LAS VEGAS-With its CEO back after a brief departure, Silver State Schools CU is working with American Share Insurance (ASI) and the Nevada Financial Institutions Division to turn around the troubled credit union, including a plan to provide a cash infusion into the institution.
Just before Christmas the credit union announced its CEO, Dave Rhamy, had resigned to pursue his legal practice, and then within days abruptly announced Rhamy had returned to the job.
At least one source indicated to Credit Union Journal that media reports in Las Vegas of the credit unions' financial condition and the CEO's departure had led to significant withdrawals of deposits, but that report could not be substantiated at press time, and George Burns, commissioner of Nevada's Financial Institutions Division, said there have not been significant declines in deposits.
Through the first nine months of 2009, SSSCU reported losses of $36 million, much of it due to the crash of southern Nevada's real estate market.
"We believe that Mr. Rhamy coming back is a stabilizing influence in the minds of Silver State Schools members," said Burns.
What may also provide a stabilizing affect is a cash infusion from ASI, which provides deposit insurance to Silver State Schools and five other state-chartered CUs in Nevada. Rhamy had indicated in an interview with a Las Vegas newspaper that ASI is likely to provide a cash infusion to bolster Silver State Schools; he said any money would be used to increase lending that would, in turn, generate new revenue. Burns told Credit Union Journal that his office, the Dublin, Ohio-based ASI, and the credit union are devising a plan to get SSSCU back on track, but did not disclose details. "There are arrangements being made at this time in order to ensure the ongoing survivability of the institution," he said.
At the same time ASI was working out a solution for SSSCU, it also announced that it plans to charge its insured credit unions a 2009 special premium assessment of 15 basis points. However, ASI CEO Dennis Adams told Credit Union Journal that the assessment is not being made to prop up Silver State Schools.
"It has to do with us providing sufficient reserves in a very difficult year in which we see some building risk," Adams said. "Most of the stress in our program has been in the Nevada market. But it's related to more than just one credit union. We tried our very best to get through the year without the charge and then in December things changed a bit."
The possibility that SSSCU may fail has focused media attention on ASI (
Adams reaffirmed his position, however, that his company is adequately funded to address any losses at SSSCU. He emphasized that even with a worst-case scenario-the failure of Silver State Schools-it would not severely impact ASI. SSSCU represents about a $32-million exposure to the insurer, calculated Adams. "Over the history of ASI, our losses have run on average about 4% of the credit union's balance sheet, and that percentage tends to be smaller the larger the institution is."
The risk at Silver State Schools is clear: $500 million of its $770 million loan portfolio is in real estate in a part of the country where two-thirds of mortgages are underwater. The CU has $15 million set aside in allowance for loan loss.
Adams last week was not ready to commit that ASI funds were heading SSSCU's way, saying that a cash infusion "may or may not be a topic of discussion" at a mid-week meeting between ASI, SSSCU, and the FID.
What also remains unclear is the reason for Rhamy's departure and return. The FID's Burns shared that Rhamy's return was a decision made by the credit union's board in consultation with ASI and the FID, but gave no reason for Rhamy's leaving. Adams claimed ASI was not involved in the matter at all: "Dave's leaving was not something I knew about until it occurred, and likewise his reinstatement was not something I knew about until after it happened."
Adams shared that Rhamy's leaving has not shaken his confidence in the credit union's leadership. Burns added that the incident has not increased scrutiny on the credit union and that the FID has had a case manager assigned to SSSCU on a daily basis. Burns stated that SSSCU will "not be permitted to fail," and acknowledged that "if things become desperate, merger arrangements will be made. But right now that is a secondary consideration. As far as Silver State Schools' ability to survive going forward, they are good. But there are many variables out of control of the credit union, ASI, and the division, such as the ongoing deterioration of the Nevada economy."
