NCUA's Office of the Inspector General (IG) released a report on the failure of Eastern New York Federal Credit Union. As of September 2012, the estimated loss to the NCUSIF was approximately $3.6 million.
The IG report concluded that Board of Directors (Board) gave the credit union's CEO broad authority to conduct various and significant transactions with very little oversight. As a result, these business ventures, including complex credit union service organization arrangements, unsound business loan originations, and excessive holdings of fixed assets, proved to be catastropic for the credit union.
According to the report, the credit union's business loan portfolio grew rapidly from one loan of $200,000 in 2007 to 26 loans totaling approximately $3.5 million by the end of 2009. However, 17 loans totaling $3.1 million or 88 percent of the total dollar value originated were made to two separate, but related, families creating an excessive concentration risk.
The report noted that the business loans were poorly underwritten and had almost no credit analysis. In addition, the CEO and the Chairman of the Board, who approved all these loans, did not meet the regulatory requirements related to business lending experience. Also, in many cases, loan approval documentation was not received until well after loan proceeds were dispersed.
NCUA’s Asset Management and Assistance Center estimated impairment losses from Eastern New York's business lending operations to be $2.4 million.
Read the Material Loss Review.
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