Two More New Jersey CUs See Their 2017 Financial Performance Sink Due to Taxi Medallion Loans

The financial fortunes of two New Jersey credit unions have been adversely impacted by taxi medallion loans.

Aspire Federal Credit Union (Clark, NJ)

Aspire Federal Credit Union posted a loss of $6.1 million for 2017, after losing $1.6 million in 2016.

The $158 million credit union reported outstanding commercial loans not secured by real estate of $12.6 million. Presumably most of these loans were taxi medallion loans.

The 2017 loss is due to an increase in provision for loan and lease losses to address delinquent and charged off loans, especially loans secured by taxi medallions. Provision for loan and lease losses in 2017 were slightly more than $7.5 million compared to $4.1 million for 2016.

Due to the 2017 loss, the credit union's net worth tumbled by 34.5 percent to almost $11.5 million. Its net worth ratio fell by 285 basis points to 7.26 percent.

At the end of 2017, Aspire FCU reported almost $8.9 million in delinquent loans. The delinquency rate on all loans was 7.13 percent at the end of 2017 -- up 5.26 percent at the end of 2016.

Commercial loans not secured by real estate, presumably taxi medallion loans, accounted for a sizable portion of delinquent loans. Delinquent commercial loans not secured by real estate were just shy of $4.1 million. According to the credit union's Financial Performance Report, 32.22 percent of commercial loans not secured by real estate were 60 days or more past due.

In addition, troubled debt restructured (TDR) commercial loans not secured by real estate were almost $3.9 million, of which 25.84 percent were delinquent..

Net charge-offs were $3.4 million for 2017, of which $2 million were commercial loans not secured by real estate. The net charge-off rate was 2.58 percent at the end of 2017.

Allowance for loan and lease losses increased by approximately $4.1 million during 2017 to $8.4 million. Its coverage ratio (allowance for loan and lease losses divided by delinquent loans) was 94.99 percent at the end of 2017.

First Financial Federal Credit Union (Freehold, NJ)

It appears that defaulting commercial loan participations to nonmembers is weighing on the financial performance of First Financial FCU.

The $190 million credit union reported holding almost $16.2 million in commercial loan participations, presumably most of these loans were taxi medallion loans.

After posting a loss of $2.3 million for 2016, First Financial FCU reported a profit of $259,225 for 2017. However, the credit union reported a loss for the fourth quarter of $384,302.

The improvement in annual profitability was due to a decline in provision for loan and lease losses. Provision for loan and lease losses fell from $2.9 million at the end of 2016 to $1.6 million at the end of 2017.

This reduction in provision for loan and lease losses comes at a time the credit union is reporting an increase in delinquencies.

Delinquent loans increased by almost $1.5 million during 2017 to just below $6.3 million at the end of 2017. Almost $2 million of the delinquent loans were nonmember commercial loans not secured by real estate. The credit union reported that 12.3 percent of these nonmember commercial loans not secured by real estate were delinquent at the end of 2017.

Additionally, the credit union reported $$7.4 million in troubled debt restructured (TDR) commercial loans not secured by real estate. Almost 20 percent of these TDR loans were past due. Furthermore, there was $1.1 million in TDR commercial loans not secured by real estate that are 30-to-59 days past due.

First Financial charged off almost of $1.1 million of these nonmember commercial loan participations (net of recoveries).

At the end of 2017, the credit union's net worth was $11.57 million. The credit union was adequately capitalized with a net worth ratio of 6.09 percent.

The credit union's allowance for loan and lease losses balance was unchanged over the last year at $3.3 million. Its coverage ratio (allowance for loan and lease losses to delinquent loans) was 53.03 percent at the end of 2017, down from 69.32 percent at the end of 2016.

At the end of 2017, the credit union has a total buffer (net worth plus allowance for loan and lease losses) of almost $15 million to absorb expected and unexpected losses.