NCUA Takeover Prevented Arrowhead Central CU From Selling Best Loans

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SAN BERNARDINO, Calif. – NCUA Chairman Debbie Matz told community leaders the agency’s June 25 conservatorship of Arrowhead Central CU was timed, among other things, to prevent the one-time $1.1 billion credit union from selling off its high-quality loans at a steep discount to an out-of-state credit union to raise much-needed capital.

The loan deal was part of an agreement by Arrowhead to sell five branches to Alaska USA FCU.

“This saved Arrowhead’s most conscientious borrowers from unnecessary disruptions in their loan servicing,” Matz said earlier this month in a letter to leaders of a community group that is protesting the NCUA takeover. The letter was addressed to local economist John Husing, who had performed work for Arrowhead in the past, and Donald Driftmeir, chief financial officer of Noble House Entertainment Pictures in nearby Ontario, Calif.

The NCUA Chairman emphasized to the community leaders that the credit union continues to operate and services have not been interrupted under the NCUA conservatorship.

Matz said the NCUA takeover came amid concerns that losses were growing while capital was dwindling at Arrowhead, while evidence mounting that the Arrowhead management was misstating the true financial condition of the credit union. “NCUA’s principal goal was to protect the consumers who are members of Arrowhead,” wrote Matz. “Given that Arrowhead was significantly undercapitalized, losses were continuing, the credit union management was misstating its true financial condition, and the credit union was about to consummate a loan sale that was not in the members’ best interests, NCUA assumed control of Arrowhead in an effort to prevent further losses and preserve member assets.”

After taking over Arrowhead, NCUA said the troubled credit union 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 Arrowhead’s 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.

In her letter to the community leaders Matz noted that the Arrowhead board and management didn’t bother to contest the conservatorship within the legally required 10-day period.

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