In a release, the NCUA said dismissed Arrowhead management had not charged off loan losses in a timely or consistent manner, historical ratios had not consistently reflected actual losses, and the credit union did not adhere to GAAP accounting standards. Furthermore, Arrowhead's own external auditor did not agree with the methodology the CU used.

Former CEO Larry Sharp disagreed with the NCUA's restated financials, saying the regulator is “stuck in 2009″ when estimating future loan performance and reserve needs.

Sharp confirmed the NCUA's charge that the agency had rejected four consecutive net worth restoration plans he and his executive team submitted, saying his numbers were “too optimistic.” Specifically, Sharp said his decision to switch from a 12-month historical period when figuring loan-loss reserves to a six-month historical review had drawn criticism. He said Arrowhead had experienced nine consecutive months of dropping delinquencies and six consecutive months of dropping charge-offs. He called the decision “perfectly acceptable according to GAAP.”

The June 30 financial reports posted on the NCUA's website show Arrowhead's delinquencies have fallen from 4.25% in June 2009 to 3.08% as of June 2010. Sharp had reported slightly lower delinquencies of 3.03% as of March 31.

Net charge-offs were 5.85% as of June 2009 but rose to 7.52% in September and remained high at 7.06% as of 2009 year-end. However, Sharp reported a much lower 5.43% net charge-off ratio as of March 31, which the NCUA increased slightly to 5.49% as of June 30.

The steep third-quarter 2009 increase represents charged-off loans that had remained on the books beyond California's 180-day delinquency maximum, he said. “We said okay, we'll even go back to 120 days to be conservative” he said. “We were charging loans off ahead of schedule, not behind.”

Sharp also said the NCUA did not record profits from the sale of his high-desert branches to Alaska USA FCU, which he said netted about $1.5 million.

Arrowhead's June 2010 financial performance reports reveal loan, investment and other income reporting all increased per a usual annualized pace. The other income category increased from $9.2 million to $18.4 million. Nonoperating income lost annualized pace, increasing only slightly to $1.24 million as of June 30 from $1.13 million during first quarter.

Arrowhead would have netted another $3 million from the Alaska USA deal had NCUA not repudiated the $77 million loan package that went along with the branch sale, Sharp said.

Former NCUA examiner and Lafayette FCU CEO Bill Brooks said he can find blame on both sides of the conservatorship debate. On one hand, he said, Arrowhead's historical losses and current 8.5% loan quality ratio suggest “incompetence” in loan underwriting and indicates “the board wasn't watching the shop.”

The NCUA “quite possibly did the right thing” when it placed Arrowhead into conservatorship, he said, but the reasons provided in the regulator indicate the decision was made for the wrong reasons.

“When you read that press release, it's all focused on Arrowhead management, they did not do this, they did not do that. It's all justification,” he said. Instead, the NCUA should have cited deteriorating conditions and a loss of confidence in management, he added.

“Whenever the government exercises their authority, they must be able to say it was used appropriately,” he said. “They never want to look arbitrary or capricious because in the long run, that doesn't serve anybody.”

He pointed to Arrowhead's 7.38% average yield on loans as evidence that the credit union's performance may not be as bad as the NCUA claims. Peer averages have not yet been posted for June, but in March Arrowhead's peers were yielding slightly less than 6%.

Brooks also scolded both sides for failing to negotiate a net worth restoration plan, saying egos got in the way of negotiation, adding that “an adult should have intervened” if communication had broken down to such a drastic extent.

Jordan Levine, research manager in the Los Angeles-based office of Beacon Economics, said his team thinks Los Angeles'key indicators like unemployment will peak this quarter, then slowly improve. He doesn't anticipate a dreaded double dip recession.

–[email protected]