After posting a $35.8 million net loss as of Sept. 30, the high-profile Rhamy resigned at the request of his board on Dec. 18 only to return on Christmas Eve in a sudden and unexplained turn of events.
The $883 million credit union will end the year with around 4% net worth and faces the task of rebuilding capital in a poor Las Vegas economy. Delinquencies stand at 6.7%, two-thirds of which are in real estate. American Share Insurance, Silver State's private deposit insurer, may or may not assist the credit union with a cash infusion.
Despite all the bad publicity, Rhamy, during an interview with Credit Union Times, said that he's up for the challenge. After all, he said, he's faced tough odds before: he was recruited by the NCUA back in 1990 to run Vandenberg Federal Credit Union when it had a net worth of less than 2%, he and brought the institution back into well-capitalized territory within four years without "following a slash and burn recipe."
Rhamy said Silver State Schools is "very relevant to its members in today's economic environment and will be into the future." He said he's "bullish" on the credit union's recovery because delinquencies have peaked, recent and projected future charge-offs have fallen significantly, real estate values have stabilized and rising, and Nevada's economy and job market appears to be stabilizing as well.
He also said the credit union has also modified $30 million worth of mortgages, some of which are still counted among delinquencies, making the situation appear worse than it really is.
Credit Union Times: Tell me more about your modification program.
Dave Rhamy: We began offering mortgage modifications in February 2009, none of which are associated with any federal programs. Such programs were so limited (105% loan-to-value) that hardly any mortgages in Nevada qualified given that the market values had plunged up to 70% in some cases. We developed a policy that includes income verification, no balloon payments, no principal forgiveness, and a maximum payment ratio of 40% of income, and empowered a high-level 'mod squad' within our management to both respond to and initiate member contacts.
At Dec. 31, 2009, our $30 million in mortgage modifications comprised 101 loans, 25 of which are TDR [trouble debt restructuring] for $11.1 million. We are very aware that this practice assures that due to GAAP, our delinquency will artificially be higher for six months but feel very strongly that modification is a far better solution than foreclosure.
CU Times: Your delinquencies compared to loan-loss allowance don't appear to follow the general rule of thumb of at least 100% ALL. How do you figure your loan-loss allowances?
Rhamy: Under the terms of the Credit Union Membership Access Act of 1998, credit unions with assets of $10 million or more are required to follow GAAP. The somewhat complex world according to GAAP as it relates to the allowance for loan and lease losses states that the allowance must be a reasonable estimation by management of probable (not 'possible') losses, guided by FASB 114 [specific impairments] and FASB 5 [historical loss rates].
Obviously there can, and probably should be, discussion with CPAs and regulators as to degree of impairment and impact of environmental factors. We are in compliance with GAAP and therefore with federal legal mandates, and we continue to work closely with our CPA firm and our state examiners to satisfy ALL funding requirements.
CU Times: Regarding the cash infusion and ASI, how large will it be and when do you expect it?
Rhamy: I honestly don't know the answer to either of those questions. The capital and cash infusion was offered by ASI a little more than two weeks ago, and the idea is intriguing. I've long advocated alternative capital and consider our credit union a good candidate, especially in the current circumstances.
CU Times: Why shouldn't an ASI cash infusion be considered a bailout?
Rhamy: I think that under these circumstances, a capital infusion absolutely meets the definition of a bailout. However, keep in mind that as a business partner, ASI will be providing this infusion as a loan that will be repaid within a defined period of time.
CU Times: Do you take personal responsibility for the CU's losses? If not, why did you resign when asked? If so, why did you return?
Rhamy: As CEO, I am responsible for the credit union's results. The buck stops with me. As you might expect, under stressed financial circumstances there are a wide range of ideas on how to turn things around, some of which involve a fresh set of eyes and principles. I reluctantly, but willingly, stepped aside if it might facilitate a new approach for recovery. I quickly returned when asked by the board and the commissioner because the credit union is where I belong and where I want to be.
CU Times: What has been the reaction from the staff?
Rhamy: Our employees are fantastic. From the members' perspective, they are the credit union. They know and appreciate that senior management has taken compensation hits so that their salary and benefits continue. We believe it is nearly impossible for our employees, many of them single parents, to focus on their work and deliver excellent service if they are worried that there is imminent danger of layoffs or termination.
CU Times: Is it true that you also run a law firm in addition to your credit union CEO duties?
Rhamy: First, I have always loved the law. When I decided to pursue a law degree, my board approved it and was fully supportive. The role of a credit union CEO has become more and more complex and a more than basic understanding of the law comes in very handy in evaluating compliance issues, leases, contracts, and proposed laws and regulations, among other things.
I guess my point is that this question has been raised by some as an inference that I'm practicing law to the detriment of my duties as credit union CEO. This is far from the truth and troublesome to me as it distracts us from the important issues my credit union faces in this economy.