Melrose CU Sinks Under the Weight of Bad Taxi Medallion Loans

Melrose Credit Union (Briarwood, NY) saw its performance deteriorate during the second quarter as problem taxi medallion loans weight on its operations.

The $1.6 billion credit union reported a year-to-date loss of almost $58.4 million, which was up $20.2 million from the first quarter.

Provisions for loan and lease losses increased from $40.8 million as of March 2017 to nearly $62 million as of June 2017.

As a result of the second quarter loss, the credit union's net worth fell from $64 million on March 31 to $43.9 million on June 30. The net worth ratio declined during the quarter by 105 basis points to 2.70 percent. The credit union was significantly undercapitalized, as of June 30.

Delinquent loans increased by 11.3 percent during the quarter to almost $643 million. Almost all delinquencies are tied to taxi medallion loans.

The credit union reported that at the end of the second quarter 37.85 percent of loans were 60 days or more past due. Delinquency rate of member business loans not secured by real estate (most likely taxi medallion loans) was 51.73 percent as of June, up from 46.21 percent in March.

Troubled debt restructured (TDR) business loans as of June were down from a year ago, but up from the first quarter. TDR business loans were almost $283 million at the end of the second quarter of 2017, up $29.2 million from the first quarter of 2017.

The credit union reported that over 83 percent of its TDR business loans were 60 days or more past due.

TDR business loans were 16.66 percent of all loans and 645.21 percent of net worth.

Allowances for loan and lease losses rose by 11.8 percent during the quarter to $210.3 million. However, the credit union was under-reserved with a coverage ratio of 32.71 percent, as of June 2017.