Friday, August 5, 2016

Melrose Sinks Under the Weight of Bad Taxi Medallion Loans

Melrose Credit Union (Briarwood, NY) continues to sink under the weight of bad taxi medallion loans.

The $1.9 billion credit union reported a mid-year loss of almost $57 million, as the credit union increased provisions for loan losses.

The credit union reported an increase of provisions for loan losses by $51.5 million during the second quarter to $62.8 million as of June 2016.

Due to the loss, the credit union's net worth ratio fell to 7.49 percent as of June 2016 -- down from 10.37 percent at the end of the first quarter of 2016. While its leverage ratio was above 7 percent, the credit union was classified as undercapitalized because its risk based net worth requirement was 9.89 percent as of June 2016.

The credit union reported a 17.4 percent increase in delinquent loans during the second quarter to $435.3 million. As of June, loans 60 days or more past due were 22.59 percent of total loans and 302.59 percent of net worth.

Melrose also reported that early delinquencies (30 to 59 days past due) were $67.1 million as of June 2016. This suggests more pain is to come.

Troubled Debt Restructured (TDR) loans fell by almost $18 million during the second quarter to $358.8 million. Almost all TDR loans were in non-accrual status. TDR loans were 18.62 percent of loans and 249.43 percent of net worth as of mid-year 2016.

Net charge-offs were $22.6 million as of June 2016.

Allowance for loan and lease losses (ALLL) rose by almost $29 million during the second quarter to $270.5 million as of June 2016. The coverage ratio (the ratio of ALLL to delinquent loans) was 62.14 percent.

Below is a table that highlights the key credit metrics for Melrose between June 2015 and June 2016. (click on image to enlarge).


  1. Why was this CU permitted to hold 70% of assets in one asset class?
    ASSet clASS= ASSessments.

  2. Dr. Leggett, what do you think are the chances of the credit union failing?

    1. Good question. Unlike other businesses, failures of banks and credit unions require actions by their regulators. What do you think?

    2. Perhaps the question should be why NCUA and NY State are leaving it open.

    3. Here is what I see. Their Q2 loan loss reserve plus capital is sitting at about 82% of all past dues (anything over 30 days). I don't know what the loss rate on past due loans is for that asset class. It would be interesting to see what recently made medallions are going for to estimate collateral value. They do have a war chest of reserves, but I don't know if it will be enough. If they have to add to reserves, then I am worried. Their profit before (excluding) provision for loan loss in Q2 was only $24k. Loan interest income fell by $4.5m and non-interest expense was up by $1.0m. Some of the NIE will go away eventually, but restoring the lost loan interest income will be a real challenge. Something will have to give here ... might have to consider shrinking credit union and related expense in short term to get by in order to survive. Just don't know how quickly and efficiently they can unwind the balance sheet and operating costs to a sustainable level going forward.

    4. "...then, I'm worried".
      Excuse the tart reply but, who cares if you're worried.
      If you knew what you were talking about, you'd have been "worried" 18 months ago.
      The only question on this is, how much will credit unions have to pay for yet another regulator "oversight".

  3. Stick a fork in Melrose. They're done.



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