Tuesday, July 28, 2015

Q2 Update on Taxi Medallion Lender Melrose CU's Performance

As I reported earlier, four credit unions that specialize in financing taxi medallions are suing New York City Mayor Bill de Blasio, the city's Taxi and Limousine Commission and Attorney General Eric Schneiderman for allowing Uber to illegally pick up street-hail passengers. These for credit unions expressed concerns that the disruption from Uber could adversely impact their financial performance.

These four credit unions are in the process of releasing their financial data and over the next several days, I will provide a snapshot into each of the individual credit union's performance.

I will begin by looking at Melrose Credit Union, which is the largest of the New York taxi medallion credit unions with $2.1 billion in assets.

During the second quarter of 2015, Melrose saw a sharp increase in problem loans. Loans 60-days or more past due rose from $5.7 million at the end of the first quarter to $55.2 million as of June 2015 -- a percentage change of 863 percent. As of the end of the second quarter, the credit union reported that 2.76 percent of all loans were delinquent.

In addition, Melrose reported an increase in early delinquencies (loans 30 to 59 days past due). Early delinquencies rose from $92.3 million as of March 2015 to almost $149.1 million as of June 2015 suggesting that the credit union has a large pipeline of loans that should become delinquent in subsequent quarters. Compared to a year earlier, early delinquencies were $10.5 million.

Melrose reported that outstanding trouble debt restructurings continued to grow during the quarter to nearly $158.2 million (all of these loan are in nonaccrual status). Compared to last quarter and a year ago, outstanding trouble debt restructurings stood at almost $87.5 million and $0, respectively.

Due to the rise in problem loans, Melrose has increased its provisioning for loan and lease losses. During the second quarter, provisions increased by $11.6 million to $14.95 million. As a result, Melrose reported a second quarter loss of almost $4.6 million; but the credit union is reporting a slim year-to-date profit of $371 thousand.

As of June, the credit union has allowances for loan and lease losses (ALLL) of almost $39.9 million up from $28.3 million from the previous quarter. This indicates that the credit union has a coverage ratio (ALLL to Delinquent Loans) of 72.17 percent.

Also, Melrose Credit Union currently has $371.7 million in equity capital and its net worth ratio is 18.04 percent.

So, the combined cushion (capital plus ALLL) for the credit union to absorb expected and unexpected losses is slightly more than $411 million.

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