IG Report on Beehive's Failure

NCUA's Office of the Inspector General released it material loss review on the failure of Beehive Credit Union. The NCUA estimates the loss to the National Credit Union Share Insurance Fund (NCUSIF) at $27.6 million, but the final cost will not be known until all assets are sold.

The IG concluded that Beehive Credit Union's management and Board of Directors' weak oversight and risk management policies, coupled with inaccurate financial reporting related to delinquencies and reserves, contributed directly to Beehive's failure.

For example, examiners in their 2008 examination report noted weak risk management practices related to underwriting, including unsigned tax returns, the lack of sufficient employment and income verification to demonstrate repayment ability, inadequate lot loan documentation, and unsupported property valuations.

The report cited that management did not effectively plan, manage, or control liquidity risk. Specifically, management allowed real estate concentrations to rise to over 66 percent of total loans, with most loans at fixed rates. Management also allowed high-cost nonmember deposits to rise to 18 percent of total deposits.

The IG report noted that brokered loans were the main source of Beehive's construction and lot loans as of September 2008. The report also states that a growing percentage of the real estate loans were Construction Take Back loans , which were inherently high-risk, because it provided funding primarily to members who could not obtain permanent outside financing after the construction phase of the project was completed.

In addition, the IG wrote that the Utah and NCUA examiners could have mitigated the loss to the NCUSIF had they performed timelier supervisory contacts and not allowed a 32-month gap in supervision to occur. The IG believed this supervisory lapse may have prevented examiners from detecting the deficiencies and curtailing the risky lending practices that eventually led to Beehive's insolvency.

Read the report.