ALEXANDRIA, Va. (6/19/13)--The financial turnaround of Arrowhead Central CU, a San Bernardino, Calif.-based credit union that the National Credit Union Administration put into conservatorship in 2010 and whose conservatorship ended in May, is both "surprising" and "inspiring," said NCUA Chairman Debbie Matz in the June NCUA Report.
Arrowhead is the first credit union to successfully emerge from federal conservatorship since 2007. On May 23, the credit union reported a net worth of more than 10.5% and membership of 116,000.
The credit union, established in 1949, served ethnically diverse residents of San Bernardino and the Inland Empire of California and had grown to $900 million in assets serving more than 100,000 members. "Much of the growth came in the last decade as Arrowhead expanded aggressively into side businesses and took on large indirect loans for recreational vehicles (RVs)," Matz wrote in her "Chairman's Corner" column.
However, by 2010, the credit union, with 25 branches became "grossly over-extended. The $154 million RV loan portfolio had collateral values of only half the outstanding loan balances, and borrowers were rapidly defaulting," Matz wrote.
Modified loans apparently masked true delinquencies and four side businesses dragged it further into the red while distracting management from providing efficient member service and managing credit risk, she added. "Net worth was down to 3% and falling fast. The credit union was on pace to lose nearly $4 million. It was in danger of going under."
NCUA conserved Arrowhead on June 25, 2010, despite criticism for acting unreasonably, Matz said. "From day one, we were dedicated to restoring sound operations and safeguarding members' hard-earned money," she added.
NCUA Region II Director Jane Walters, as agent for the conservatorship, contracted with credit union turnaround specialist Kay Woods as interim CEO. They sold or closed 14 branches, reduced staff by 242 in 2010, charged off $70 million in loans over two years, strengthened underwriting, wound down the four side businesses--"our only chance to save this credit union," Matz explained.
In June 2011, Arrowhead began its recovery by focusing on the core business, controlling costs and following the Net Worth Restoration Plan. After net worth topped 5%, NCUA offered the CEO position at Arrowhead to Darin Woinarowicz, then chief operations officer at Kern Schools FCU in Bakersfield, Calif.
Woinarowicz implemented a new Strategic Plan for Arrowhead in 2012-2013. The credit union's top goals included rebuilding relationships with select employee groups and rebranding Arrowhead as member service-oriented.
Meanwhile, NCUA worked with select employee groups and "recruited an Advisory Board of members who aspired to become Arrowhead's new Board of Directors and Supervisory Committee," Matz said. "The executive team organized a two-day 'credit union boot camp' for them and provided monthly training on their fiduciary duties. These 10 dedicated volunteers are now willing to lead Arrowhead into a new chapter in its history."
Matz attributed the success story to the "collaborative efforts of NCUA staff, the California Department of Financial Institutions, Arrowhead's interim and current management teams and staff, the new board, and members who never wavered in their support of the credit union."