assets, maintain member service and improve the financial condition of Arrowhead."

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