NCUA Strikes Back at Arrowhead Critics

Tired of being a pinata for critics over its seizure of Arrowhead Central Credit Union , the National Credit Union Administration (NCUA) fired back on July 22 stating that the credit union understated its financial problems and released Arrowhead Central's second quarter financial results.

Critics of NCUA's placing Arrowhead Central into conservatorship on June 25th contend that the credit union was on the mend. David Chatfield, the interim president and CEO of the California and Nevada CU Leagues, told Credit Union Journal (paid subscription) that "NCUA's claim the credit union was in declining financial condition flies in the face of the facts... in this case I see little justification for NCUA doing what it did."

In a highly unusual move, NCUA issued a media release writing that the credit union "had previously posted inaccurate information" distorting its true financial condition. NCUA noted that the prior management failed to comply with methodology approved by the credit union’s external CPA for funding its loan loss reserve accounts. This underfunding of its loan loss allowance account caused the credit union to report a profit of almost $2.6 million as of March 31, 2010. However, when the loan loss allowance account was properly funded, the credit union reported a year-to-date loss of more than $1.4 million at the end of the second quarter.

The press release further states that "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."

Additionally, NCUA points out that since the middle of 2009 the credit union had failed on four previous attempts to file an acceptable net worth restoration plan.

The press release notes that the credit union has been significantly undercapitalized for four consecutive quarters and as of June 30, 2010, its net worth ratio was 3 percent.

Will the release of this information be enough to quell NCUA's critics over its handling of Arrowhead Central?

I don't know.