Medallion Mess Leads to Mergers

The NCUA’s approval of 29 mergers in January and February included the consolidation of an Arizona credit union that lost millions in taxi medallion participation loans, which ironically enabled the credit union to survive the Great Recession.

The $197 million Altier Credit Union of Tempe posted a net income loss of $8.9 million at the end of last year and a net income loss of $824,590 in December 2016, according to NCUA financial performance reports. Altier ended last year with a net worth of 2.47% and an ROA of -4.71%.

David Skilton, who was appointed president/CEO of Altier in September 2016, noted in the credit union’s 2016 annual report that the cooperative strove to maintain a well-diversified loan portfolio, which included participation loans.

“This common and viable industry practice of investing surplus funds into loan participations helped the credit union maintain strong revenue during the Great Recession,” Skilton wrote. “Surplus loans made it possible for Altier Credit Union to participate in selected commercial loan activity with credit unions on the east coast from mid-2009 until February 2014. Some of these loans had balloon maturities due last year and unfortunately, some have resulted in charge-offs and modifications.”

To offset those losses, the credit union placed $1.8 million in its allowance for loan and lease losses account for what Skilton described as “collateral challenged loans.”

Other credit unions that had taxi medallion participation loans on their portfolios have been forced to merge as well.

For example, the $118 million Northwell Health Federal Credit Union, which served the Empire State’s largest health care system and the state’s largest private employer, was forced to merge because it lost more than $2 million in several taxi medallion participation loans. Last May, the credit union consolidated with New York’s largest cooperative, the $6.8 billion Bethpage Federal Credit Union.

Credit unions that manage large taxi medallion loan portfolios have been hit hard with massive losses.

The $1.3 billion Melrose Credit Union, the $185 million LOMTO Federal Credit Union and the $472 million Progressive Credit Union collectively lost $423.3 million in 2017 – more than double their $169.2 million in net losses in 2016, according to a CU Times analysis of NCUA financial performance data.

The Briarwood, N.Y.-based Melrose and Woodside, N.Y.-based LOMTO were placed into conservatorship last year. Progressive in New York City is still operating independently.

“There are a few other credit unions with varying concentrations of medallion loans on their books, and others with participations,” NCUA spokesperson John Fairbanks said.

The primary reason for these massive losses is that the market values of tax medallions, held as collateral, have substantially declined over the last four years from fierce competitive pressures of app-based ridesharing services such as Uber, Lyft, Juno and Via.

In 2014, some New York medallions were sold for about $1 million. According to medallion sales data from the New York City Taxi and Limousine Commission (TLC), medallion prices in January have ranged from one that was auctioned for $120,000 to three medallions that each sold for $250,000. In February, at least nine medallions sold for as much as $375,000 each, while two medallions sold for $400,000 each, and one medallion was auctioned for $125,000, according to the TLC.

Because of Altier’s poor financial condition, the NCUA approved its merger with the $9.2 billion America First Credit Union in Riverdale, Utah in January. In addition to expanding its branch network from 120 to 125, America First also picked up more than 19,000 members from the consolidation that was finalized March 1.

The NCUA gave two other credit unions the green light to merge because of their poor financial condition.

In addition to declining loan revenue, the $33 million Arkansas Employees Federal Credit Union in Little Rock posted a net income loss of $350,000 last year. It was approved to merge into the $715 million Orion Federal Credit Union in Memphis, Tenn.

Even though the $13.5 million Beacon Mutual Federal Credit Union in Lima, Ohio, posted no net income losses in four out of the last five years and maintained a net worth of 8%, the NCUA deemed it in poor financial condition. Beacon Mutual was merged into the $30 million Topmark Federal Credit Union, also based in Lima.

Outside of the Altier, which was the largest credit union merged in January, the second largest was the $63 million Taconnet Federal Credit Union in Winslow, Maine, which was consolidated into the $94 million New Dimensions Federal Credit Union in Waterville for expanded services, the NCUA reported.

During the first month of the year, the federal agency’s 20 approved consolidations were slightly down from the 21 mergers approved by the NCUA in January 2017.

Seventeen credit union mergers in January 2018 were approved for expanded services.

In February, the NCUA approved only nine mergers, which are down considerably from the 15 mergers approved by the federal agency in February 2017.

In the second month of the year, the NCUA approved the $6.2 million N.G.H. Credit Union to consolidate because of its poor financial condition. The Nashville, Tenn.-based credit union showed net income losses in four out of the last five years. At the end of 2017, N.G.H posted a net income loss of more than $136,000. In addition, its net worth declined from 13% in 2013 to 5.75% in 2017, according to NCUA financial performance reports.

N.G.H was approved to merge with the $343 million Cornerstone Financial Credit Union in Nashville.

After showing lack of growth over the last five years, the NCUA approved the $7.2 million Kilowatt Community Credit Union to merge. According to the federal agency’s financial performance reports, the credit union showed declines in its net worth, loans and membership.

The Jefferson City, Mo.-based credit union was approved to consolidate into the $323 million Missouri Credit Union in Columbia, Mo.

The remaining seven credit unions, all well under $40 million in assets, received approval to consolidate for expanded services, according to the NCUA.