Taxi Medallion Losses Take Out-Sized Bite

Credit unions holding commercial loans secured by taxi medallions or other non-real estate assets continue to have an outsized impact on the movement.

Among the 5,646 federally insured credit unions in March, 1,260 carried non-agricultural commercial loans not backed by real estate. On average, those loans accounted for less than 1% of all credit union loans.

However, a CU Times analysis of NCUA data shows losses among 10 credit unions with these commercial loans accounted for nearly three quarters of losses in the first quarter.

Most credit unions had net income in the first quarter. Among the 933 credit unions with net losses, those ten accounted for 76% of the losses even though they accounted for a mere 0.4% of all credit union loans.

Altogether, the ten generated $124 million in losses in the three months that ended March 31, worsening from a $36 million loss in 2017′s first quarter.

Melrose Credit Union of Briarwood, N.Y., continues to be far and away the largest source of problem loans in the category. The Queens credit union leads the nation’s credit unions, holding $952.6 million in taxi medallion loans as of March 31.

Melrose lost $111.2 million in the first quarter after losing $38.2 million a year ago. For all of 2017, it lost $290.2 million, diving deeper from a $98.7 million loss in 2016.

According to The New York Times, one of Melrose’s taxi medallion borrowers is Michael D. Cohen, President Donald Trump’s former personal lawyer. A May 5 article said Cohen amassed millions of dollars in debt borrowing a half dozen banks and credit unions, including Melrose.

Melrose and its Queens neighbor, LOMTO Federal Credit Union of Woodside, N.Y. ($170.3 million, 2,398 members), were placed into NCUA conservatorship last year. They are the only two on the list with the NCUA’s “critically undercapitalized” designation, which applies to credit unions with net worth ratios under 2%. The ratio was -24.8% for Melrose and -24.1% for LOMTO.

LOMTO lost $5.2 million in the first quarter after generating net income of $462,019 a year ago.

The next two largest losses came from Quorum Federal Credit Union of Purchase, N.Y. ($867.4 million, 87,044 members) and First Financial Federal Credit Union of Freehold, N.J. ($188.8 million, 19,887 members).

Quorum’s first quarter loss was $2.7 million, compared with a $1.9 million gain a year ago. It remained well capitalized with a 7.4% net worth ratio.

First Financial lost $1.7 million in the first quarter, compared with a $183,389 gain a year earlier. First Financial fell into the undercapitalized category in the first quarter with a net worth ratio of 5.1%, down from 6.1% on Dec. 31, 2017, and 6.9% on March 31, 2017. No others were below 6%.

The Top 10 represent 0.3% of all credit union assets, but hold 24% of all non-agricultural commercial loans not backed by real estate—including both member and non-member loans. For these credit unions, this type of loan accounted for 42% of total loans. Among the other 1,250 credit unions that have at least some of these loans, their average exposure is a mere 0.5%.

The ten share these characteristics measuring exposure and loan performance:

• At least 5% of total loans are commercial loans not backed by real estate. Again, this definition excludes agricultural loans and includes non-member loans. The highest exposures were LOMTO (95%) and Melrose (69%).
• Also greater than 5% was either the net charge off rate or the 60-day-or-more delinquency rate for these types of loans. For example, LOMTO had no charge offs, but its delinquency rate was 13.7%. Melrose had a relatively low 5.5% charge-off rate, but its delinquency rate was 47%.
• Each had a net loss for the first quarter.

This class of loans had a 32.3% delinquency rate among the 10 worst performers and a 3.7% delinquency rate among the 1,250 other credit unions holding them as of March 31. The net charge-off rate was 4.4% for the 10, but only 0.3% for the others.

Despite its high exposure to taxi medallion loans, Progressive Credit Union of New York ($468.1 million, 3,075 members) dropped off the list because it generated a $3.6 million profit, a huge improvement from its $25.6 million loss for 2017′s first quarter. For the full 12 months, it lost $81.9 million in 2017 and $52.1 million in 2016.

Progressive held $324.7 million in taxi medallions and other loans in the category as of March 31—the second-highest amount after Melrose and accounting for 75% of Progressive’s total loans. While its net charge-off rate was 2.2%, its delinquency rate was 10%.