DENVER – Faulty construction and indirect loans, a portion subprime, apparently were major factors in the April 25 regulatory takeover of the $296 million New Horizons Community Credit Union of Denver, the state's 10th largest, CU insiders reported last week. The sudden decision by NCUA and state regulators to form a conservatorship, dismiss senior management and a nine-member board was greeted with some angst in a state hard hit by economic troubles, particularly in the housing and high-tech market. “You know we now have the highest foreclosure rate in the nation,” said one CEO declining to be quoted. “And the ripple effect has forced a lot of small businesses to close up shop with employees moving out of state.” NCUA and state regulators moved in on New Horizons by ousting its president/CEO Tom Gressman, and nine directors who according to a statement by the Colorado Department of Regulatory Agencies had “resigned,” but were cooperating. Colorado CU sources said such an action might be a precursor to a forthcoming merger, but an initial sampling of the state's largest CUs early last week showed no early feelers out. New Horizons, with 26,000 members and chartered in 1934 serving employees of Gates Rubber Co., had ROA of 0.32 at year-end, below the industry average of 0.90 and at the same time had experienced a high ratio of delinquencies.

In a press release distributed to Denver media, Chris Myklebust, the state's top CU regulator who only took over the commissioner's job just three weeks ago, said the New Horizons takeover was taken “in order to protect and preserve the interests of the membership” assuring members branches will remain open and public funds are safe.

Citing the state's strict confidentiality statutes, Myklebust, a former Denver securities adviser, declined to spell out reasons for the takeover but identified an interim NCUA management team headed by Kenneth Chapman, CEO, and an assistant, Andrew Bauman, whose job would be to restore financial health.

It was unclear when the troubles at New Horizons began but CEOs, declining to be quoted, said they heard about problems with construction loans several months ago.

“We'd been invited to take part in some participations on business loans and we turned them down,” said one CU chairman.

On its Web site, New Horizons noted that last year “membership was expanded” to include 1,000 employees of Centrix Financial, the Denver-based subprime auto lender, which in 2005, had its own troubles with NCUA and its Risk Alert on third-party loans.

The NCUA in Washington also declined to discuss the New Horizons takeover stating only an “experienced team” had been recruited to clean up the portfolio. “We're getting a good start with positive reaction from members and the staff is cooperating very well,” said Bauman who acknowledged that he and Chapman do get called in to help in CU restoration cases. However, he declined to detail his own background except to say he and Chapman “are from Ohio” and were brought in by NCUA Regional Director Melinda Love, based in Tempe, Ariz. “The rest is not important,” he said. A check of the New Horizons balance sheet shows its net worth at 8.80%, which is under the 11% industry average, and that in 2005, it paid off $13 million in borrowings, an unusual step, observed one analyst. In its press release, Myklebust said the CU agency “had initiated action” against the management of New Horizons “pursuant to Colorado law.” A spokesman for Myklebust acknowledged that in taking on New Horizons the Colorado commissioner was undergoing “baptism by fire” having started in the regulatory job April 11. Myklebust previously served as an investment adviser and an asset transition specialist for J. Kelly and Associates. Prior to that, he was a registered investment adviser for Blueprint Financial Services, purchasing and selling investment products for client accounts.

Myklebust took over the commissioner's job long held by David L. Paul, who retired last October. The Financial Services Division now regulates 77 state chartered CUs, four S&Ls, six life care institutions and 12 public depositories.

-jrubenscut@aol.com

Instant Insights /

New Horizons Community CU Taken Over by Regulators; Board and Management Ousted

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