ALEXANDRIA, Va. (7/26/10)--The National Credit Union Administration (NCUA), as conservator of Arrowhead Central CU, posted its corrected version Friday of the $876 million asset credit union's second quarter Call Report. NCUA says it showed a continued decline in Arrowhead Central's financial condition from loan portfolio losses. The call report corrects earlier errors by the San Bernardino, Calif.-based credit union's previous management, and reveals a loss of $1.4 million year to date due to loan loss expenses, NCUA said in a press release. Arrowhead Central’s net worth ratio declined to 3% on June 30, from the reported level of 3.36% on March 31. Under standards set forth in the Federal Credit Union Act, Arrowhead Central is "significantly undercapitalized" for a fourth consecutive quarter, NCUA said. Assets decreased about $67 million since March 31, and loans dropped about $40 million in the same time period. NCUA placed Arrowhead Central into conservatorship on June 25 due to its declining financial condition, NCUA said. The credit union has continued serving its members as NCUA has worked to stabilize the institution's operations. Arrowhead Central previously "posted inaccurate information that distorted the true financial condition of the institution," said NCUA in the press release. The agency noted the loan loss reserve account was not adequately funded in the first quarter 2010 financial report. The corrected statement indicates Arrowhead Central’s loan loss reserve increased from $49.5 million on March 31, to nearly $53.6 million as of June 30. The related loss reserve expense has risen from more than $6 million on March 31 to nearly $19 million year-to-date, NCUA explained. The $12 million increase in expense is the result of funding the loan loss reserve account in accordance with methodology approved by the credit union’s external CPA review in October 2009. In March, prior management did not comply with the accounting method, thus understating its expenses and misstating income. The corrected funding has eliminated all earnings incorrectly previously shown by the former management team, revealing the $1.4 million loss year-to-date, NCUA said. NCUA reviewed Arrowhead Central's records, the agency determined the credit union's former management team did not charge off loan losses in a timely or consistent manner, and that historical ratios did not consistently reflect actual losses experienced. The team also chose to revise loan loss reserve methodology less than six months after it was reviewed by an external auditor, which reduced the funds needed for known and potential losses. "Had Arrowhead Central's management acted in accordance with approved and validated methodology, losses would have increased and earnings would not have shown a positive trend as of March 31," NCUA said. Since mid-2009, NCUA has required Arrowhead Central to submit an acceptable net worth restoration plan. The credit union's management team tried four times and was "unable to submit a plan based on reasonable assumptions and showed positive earnings that would restore net worth, despite specific guidance from both federal and state regulators about deficiencies in their submitted plans." NCUA said it and the state regulator, the California Department of Financial Institutions provided instructions, information and guidance but the credit union's team did not properly identify and monitor loan modifications to ensure they complied with generally accepted accounting principles (GAAP) and provided relief or assistance to the members." The financial results are available on NCUA's website, Financial Performance Report section. Use the resource link and insert the credit union’s name in the field, then click on "Financial Report" and follow the instructions.