The NCUA and the Massachusetts Division of Banks jointly issued a letter of understanding and agreement to the officials of the $178.9 million Tremont Credit Union, Braintree, Mass.
Tremont's board accepted the letter without admitting or denying fault, but its interim CEO said the credit union has remedied most of the problems.
The letter required correction of several problems, including insider abuse and self-dealing, poor loan quality, inadequate internal controls and weak management.
Interim CEO Gary Fishlock, who has had the post since December and was brought on after a critical examination report was issued last year by federal and state examiners, told Credit Union Times that the credit union "has been addressing the problems comprehensively, and we are about 90% complete."
He said the credit union's operations have been revamped, and the entire board was replaced on April 29. He added that board members had left voluntarily to give the institution a fresh start.
The credit union expects to hire a new CEO by the end of May and has had 76 applicants for the job, Fishlock said. Fishlock, the former CEO of STCU Credit Union in Springfield, Mass., succeeded former Tremont CU CEO Leonard Broderick.
NCUA Director of Public and Congressional Affairs John McKechnie said the letter "is part of a process where NCUA and the Massachusetts regulator are working with the credit union to resolve issues before they become serious. Indications are that the credit union is actively engaged in making satisfactory progress in that effort."
Fishlock noted that as a result of these changes, operating expenses declined during the first quarter, compared to the same period last year and operating income increased. He also said the credit union renegotiated vendor contracts as a cost cutting move.
But the credit union still faces serious difficulties.
Its net worth plummeted from 14.25% to 7.81% over the last year according to its March 2010 financial performance report. At year-end 2009, delinquencies hit 7.81%, but fell back to 4.74% as of March 2010. Return on assets dropped to negative 6.71%, but was positive 0.76 as of the first quarter.
The LUA charged Tremont officials with failing to prevent insiders from abusing their powers in the lending and operations areas, failing to provide for an effective system to mitigate or identify problem assets and prevent deterioration of the net worth of the credit union, and operating with deficient earnings. "If left unresolved, these deficiencies may jeopardize the financial condition and/or operations of the credit union," the LUA stated.
The NCUA issued only one LUA all of last year and none from 2006 through 2008. Tremont was the second credit union to reciev an LuA in two weeks, following the LUA issued against Kappa Alpha Psi FCU on April 16. LUAs can be viewed at www.ncua.gov.