The decision to publish the notice is a stark contrast with the earlier reluctance of the state regulator to release information about the conservatorship, which occurred in May. "The Agency felt it important to communicate this to Norlarco's members as soon as possible in order to keep them fully informed and put an end to speculation surrounding the future of Norlarco Credit

Union," stated NCUA Director of Public and Congressional Affairs John McKechnie. He added that NCUA determined that a purchase and assumption "was the best alternative for Norlarco's members."

The three prospective CU partners are all in Colorado, but were not identified by NCUA. Neither are the terms of the purchase and assumption (P&A), but there are problems and questions surrounding the Norlarco transaction that sources told Credit Union Times may complicate it. The first is simply what and how much will be "assumed." In a straightforward P&A, the acquiring credit union will gain the assets and book of business along with all the liabilities. In Norlarco's case, there are substantial risks associated with that option.

Norlarco is holding more than a thousand loans with a value of $238 million in Florida real estate, mostly in Lee County, Florida, where foreclosures zoomed 18% in August. (Some liability is shared with other credit unions through participation loans Norlarco made, but the financials do not distinguish how much.) Norlarco's third-quarter numbers were grim, with total delinquency at $66.8 million. Of that some $36.7 million is between 6-12 months delinquent.

The CU had a year-to-date net loss of $8.3 million and put $9.5 million in loan loss reserve.

If NCUA expects a CU buyer to assume that liability, in addition to responsibility for the increasing number of lawsuits filed against the credit union, finding a taker may not be easy. In the purchase and assumption of New Horizons Community Credit Union, Denver, which was bought by Security Service Credit Union of San Antonio, NCUA stripped out all the bad loans and sent them to its Asset Management and Assistance Center in Austin. That method wipes the slate clean and allows the CU to make a fresh start.

Losses of that magnitude would put a serious dent in the National Credit Union Share Insurance Fund if the agency had to absorb the total amount. It might even negate a dividend refund to all credit unions and at the outside, make a special assessment necessary, should NCUSIF go below the 1.3% operating level. NCUA has been in negotiations with K. Hovnanian, the builder of many of the Florida homes, in an attempt to gain some relief, but

the outcome of

those negotiations is unknown.

While the terms NCUA is offering bidders for Norlarco are unknown, several CU officials to whom Credit Union Times spoke had serious misgivings about takers assuming all of Norlarco's problems. There is also the prospect of criminal investigations down the road as the civil lawsuits unwind and various state attorneys general look into the cases. Still to be determined is the ultimate responsibility of how and why Norlarco (and Huron River Area Credit Union) got involved in speculative real estate loans in faraway Florida. NCUA removed the board of directors but kept the management in place when it took over the CU in July. Clearly, that was an indication of a lack of

faith in the decisions they reached on setting

policy for Norlarco.

The Press Moves In

Local press, particularly The Coloradoan, has followed Norlarco's woes, running a series of stories highlighting the CU's adventures in lending to Cuban immigrants in Miami who have no connection to a Fort Collins, Colorado credit union, many of whom have defaulted after the Florida building boom went bust. There is also a connection with Russ Whitney's The Millionaire University, a real estate investment operation that sold homes to buyers who thought they could flip them or rent them, only to find no interested buyers or tenants waiting. The paper noted recently "since the conservatorship became public in late August, Norlarco has lost nearly $52 million in deposits and about 1,500 members." Reporter Pat Ferrier quoted NCUA Director of Public and Congressional Affairs John McKechnie saying that the losses were subsiding and that Norlarco, the state's eighth-largest credit union, was becoming more stable.

And the lawsuits keep coming, the latest one filed by an investor in a spec home in Cape Coral who alleges the credit union made loans in full knowledge that borrowers could not repay and used inflated appraisals to qualify them. Norlarco is even being sued by another credit union, Superior Choice Credit Union of Superior, Wis., which alleges false representation and deceptive practices for failure to disclose documents that allegedly put SCCU at financial risk

when it agreed to handle some of the loans in the Florida deals.

Step Right Up

Of the three credit unions NCUA has indicated will bid on the purchase and assumption of Norlarco, only ENT Credit Union in Colorado Springs has confirmed it is one of the three. "We've been asked to make a bid and the process is ongoing," said James Moore, ENT senior vice president of corporate communications. "It's too premature to say much else, as the due diligence is being undertaken, but we feel that part of our obligation is to see that members of Norlarco are helped to move forward." Moore added that ENT's proposal would be submitted according to NCUA's timeline,

which is December.

Moore added that although ENT would welcome the opportunity to grow in the area, "the fit must be right. We'll look for a match in operating philosophy and take a careful look at the circumstances."

Security Service Credit Union of San Antonio has expressed an interest in gaining an even larger foothold in the Colorado service area following its acquisition of New Horizons, but it was not asked by NCUA to bid on Norlarco, a source told Credit Union Times. It may submit a bid in the open process nevertheless.

Neither is Westerra Credit Union, Denver, a partner candidate. "We were not asked to bid and we've expressed no interest," said Alan Peppers, president. Westerra has completed several mergers of late and its plate is full, he said. "Given the magnitude of the potential losses, we'd have to draw the line at the impairment of capital. We probably don't have the size and scale to absorb those kinds of losses."

Whoever does acquire Norlarco will need to have a very aggressive debt liquidation program and ratchet up all means of asset recovery, Peppers noted. "There'll be a tremendous amount of work to do. But still, from a standpoint of the marketplace it is still very attractive. It does have tremendous value."

The loan workouts and asset recovery and losses aside, the effort in integrating two CUs is complicated and costly enough. There are different DP systems usually, and different operating procedures and various employee health and benefit plans as well. The organizational alignment always takes longer than the time budgeted, sources said–much more than most CUs are willing to admit.

Other likely candidates with the sufficient size and scale include Bellco Credit Union in Greenwood Village, which offered no comment. Elevations Credit Union, Boulder, may be another candidate. Rich Jones, the vice president of marketing there said they weren't asked to bid but might consider offering one in the open process. "I think Elevations would be a good fit for a lot of reasons," Jones said. "And it's a wide-open area with a lot of growth potential, so we'll think about it."

But Jones allowed, "Whoever gets it will have to cope with all the normal integration issues as well as the added challenge of managing the loan portfolio going forward. Do we want to take on that added operating expense to buy into that market? That's the question that must be asked and answered."

The Credit Union of Colorado ($738 million), the state's fourth largest, said it, too "would like to take a look" at Norlarco assets in a bidding procedure, expressing surprise that NCUA had already solicited three other Colorado CUs as possible suitors. "The news came as a surprise to us," said Doug Schneider, vice president of marketing. The Denver-based CU of Colorado already has overlap and a member base in common with Norlarco since both reach students of Colorado State University in Fort Collins. CU of Colorado has long had community college students in its FOM as well as those from CSU at its Pueblo campus. Echoing other potential bidders, Schneider said, "we would want to make sure it is the right fit."

–[email protected]

–Senior Correspondent Jim Rubenstein contributed to this story.

'Operation CU-Troop' to Supply Food, Cheer to Overseas Troops

CHARLOTTE, N.C. — After the successful Triad launch last year of "Operation CU Troop", Carolina Postal Credit Union has expanded its program to the greater Charlotte, High Point, Winston-Salem and Greensboro areas for 2007.

Operation CU-Troop is an effort to collect much-appreciated items such as toiletries and food for USA military troops over-seas in time for the holidays.

Carolina Postal CU branches will be accepting approved toiletry and food items through Nov. 9. An added feature this year is that a number of area credit unions are assisting with Operation CU-Troop including Truliant FCU, Members CU, Lions Share CU and State Employees CU.

With help from Charlotte's Phillip O Berry High School's Jr. ROTC, CPCU will be able to have items sorted and delivered to the USO at Camp LeJuene for processing and shipping in time for the holidays.

In addition to the food and toiletry items, Carolina Postal CU wants to send a clear message to the troops so that they know they are appreciated. Local schools are participating with the credit union to draw pictures and write letters of gratitude. Members that come by the credit union branches are also given the opportunity to sit down and fill out a card or write a note.

Approved food items include comfort items we take for granted such as coffee (instant or ground), powdered Gatorade, powdered hot chocolate, Kool-aid, tea-bags, lemonade mix, Crystal Lite, tuna in a "fresh pouch", Slim Jims, and peanuts.

Credit union members across the Triad are also encouraged to donate international calling cards as well.