ALEXANDRIA, Va. The 2012 collapse of Chetco FCU may have been averted if NCUA examiners had paid more attention to the rising problems of the one-time $375 million credit union’s member business loan portfolio, a report issued this morning by NCUA’s Office of the Inspector General concludes.
The failure of Chetco, which will cost NCUA $76.5 million to resolve, came as the Harbor, Ore., credit union was granted numerous waivers from NCUA’s MBL limits allowing it to, among other things, exceed the federally mandated 12.25% of assets cap on MBLs. Chetco was also granted exceptions to NCUA’s loan-to-value ratios on construction and development loans; maximum percentage of loans to a single borrower and amount of construction and development loans, the new report found. The MBL problems contributed to Chetco’s $17 million loss for 2010 and a whopping $34.6 million loss for 2011, the last full year for which its financials are available.
In April 2011, Chetco’s board asked its CEO to resign because of the credit union's growing losses. Chetco’s board sought approval for a replacement CEO, who NCUA initially denied based on a lack of demonstrated knowledge, skills, and abilities for a troubled credit union. NCUA eventually approved the replacement CEO on appeal by Chetco’s board. Soon after, NCUA denied the new CEO's spouse for Chetco’s vacant chief financial officer position. Ultimately, the Chetco Board hired the CEO’s spouse as a management consultant.
Among the IG’s findings are that NCUA did not devote enough resources to spotting the increasing MBL problems; that the scope if its exams were not broad enough; and that the examiner in charge had not completed his formal training. “Although we cannot conclude that further analysis would have prevented the Credit Union’s liquidation, we can reason that these observations might have served as a 'red flag' prompting examiners to expand the scope of the review of the MBL portfolio sooner,” wrote the IG.
The new report spotlighting another failure tied to business loans comes as credit unions continue to lobby Congress to increase the amount of MBLs they can make. Other large credit union failures in recent years tied to MBLs include Telesis Community CU, Eastern New York FCU and Eastern Financial Florida CU.
Chetco was taken over by NCUA and liquidated in December 2012, then its remnants were sold off in a rare two-way purchase and assumption deal, with its five Oregon branches and member accounts valued at $171.9 million purchased by Oregon’s Rogue FCU, and Chetco's California branch and accounts valued at $5.5 million purchased by California’s Coast Central CU.
Chetco was chartered in 1957 to serve surrounding Curry County in Oregon and Del Norte County in California. In January 1999, NCUA granted Chetco an exception to the MBL cap because the credit union had "a history of primarily making MBLs." In 2000, NCUA granted Chetco an expansion of its charter to include the area of Coos County, Oregon, and also granted Chetco a low-income credit union designation.
