Friday, January 29, 2016

Medallion Loans Affect Performance of First Jersey and Quorum

It appears that taxi medallion loans are beginning to weigh on the performance of First Jersey Credit Union (Wayne, NJ) and Quorum Federal Credit Union (Purchase, NY), according to the credit unions' 4th quarter Call Report.

First Jersey Credit Union

First Jersey Credit Union reported a 2015 loss of almost $2.7 million. The 2015 loss arose from an increase in provision for loan losses. Loan loss provisions for 2015 was approximately $3.1 million -- up from almost $1.4 million for 2014.

As a result of the 2015 loss, the credit union's net worth ratio fell 125 basis points during the year to 8.54 percent at the end of 2015.

The credit union in its most recent Call Report had almost $3.9 million in delinquent loans or 4.5 percent of all loans are 60 days or more past due. However, business loans disproportionately represent delinquent loans.

First Jersey is reporting almost 18.5 million in business loans, of which $16,3 million are commercial loans. Presumably, most of the these commercial loans were for tax medallions.

At the end of 2015, $1.45 million in business loans were 60 days or more past due. This means 7.83 percent of all business loans were past due. In addition, early delinquencies (30 days to 59 days past due) were $3 million. In other words, almost a quarter of all business loans were at least 30 days past due.

First Jersey also wholly owns USA Medallion Funding LLC, a credit union service organization (CUSO) that specializes in medallion lending. At the end of 2015, First Jersey has slightly more than $2 million invested in the CUSO.

At the end of 2015, First Jersey is reporting loan loss reserves of slightly less than $3 million -- up from $1.1 million a year earlier. The credit union's net worth was almost $12.3 million at the end of 2015. This means the credit union has a combined buffer of almost $15.3 million for both expected and unexpected losses.

First Jersey management needs to disclose to its members its total exposure to taxi medallion loans, including the exposure of its wholly owned CUSO.

Quorum Federal Credit Union

Quorum Federal Credit Union reported at the end of 2014 the credit union held $78.4 million in taxi participation loans. Taxi participation loans are collateralized by taxi medallions, primarily in the cities of Philadelphia, New York, Boston, and Chicago. The Credit Union owns a percentage of each loan, primarily between 80 percent and 90 percent.

Quorum reported that delinquent loans increased from $8.3 million at the end of 2014 to $21 million at the end of 2015. At the end of 2015, 2.57 percent of its loans were 60 days or more past due compared to 1.13 percent a year earlier.

However, these delinquencies are disproportionately in participation loans. Total participation loans were $127.8 million and delinquent participation loans were $10.4 million. Presumably, the delinquent loans are connected with taxi participation loans; but we will need to wait for the credit union's 2015 Annual Report for more details as the Call Report lacks sufficient granularity.

According to the credit union's Financial Performance Report, the delinquency rate on participation loans went from 0 percent on December 2014 to 8.17 percent as of the end of 2015. In addition, there were $2 million in participation loans that were between 30 days and 59 days past due.

Quorum reported provisions for loan and lease losses of $7.9 million for 2015 -- this is up from $4.7 million for 2014. This increase in provisioning caused the credit union's loan loss reserves to increase from $6.1 million at the end of 2014 to $7.7 million at the end of 2015.

However, delinquent loans grew at a faster rate than allowances for loan losses. Quorum reported a coverage ratio (allowances for loan losses to delinquent loans) at the end of 2015 of 36.79 percent -- down from 73.57 percent a year earlier.

The credit union has total net worth of $72.2 million.

This indicates that Quorum has a combined buffer of almost $80 million to absorb anticipated and unanticipated losses.

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