Liquidated Credit Union Caused a $6.3 Million Loss to Share Insurance Fund

NCUA official seal. (Source: NCUA)

The Paducah Teachers Federal Credit Union that was liquidated in September by the NCUA caused an estimated loss of $6.3 million to the Share Insurance Fund, according to the Office of Inspector General’s Semiannual Report to Congress

The credit union, formerly based in Paducah, Ky., became insolvent because of a high-risk loan portfolio, insufficient operational staff and alleged fraud, according to the OIG’s report released last month.

The $274 million C-Plant Federal Credit Union, also of Paducah, purchased some of PTFCU’s assets and assumed most of PTFCU’s share accounts, according to the NCUA. When PTFCU was liquidated on Sept. 30, it posted $9.1 million in assets, $9.6 million in loans, and served 1,151 members.

PTFCU recorded a net income loss of $2,326,848, at the end of the third quarter.

The credit union’s delinquent loans and net charge offs to average loans ratio was 16.61% in the third quarter, 21.04% in the second quarter and 14.80% in the first quarter, according to NCUA financial performance reports. The peer average for delinquent loans and net charge offs to average loans is about 1%.

By the end of the third quarter, PTFCU posted total charge offs of $1,125,675 and recoveries of $5,921, according to the credit union’s Call Report. The Call Report also showed there were 16 loans outstanding totaling $308,794 to senior executive staff and credit union officials.

Although the credit union recorded a meager loss of nearly $8,000 at the end of 2021, PTFCU posted no losses and mostly produced five-figure and six-figure gains from 2012 to 2020, according to NCUA financial performance reports.

The OIG report also noted that the $4.5 million MSBA Employees Federal Credit Union in Garden City, N.Y., was liquidated on July 11 and caused a $439,089 loss to the Share Insurance Fund.

MSBA was merged with cash assistance into the $82.6 million Consumer Federal Credit Consumers Federal Credit Union in Brooklyn, N.Y., according to the report.

MSBA, which served 883 members, posted a critically undercapitalized net worth of -4.05% at the end of the second quarter. The OIG reported the credit union had no reasonable expectation of solvency because of poor recordkeeping and poor asset quality.