SAN BERNARDINO, Calif. – NCUA released amended first-quarter financials for Arrowhead Central CU Thursday afternoon, showing the one-time $1.1 billion credit union was far more troubled than credit union officials previously reported.
NCUA said the troubled credit union, taken under conservatorship on June 25, had under-estimated its allowance for loan losses by some $4.1 million, taking a $2.6 million net reported by Arrowhead for the first quarter and creating a $1.5 million loss for the first six months of the year.
The losses pushed the net worth ratio, a low 3.36% at March 31, down further to 3% as of June 30, making it “significantly undercapitalized” under NCUA minimum capital rules, known as prompt corrective action.
Arrowhead Central had previously posted inaccurate information that distorted the true financial condition of the institution. In particular, the loan loss reserve account was not adequately funded in the first quarter 2010 financial report. The corrected statement indicates Arrowhead Central’s loan loss reserve increased from $49.5 on March 31, to $53.6 as of June 30. The related loss reserve expense has risen from $6.1 to $18.9 million.
Since mid-2009, Arrowhead Central was required by NCUA to submit an acceptable net worth restoration plan. In four attempts, former management was unable to submit a plan based on reasonable assumptions and showed positive earnings that would restore net worth, despite specific guidance from both federal and state regulators about deficiencies in their submitted plans.
The NCUA statement comes amid a major public relations campaign by former Arrowhead executives and community members to question NCUA’s takeover of the credit union.
As part of NCUA's review of Arrowhead Central's records, NCUA determined that Arrowhead Central’s former management team did not charge off loan losses in a timely or consistent manner, and that historical ratios did not consistently reflect actual losses the credit union was experiencing. In addition, the former management team chose to revise loan loss reserve methodology less than six months after it was reviewed by an external auditor, thus reducing the amount of funding that was needed for known and potential losses. Had Arrowhead Central's management acted in accordance with approved and validated methodology, losses would have increased and earnings would not have shown a positive trend as of March 31.
Since mid-2009, Arrowhead Central was required by NCUA to submit an acceptable net worth restoration plan. In four attempts, former management was unable to submit a plan based on reasonable assumptions and showed positive earnings that would restore net worth, despite specific guidance from both federal and state regulators about deficiencies in their submitted plans.
Despite receiving instructions, information and guidance from both the California Department of Financial Institutions and NCUA, NCUA said Arrowhead Central’s former management team did not properly identify and monitor loan modifications to ensure they complied with generally accepted accounting principles and provided relief or assistance to the members.
