NCUA examiners could have potentially reduced the $76.5 million hit the National Credit Union Share Insurance Fund took as a result of the failure of the $259 million Chetco Federal Credit Union, according to a material loss review report published by the regulator's Inspector General.

The Harbor, Ore.-based Chetco was placed into conservatorship in September 2011; the NCUA liquidated the institution on Dec. 31, 2012. Although the report published this week squarely placed the blame on Chetco's management and board, it also said examiners should have taken a more timely and aggressive approach regarding Chetco's risks in its member business lending portfolio. In 2008, member business loans grew to more than 600% of net worth, thanks to a series of MBL cap waivers the credit union had received due to its low-income status and history of business lending.

NCUA could have reduced NCUSIF losses had they better understood the complexity and magnitude of Chetco's MBL risk and expanded the credit union's supervision, the report said.

The NCUA's Region V office downgraded Chetco's CAMEL score to a composite rating of 3 after a September 2008 exam and resulting document of resolution that cited concerns about the credit union's MBL risk and loss allowances, the report said.

A second exam was conducted the follow month following a member complaint that identified management activities designed to mask a significantly delinquent loan.

“We believe that red flags were present, which may have indicated the existence of governance issues affecting the management of MBL credit risk,” the report said.

Upon liquidation, Chetco's assets were split between the $960 million Coast Central Credit Union of Eureka, Calif., and the $583 million Rogue FCU of Medford, Ore.

The complete report is available on the NCUA's website.