09:37 PM PDT on Wednesday, August 25, 2010

The Press-Enterprise

Among reasons for seizing Arrowhead Credit Union when it did, federal regulators for the first time pointed to an impending deal by the San Bernardino institution to sell multiple branches to Alaska USA at a “steep discount.”

The National Credit Union Administration placed Arrowhead under conservatorship on June 25.

Arrowhead had agreed to sell branches in the High Desert and Big Bear City to Alaska USA Federal Credit Union, including its members’ loans at the branches, in a deal that was expected to earn Arrowhead $7 million. That deal closed June 26.

The explanation came in an Aug. 10 written response to a letter drafted by Inland economist John Husing and CPA Donald A. Driftmier that questioned the agency’s decision to take over the 61-year-old credit union and asked for details related to the agency’s future plans for Arrowhead.

“The timing of NCUA’s action prevented Arrowhead from selling its highest-performing loans to an out-of-state institution at a steep discount, which would not have represented the true value of the portfolio,” wrote NCUA chairwoman Debbie Matz in the letter. “This saved Arrowhead’s most conscientious borrowers from unnecessary disruptions in their loan servicing.”

Husing took issue with letter’s lack of proof for any of its claims as well as the contention that the Alaska USA deal played a role in its decision. The agency still hasn’t determined what it plans to do with Arrowhead.

“As far as I’m concerned, this letter is nothing but gobbledygook,” Husing said.

The deal to sell five high-desert branches to Alaska USA was valued at about $7 million before the NCUA took over Arrowhead. Those branches represented $114 million in deposits and $95 million in loans. At the end of 2009, Arrowhead had a total of $705 million in loans. The deal was eventually scaled back to include four branches and closed the day after Arrowhead’s takeover by the NCUA.

After NCUA took over Arrowhead, Alaska USA no longer automatically received the member loans from those branches.

Now, Arrowhead members who keep their accounts and loans with the desert and Big Bear branches bought by Alaska have until Aug. 31 to transfer their accounts to Alaska USA or take their funds elsewhere.

Dan McCue, senior vice president at Alaska USA, wouldn’t comment on the letter’s claims or comment on the value of the assets involved, “since it is between NCUA and Arrowhead,” he said in an e-mail.

Since the NCUA seized it on June 25, the agency has kept Arrowhead open and operating, reminding members that up to $250,000 per account is federally insured. The agency also installed its own management team, stopped offering new member business loans (while continuing to service older loans) and laid off 27 employees.

The NCUA doesn’t usually run credit unions so its options include giving the institution back to its members (credit unions are member-owned), merging it with another credit union, selling it or liquidating it.

In a frequently-asked-questions section on Arrowhead’s website, the institution responds to a question asking if the credit union will be merged or dissolved by saying, in part, that: “Our goal is to return Arrowhead to profitability and continue to be here for our members.”

Husing said the letter implied that the agency intended to give the credit union back to its members but didn’t explain how.

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