Creighton FCU’s $13 Million Loss Unexplained

The few big losses reported by credit unions in the second quarter were generated for reasons that varied from effects of an impending merger to holding low-interest mortgages in a high-interest environment.

And then there is the continuing mystery of the quarter’s biggest loss: Creighton Federal Credit Union of Omaha, Neb. ($66.9 million in assets, 9,829 members on June 30), which lost $13.5 million in the three months ending June 30, following a loss of $102,614 in the first quarter and no annual losses in at least the past five years.

Yes, Creighton’s delinquency rate was high: 4.2% on June 30, up from 2.8% on March 31. But it had no extraordinary write-offs in the first half: They rose from $40,545 in the first quarter to $59,811 in the second quarter (a net charge-off rate of 0.55%).

Yes, like a lot of credit unions, its net interest margin fell. But the drop was only $534,437 from the first quarter to the second quarter, or by $408,238 from last year’s second quarter.

The rock that sank it is known only as a $12.5 million “Miscellaneous Non-Interest Expense” in the second quarter that took its net worth from $6.1 million for a “well capitalized” 9.08% net worth ratio on March 31 to -$7.3 million for a “Critically Undercapitalized”-10.95 ratio by June 30.

Chip Filson, a longtime credit union observer and former director of the NCUA’s Office of Programs from 1981 to 1984, said in an Aug. 14 blog post that the large one-time charge “suggests a newly discovered financial hole due to misappropriation or other sudden loss event.”

“One does not have to be a financial analyst or even a credit union member to know there is something dreadfully wrong for a deterioration of almost 20% of a credit unions assets in just 90 days,” Filson wrote in his “Just a Member” blog.

Following the loss, the NCUA allowed Creighton to be acquired by Cobalt Federal Credit Union of Papillion, Neb., just south of Omaha ($1.3 billion in assets, 114,479 members).

The Aug. 1 news release said the merger “coincides with the July 31 retirement” of Thomas C. Kjar, who served as president/CEO of Creighton for more than 32 years.

“Under his leadership, Creighton Federal Credit Union has grown significantly and achieved many milestones. We are grateful for his dedicated service and wish him all the best in his retirement,” it said.

CU Times reporter Peter Strozniak first reported the merger and the loss Aug. 7, noting Creighton had been growing and generating annual net income from 2019 through 2023.

CU Times reported NCUA waived the membership vote for the merger, which it is allowed to do if the target credit union is in danger of insolvency and the merger would reduce the risk of loss to the National Credit Union Share Insurance Fund (NCUIF).

In Filson’s blog, he criticized the NCUA for not announcing the merger and explaining what triggered it.

“How can such a catastrophic loss occur under the agency’s supervisory nose,’ he wrote. “Silence undermines confidence in the NCUA’s examination and supervision competency.”

In response to questions from CU Times, an NCUA spokesman responded: “A former agency executive should know that mergers are supervisory matters, and that the NCUA does not comment on them. Any loss to the Share Insurance Fund is publicly available information and reported quarterly. In this instance, the merger involved no funding from the Share Insurance Fund.”