Friday, February 17, 2017

Additional Thoughts on Melrose

While I have commented on Melrose Credit Union's solvency, I have not focused enough attention on Melrose's liquidity position.

During the fourth quarter, Melrose, which is in conservatorship, had a deposit outflow of $102 million, as deposits fell from almost $1.716 billion to approximately $1.614 billion.

The credit union has $737.1 million in deposits that mature in less than one year.

In addition, it reported uninsured deposits of almost $41 million. These uninsured deposits pose a flight risk.

On the other hand, Melrose Credit union had $58.6 million in cash at the end of 2016. Its cash on hand fell by almost $124 million during the quarter

Cash and short-term investments were 3.92 percent of assets at the end of 2016. This was down from 9.66 percent on September 30, 2016; but higher than the 1.50 percent at the end of 2015.

The credit union reported uncommitted lines of credit of $175.7 million. This is down from $249.3 million from a year earlier. However, I am not sure that these lines of credit will be available.

Also, Melrose should have established a contingent emergency borrowing authority with either the Central Liquidity Facility (CLF) or the Federal Reserve.

The National Credit Union Administration does not comment on whether a credit union is a member of the CLF.

Furthermore, the conservatorship of Melrose may have closed its access the Federal Reserve's Discount Window.

Moreover, Melrose as of the end of 2016 has borrowed $55,643,796 from a Federal Home Loan Bank (FHLB). These advances from a FHLB are secured with assets and over-collateralized.

If Melrose is liquidated by NCUA, these advances from a FHLB would increase the size of the loss to the National Credit Union Share Insurance Fund, as FHLBs have super lien priority. This means that FHLBs claims come before the NCUSIF.


  1. Another reckless article I see. You really don't have any hard facts on the credit union's access to liquidity yet you are putting fear in the minds of members that have shares in the credit union. If there is a run on shares it could be due in part to your reckless reporting. There are several points in your article that I know for a fact are misleading and incorrect. Perhaps your banking history has clouded your perspective on credit unions. If readers of this article have questions, I truly hope they reach out to the credit union or to the number NCUA provides on Melrose's website. I know they would feel reassured once they got the facts.

    1. "Several points ... that are misleading".
      Name them.

    2. You are correct; very sloppy reporting indeed.

    3. This is one of the few accurate sources of reporting on the taxi lending situation. Once again you are shooting the messenger.

      It is beyond dispute that liquidity has decreased at Melrose during a time when it was paying among the highest rates in the country for CDs. Maybe you can't smell the coffee, but the rest of us can.

      While depositors within the insurance limits have nothing to worry about, those with exposure above them clearly do.

    4. Mr Gotham please tell m e how you know that liquidity has decreased at Melrose...please share how you know that as fact. I think I am seeing much clearer than you or Mr. Leggette. I find it amusing that a BANKER is reporting on Credit Unions....slightly biased against
      them maybe. Like to report the bad and not the good. How about point out that when Montauk was one lost any money. Not one share was lost for a member. So why scare people about Melrose....maybe you both invest in medallions and would love to see the prices continue to decline. So much of your reporting is so negative and skewed. Plus you make assumption and guesses when you answer questions. Shame on you.

  2. Keith -- If the CU is in a "conserved" state, can the uninsured deposits still be withdrawn, or is there a full or partial freeze on those?

    1. Good question. NCUA has stated that "[m]embers can continue to conduct normal financial transactions, deposit and access funds, make loan payments and use shares."

    2. Looks like the cu is paying above market rates to keep money in the institution.
      Uninsured deposits are not protected right dr. Leggett?

  3. The NCUSIF insures individual accounts at Melrose Credit Union up to $250,000, and a member’s interest in all joint accounts combined is insured up to $250,000. The Share Insurance Fund also separately protects IRA and KEOGH retirement accounts up to $250,000.

    1. And also each deposit up to $250K if each deposit (aka CD) is titled for a separate POD/beneficiary? Right?

  4. They always had attractive rates... at 100%+ Loan to Share ration they not only borrowed from the FHLB but had attractive rates. Not sure if they still have any but they did take deposits from other CU's.... with that said I am almost certain that they were all insured.

  5. Dr. Leggett. Thank you for a great blog. Interesting comments around Melrose Credit Union. My question is, how many credit unions are there in the US that could possibly merge Melrose without significant guarantees by NCUA? What are pro's & con's of Melrose being merged vs. liquidated? Thank you.

    1. Great question.

      I think there are only a handful of credit unions that could be a merger partner with Melrose without requiring significant guarantees from NCUA.

      The value Melrose has is its open charter. That means anyone can join.

      The downside is the potential hit from bad medallion loans.

      A potential credit union would need to weigh the cost of bad loans versus the cost of future NCUSIF premium assessments.

    2. Dr. Leggett, thank you.
      But how much is in the reserves of the NCUSIF?
      How much can NCUA "contribute" in a loss share arrangement?



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