PenFed Acquires Progressive

PenFed announced Wednesday that it has acquired Progressive Credit Union, a New York City-based credit union that has suffered heavy losses because of its taxi medallion loans.

The NCUA approved the emergency merger, which became effective Jan. 1. Progressive ($382.8 million in assets, 2,897 members as of Sept. 30, 2018) lost $69.5 million in the 12 months ending Sept. 30, up from a $65.5 million loss for the preceding 12 months.

PenFed ($24.1 billion in assets, 1.7 million members as of Sept. 30) chose to keep all of Progressive’s loans including its taxi medallion loans. James Schenck, president/CEO of PenFed, valued the taxi medallion loans at about $290 million, saying they accounted for essentially all of Progressive’s commercial loans not backed by real estate, a portfolio that stood at $285.8 million at the end of the third quarter.

The taxi medallion-backed loans were also the main force behind Progressive’s overall poor loan performance. As of Sept. 30, 24.8% of its total loans were at least 60 days delinquent, compared with delinquency rates of 0.67% for all federally-insured credit unions. Progressive’s net charge-off rate was 10.1%, compared with 0.57% nationally.

PenFed’s delinquency rate was 0.65% at Sept. 30, and its net charge-off rate was 0.65%.

Schenck said talks for the merger began at the end of the third quarter. PenFed, the nation’s second-largest credit union, began extensive due diligence and realized it had the size to absorb losses and give the taxi drivers time to recover and repay their loans. While medallion prices had fallen steeply in recent years, Schenck said the value of the collateral seems to be stabilizing.

Liquidating the loans would have yielded only pennies on the dollar, he said. “We believe we can maximize their value.”

Despite its losses and generous allowance for loan losses, Progressive remained well capitalized with a net worth ratio of 11.64% as of Sept. 30.

Schenck said Progressive had been serving in the spirit of the credit union movement by helping hard-working taxi drivers finance their businesses.

“This is an example of concentration risk,” Schenck said. “Unfortunately, they had all their risk in one basket.”

Robert A. Familant, who had served as Progressive’s treasurer/CEO, continues with PenFed, and is in charge of running the New York operations.

“PenFed’s strong balance sheet made it the leading choice to provide Progressive the liquidity and capital needed to provide stability and support to our members. PenFed is one of the nation’s strongest credit unions,” Familant wrote in a letter to Progressive members.

New York City began issuing taxi medallions in the 1930s for drivers to display in their cabs to show they were complying with new regulations designed to help prevent abuse and help drivers earn a living wage. The medallions were limited in number, so holders began using them as collateral for loans. However, the rise of Uber, Lyft and other ride-sharing services caused their value to drop from a high of $1.3 million in 2011 to $181,000 in June 2018.

“Progressive is facing the same challenges that continue to pressure all taxi medallion credit unions in light of the rise of Uber and other ride-sharing platforms,” Familant wrote. “Although Progressive has plenty of capital to ensure its safety and soundness in the short term, the board of directors of Progressive decided that a merger is the best strategic option for Progressive.”

The merger will give PenFed a presence in the New York metro area, home to 250,000 PenFed members before the merger, and one million veterans and their families, who are eligible to join. Also, Familant said PenFed agreed to keep all of Progressive’s employees, which numbered 37 as of Sept. 30.

Progressive was stronger than two other New York City-area credit unions that had the leading positions in taxi medallion loans among credit unions: LOMTO Federal Credit Union and Melrose Credit Union. The NCUA liquidated both LOMTO and Melrose last summer, keeping their $960.7 million in commercial loans not backed by real estate as of June 30. Melrose officials had said in court documents in 2015 that all of its commercial loans not backed by real estate were backed by taxi medallions.

Teachers Federal Credit Union on Long Island, N.Y., acquired the remaining members and assets of Melrose and LOMTO. Teachers FCU said the loans left with the NCUA were commercial loans not backed by real estate.

NCUA officials in October declined a Freedom of Information Act request by CU Times requesting an accounting of those loans. NCUA officials said accounting for the loans is exempted from disclosure under the FOIA, and a disclosure would be at the discretion of the agency.

NCUA officials said Nov. 15 that its Share Insurance Fund reserves had dropped $744.9 million in the third quarter, reflecting failures of six credit unions earlier in 2018. NCUA officials declined to provide further explanation.