Two Nevada CU Failures To Cost NCUSIF $42 Million

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LAS VEGAS – Two Nevada credit union failures taken over last year by out of state credit union giants will cost NCUA and the National CU Share Insurance Fund as much as $42 million in losses, the federal regulator reported this morning.

The causes of the failures of Clearstar Financial CU, a one-time $175 million credit union based in Reno, and of Ensign FCU, a one-time $135 million Henderson-based credit union, can be traced to poor management and lax examiner oversight in this once over-heated market, the Inspector General of NCUA reported in separate Material Loss Reviews. The two are among the biggest credit union failures in recent years.

The failure of Clearstar, the former Reno Teachers FCU which was shuttered in September 2009 then acquired by Michigan’s United FCU, was attributed to over reliance on subprime auto loans generated through the credit union’s indirect loan program. The failure is projected to cost the NCUSIF at least $12.2 million.

The failure of Ensign, the credit union for the Mormon Church in three Nevada counties that was closed in November 2009 then assigned to EDS CU (now InTouch CU) of Texas, was attributed to over reliance on real estate loans that plunged in value with the state’s plummeting economy. Growing losses on Ensign’s loans were exacerbated in January 2009 when a single member, a Las Vegas investment company known as Provident Trust Group, withdrew its entire $12 million deposit that exceeded all of its net worth, requiring NCUA to provide the credit union with an emergency $12.5 million loan. The losses related to the failure of Ensign are projected to be some $30 million, according to NCUA’s Inspector General.

The two credit unions were among four major credit union failures in Nevada in the fall of 2009, including two in Las Vegas: Cumorah CU, a one-time $210 million institution that was acquired by Credit Union One of Illinois, and Community One FCU, a one-time $180 million credit union acquired by Utah’s America First CU.

Growing losses on natural person credit unions prompted NCUA earlier this month to charge credit unions a 12.4 basis points, or $933 million premium, in order to replenish falling reserves for the NCUSIF. NCUA said it expects to charge additional premiums over the next few years as losses continue to mount among natural person credit unions.

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