Silver State Schools Credit Union President/CEO Dave Rhamy had atough December.
After posting a $35.8 million net loss as of Sept. 30, thehigh-profile Rhamy resigned at the request of his board on Dec. 18only to return on Christmas Eve in a sudden and unexplained turn ofevents.
The $883 million credit union will end the year with around 4% networth and faces the task of rebuilding capital in a poor Las Vegaseconomy. Delinquencies stand at 6.7%, two-thirds of which are inreal estate. American Share Insurance, Silver State's privatedeposit insurer, may or may not assist the credit union with a cashinfusion.
Despite all the bad publicity, Rhamy, during an interview withCredit 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 NCUAback in 1990 to run Vandenberg Federal Credit Union when it had anet worth of less than 2%, he and brought the institution back intowell-capitalized territory within four years without “following aslash and burn recipe.”
Rhamy said Silver State Schools is “very relevant to its members intoday's economic environment and will be into the future.” He saidhe's “bullish” on the credit union's recovery because delinquencieshave peaked, recent and projected future charge-offs have fallensignificantly, real estate values have stabilized and rising, andNevada's economy and job market appears to be stabilizing aswell.
He also said the credit union has also modified $30 million worthof 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 modificationprogram.
Dave Rhamy: We began offering mortgage modifications in February2009, none of which are associated with any federal programs. Suchprograms were so limited (105% loan-to-value) that hardly anymortgages in Nevada qualified given that the market values hadplunged up to 70% in some cases. We developed a policy thatincludes income verification, no balloon payments, no principalforgiveness, and a maximum payment ratio of 40% of income, andempowered a high-level 'mod squad' within our management to bothrespond to and initiate member contacts.
At Dec. 31, 2009, our $30 million in mortgage modificationscomprised 101 loans, 25 of which are TDR [trouble debtrestructuring] for $11.1 million. We are very aware that thispractice assures that due to GAAP, our delinquency willartificially be higher for six months but feel very strongly thatmodification is a far better solution than foreclosure.
CU Times: Your delinquencies compared to loan-loss allowance don'tappear 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 of1998, credit unions with assets of $10 million or more are requiredto follow GAAP. The somewhat complex world according to GAAP as itrelates to the allowance for loan and lease losses states that theallowance 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 CPAsand regulators as to degree of impairment and impact ofenvironmental factors. We are in compliance with GAAP and thereforewith federal legal mandates, and we continue to work closely withour CPA firm and our state examiners to satisfy ALL fundingrequirements.
CU Times: Regarding the cash infusion and ASI, how large will it beand when do you expect it?
Rhamy: I honestly don't know the answer to either of thosequestions. The capital and cash infusion was offered by ASI alittle more than two weeks ago, and the idea is intriguing. I'velong advocated alternative capital and consider our credit union agood candidate, especially in the current circumstances.
CU Times: Why shouldn't an ASI cash infusion be considered abailout?
Rhamy: I think that under these circumstances, a capital infusionabsolutely meets the definition of a bailout. However, keep in mindthat as a business partner, ASI will be providing this infusion asa 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 youreturn?
Rhamy: As CEO, I am responsible for the credit union's results. Thebuck stops with me. As you might expect, under stressed financialcircumstances there are a wide range of ideas on how to turn thingsaround, some of which involve a fresh set of eyes and principles. Ireluctantly, but willingly, stepped aside if it might facilitate anew approach for recovery. I quickly returned when asked by theboard and the commissioner because the credit union is where Ibelong 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 seniormanagement has taken compensation hits so that their salary andbenefits continue. We believe it is nearly impossible for ouremployees, many of them single parents, to focus on their work anddeliver excellent service if they are worried that there isimminent danger of layoffs or termination.
CU Times: Is it true that you also run a law firm in addition toyour credit union CEO duties?
Rhamy: First, I have always loved the law. When I decided to pursuea law degree, my board approved it and was fully supportive. Therole of a credit union CEO has become more and more complex and amore than basic understanding of the law comes in very handy inevaluating compliance issues, leases, contracts, and proposed lawsand regulations, among other things.
I guess my point is that this question has been raised by some asan inference that I'm practicing law to the detriment of my dutiesas credit union CEO. This is far from the truth and troublesome tome as it distracts us from the important issues my credit unionfaces in this economy.
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