San Francisco FCU Loses $33 Million in Third Quarter

San Francisco Federal Credit Union lost $33.5 million in the three months that ended Sept. 30 — by far the largest loss among the nation’s 5,244 credit  unions in the third quarter.

The net loss at San Francisco FCU ($1.2 billion in assets, 49,068 members as of Sept. 30) came from a mammoth $24.7 million loan loss provision taken during the quarter. That was on top of a mere $820,962 in loss provisions in the first six months of 2020, and compared with no provision in 2019’s third quarter.

It also took an $8.4 million hit as an “other non-operating expense” on the catch-all Line 20 of income statements in NCUA Call Reports.

The loss at the nation’s 306th largest credit union represented an annualized return on average assets of -10.87%, compared with net income of $3 million (1.11% ROA) in 2019’s third quarter.

Its net worth ratio was 7.62% on Sept. 30 — above the 7% statutory threshold of 7% for “well-capitalized” credit unions, but down from 10.38% in June and 11.19% a year earlier.

The credit union was asked for comment on Monday about the causes for the loss, and whether it was related to its taxi medallion loans.

President/CEO Jonathan Oliver said in a lawsuit filed in March 2018 that San Francisco FCU held $50 million in taxi medallion loans and an additional $35 million in loans sold as participations.

At the time, the credit union had filed suit against the city for allegedly failing to provide price supports for $63 million in taxi medallions issued to drivers after 2010. Like the rest of the country, Uber and Lyft entered as unregulated players in the market, and taxi drivers saw their income plummet and with it, the value and liquidity of their medallions.

At the time the credit union had foreclosed on nearly 100 taxi medallion loans that it valued at about $25 million.

“We had assurances that the city was going to back us up on these medallions and that is why we offered these medallions loans at 3% to 5%,” Oliver said in the 2018 filings.

Taxi medallion loans are included in NCUA reports under commercial loans not backed by real estate. San Francisco FCU’s holdings of those loans stood at $50.8 million in December 2017. That portfolio has been declining, and took a $1.2 million charge-off during the third quarter.

It started the year with $39.2 million in commercial loans not backed by real estate, but the holdings fell to $37.8 million by June 30 and $35.3 million by Sept. 30.

The value of its participations sold stood at $20.8 million as of Sept. 30, down from $31.6 million in December 2017.

As of Sept. 30, the credit union loans delinquent at least 60 days included 144 commercial loans not backed by real estate valued at $13.7 million, including 44 loans worth $4.7 million that were 180-359 days late.

As of June 30, its delinquencies of those commercial loans stood at 117 loans worth $11.8 million, including 29 loans worth $2.8 million that were 180-359 days late.

Until 2018, two of the largest holders of taxi medallion loans were Melrose Credit Union and LOMTO Federal Credit Union. The NCUA liquidated both New York credit unions in the third quarter of 2018, keeping their $960.7 million in commercial loans not backed by real estate. Melrose officials said in court documents in 2015 that all of its commercial loans not backed by real estate were backed by taxi medallions.

The NCUA’s Share Insurance Fund reserves took a $744.9 million hit in 2018’s third quarter, reflecting the failures of Melrose ($1.1 billion in assets before liquidation), LOMTO ($156.2 million) and four small credit unions with combined assets of about $107 million.

Teachers Federal Credit Union of Hauppauge, N.Y., acquired the rest of the assets of Melrose and LOMTO.

In January 2019, the NCUA approved an emergency merger for Progressive Credit Union of New York ($382.8 million in assets, 2,897 members as of Sept. 30, 2018), which had lost more than $130 million over the previous two years, largely because of its high concentration of taxi medallion loans.

Progressive was acquired by PenFed Credit Union of Tysons, Va., the nation’s third-largest credit union ($25.9 billion in assets, two million members as of Sept. 30, 2020). PenFed chose to keep the taxi loans.

James Schenck, president/CEO of PenFed, said Progressive’s taxi loans had been worth about $290 million before the merger and accounted for the entirety of Progressive’s portfolio of commercial loans not backed by real estate. He said PenFed “onboarded” the loans at fair value, which required a $212 million write-down.

After the emergency merger, PenFed’s portfolio of commercial loans not backed by real estate went from $578,112 on Dec. 31, 2018 to $99,177,365 on March 31, 2019. As of Sept. 30 this year, those loans stood at $101.5 million, down 17.8% from a year earlier.