Friday, November 4, 2016

Net Charge-Offs of Taxi Medallion Loans at Melrose CU Surge in the Q3

According to Call Report data, net charge-offs at Melrose Credit Union (Briarwood, NY) were almost $191 million, as of September 2016. This is up from $22.7 million at the end of the second quarter, as the credit union wrote down defaulted taxi medallion loans.

Delinquent loans fell by approximately $14 million during the third quarter to $421.4 million. As of September 2016, 24.12 percent of its loans were 60 days or more past due. Delinquent loans as a percent of net worth were 290.45 percent.

The credit union's allowance loan and lease loss (ALLL) accounts plummeted from $270.5 million in the second quarter to $102.2 million in the third quarter.

The combination of higher net charge-offs and the failure to increase provisions for loan and lease losses between June 2016 and September 2016 contributed to the decline in the ALLL line item.

The decline in allowance for loan and lease losses resulted in the coverage ratio (ALLL divided by Delinquent Loans) dropping to 24.24 percent from 62.14 percent during the quarter.

This would indicate that Melrose is seriously under-reserved and will need to increase provisions to rebuild its allowance for loan and lease losses accounts. The anticipated increase in future provisions for loan and lease losses will negatively impact earnings and the credit union's net worth.

Melrose also reported that Troubled Debt Restructured (TDR) loans fell during the quarter from $358.8 million to $242.9 million. The vast majority of TDR loans ($235 million) were in non-accrual status. As of September 2016, TDR loans represented 13.90 percent of loans and 167.39 percent of net worth.

The credit union reported that it was undercapitalized as of September 2016. The credit union had a net worth ratio of 7.52 percent; but needed a risk based net worth requirement of 9.14 percent.

The credit union has a combined buffer of net worth plus ALLL to absorb expected and unexpected losses of almost $247.3 million.

Tomorrow I will report on LOMTO Federal Credit Union.


  1. How does a federally insured financial institution get to such concentrations in one loan type?
    Do they have a regulator?
    What was that regulator focused on?

  2. How can this credit union possibly survive?
    Why isn't it taken over?

  3. Just a matter of time.



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