Background Behind MACU's Numbers Shows Loss Was A One-Time Event

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Credit Union Journal recently reported on a substantial operating loss reported in our third quarter 5300 Call Report. While the story contained accurate numbers, I wonder if it will be helpful to let you know the background behind those numbers.

In March 2008, Mountain America Credit Union (MACU) and Salt Lake Credit Union (SLCU) began the process of a merger, which was completed May 1, 2008. As a result of the merger, MACU acquired certain residential construction loans that were not granted according to MACU lending standards and criteria. MACU also acquired SLCU's Allowance for Loan Losses, which at that time was believed to be adequate to absorb future losses in SLCU's portfolio. Subsequent to the merger, real estate conditions throughout the nation as well as MACU's field of membership deteriorated significantly, increasing the losses in this pool of loans.

Since the merger, MACU has spent a significant amount of time and resources to identify and mitigate these loan losses. MACU anticipates all of these loans will be paid off or otherwise closed by the end of first quarter 2009.

MACU's third quarter financial statements include the effect of a one-time increase of approximately $31 million in Provision for Loan Loss expense, related to the SLCU residential construction loan portfolio.

We believe this one-time additional provision is sufficient to completely reserve for future losses related to these loans.

In spite of this additional expense, MACU remains a well-capitalized institution per NCUA guidelines. Excluding this one-time charge, MACU would have shown profits both on a monthly and a year-to-date basis. Excluding this one-time charge, MACU would have shown profits both on a monthly and a year-to-date basis. I think it is important for MACU members and Credit Union Journal to know that we are operationally sound, well capitalized and moving ahead to address this issue.

Sterling W. Nielsen, President/CEO

Mountain America Credit Union,

West Jordan, Utah


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