Friday, February 10, 2017

Bad Taxi Medallion Loans Pushes Melrose CU into Conservatorship

The New York State Department of Financial Services today took possession of Melrose Credit Union, located in Briarwood, New York, and appointed the National Credit Union Administration as conservator.

Bad taxi medallion loans eroded the financial performance of Melrose Credit Union and pushed the credit union into conservatorship.

The credit union reported a 2016 loss of almost $98.7 million, after posting a loss for 2015 of $176.7 million.

Provisioning for loan and lease losses contributed to the loss, as Melrose recorded provisions for loan and lease losses of $110.3 million for 2016.

As a result of the loss, the credit union's net worth fell sharply to $102.2 million at the end of 2016. In comparison, the credit union's net worth was $205.2 million at the end of 2015 and $145.1 million as of September 2016.

The credit union was undercapitalized at the end of 2016 with a net worth ratio of 5.73 percent.

Delinquent loans grew during the quarter by almost $80 million to $501.4 million as of December 2016.

At the end of 2016, 28.64 percent of all loans were 60 days or more past due. Delinquent loans to net worth ratio was 490.41 percent.

In addition, the credit union is reporting that early delinquencies (30 days to 59 days past due) of $62.6 million.

Net charge-offs were $191.4 million at the end of 2016. The net charge-off rate was 10.23 percent.

Troubled Debt Restructured (TDR) loans were $248.7 million, as of December 2016. TDR loans were 14.21 percent of total loans and 243.25 percent of net worth.

Melrose reported an increase in allowance for loan and lease losses (ALLL) of $47 million during the fourth quarter to $149.2 million. The credit union's coverage ratio (ALLL to Delinquent Loans) was 29.76 percent, as of December 2016. The TDR portion of ALLL was almost $44 million.

Melrose reported shedding $166 million in assets during the fourth quarter. At the end of 2016, the credit union had $1.78 billion in assets.

Read the press release.


  1. Why was this institution allowed to concentrate so much of its assets in one collateral type?

    1. You have asked the right question. Credit union regulators -- NCUA and NY DFS -- did not exercise appropriate supervisory oversight to limit concentration risk.

    2. The yellow taxi industry were a healthy industry, corrupt politicians and cronies bureaucrats are destroying the industry with totally unfair competition. In a free market, competition should be within the frame of the laws and rules that govern the industry.

    3. Nino, you need to go back and retake economics.
      Unfair competition is better for the public than no competition..
      Before Uber yellow cabs had no competition...and...they acted like it.
      The consumer won and always does eventually.
      What you should be complaining about is that the transition was unnecessarily sloppy, stupid and unfair.
      Bc politicians and bureaucrats work for themselves not the public.
      THATS where you need to spend your time, derailing entrenched politicians.

  2. When will congress figure out that NCUA shouldn't have its own insurance fund?

  3. Sally:
    Bankruptcy is not an option for credit unions.

    Also, there are no bail-in provisions in the Federal Credit Union Act or in NCUA's regulations.

    If NCUA liquidates the credit union, uninsured depositors are likely to take a hit.

  4. Melrose FCU should be called the CLOWNCAR FCU. NCUA understands CONCENTRATION RISK like they understand CONSTIPATION RISK. NCUA learned nothing from WesCrap FCU, Members United FCU, or USCentral FCU. Melrose FCU has been over 100% loan-2-share ratio & NCUA did not a damn thing. Melrose FCU is the CLOWNCAR. The NCUA are the CLOWNS. Now the surviving credit unions pay the assessments to cover these Bozo's on Duke Street.

  5. Let's be fair here. All of the government deposit programs will be on the hook for this mess. The FDIC is very low key on one of their lenders who is selling some of the family art in a desperate attempt at to salvage what is left. There is no such thing a loss free loan. All lending has risk and a diverse loan portfolio with at least quarterly monitoring of the the value of the collateral done. Government guarantees should not reward bad lending under any type of charter. Like or not in this country the tax payers don't seem to mind.

  6. There are other shoes to drop.
    Lomto and Progressive will follow.
    The total exposure of medallion loans in credit unions is something like $6.5 B according to NCUA.
    if melrose was a bank they would never have been allowed to put 70% of loans in medallions. If melrose was a bank they'd have been shut by fdic 2 years ago when NCUA simply did a dor.
    This insurer has a conflict of mission with its supervision and congress has known about it for years and done nothing.
    If someone in authority was doing the right thing they'd tell the people with u insured deposits to withdraw from melrose bc they're not protected, just ask St. Paul Croatian members.
    It's weird to think that NCUA just let this happen.
    There's no excuse and congress should take the insurance fund.
    What do you think dr. Leggett?

    1. You are right about NCUA having a conflict as insurer and charterer/regulator. The structure reminds me of the old Federal Home Loan Bank Board (FHLBB). The FHLBB was both charterer of federal savings and loans and also insurer through the FSLIC. It ended badly with a bailout of the FSLIC. Now savings and loans are insured by the FDIC, but not chartered by FDIC.

    2. Sally:

      Only uninsured depositors lost any money at St. Paul Croatian, when it failed.

  7. Tony,
    Don't be so critical. NCUA is busy in their role as trade association promulgating new FOM and MBL powers for cus bc CUNA has failed so miserably that NCUA has had to pick up the reins.
    They were too busy being what CUNA failed at to notice progressive, Montauk and melrose had over 70% assets in one collateral.
    Trump,should take note that NCUA is the poster child of entrenched ineffective gvt bureaucracy.
    Since congress doesn't seem to care.
    If this story goes public congress and NCUA have some explaining to do, as does cuomo's morons at ny regulators.

  8. The yellow taxi industry is under assault by the corrupt politicians of New York City and, some of Albany. Instead of throwing out numbers, why don't you see the reasons of this nightmare, the politicians along with the forth brunch(bureaucrats) are destroying what once use to be a healthy industry.

    1. All for exposing bad politicians but the easy way to that is simply ask for a roster of politicians and subtract about 20% perhaps?
      As for a "once used to be healthy industry", wake up. It's called technology and innovation. Buggy whips used to be a healthy industry too.
      You will get no sympathy worth spit if your argument is that medallions and medallion lenders who benefitted from a cartel, now have to deal with Uber and Lyft that make a riders life less miserable.
      Medallion lenders should've diversified their balance sheet years ago, as was suggested to king Kaufman and King Familiant. Both inherited a business and then did nothing but ride the wave until Uber showed up.
      Tough sh--.

  9. You guys obviously don't know what is going on. Corrupt politicians and cronies bureaucrats are destroying the industry with totally unfair competition. Thousands of us are watching our retirement going down the drain. In a free market competition is great as long is within the frame of the laws and rules that govern the industry.

  10. Nino, really?
    The same corrupt politicians that protected medallions simply took a better bid from Uber...or that couldn't hold back OVERWHELMING public acceptance of Uber and lyft.
    You should have diversified your business...but yes, politicians are part of the blame.
    Everyone who voted for schumer should ask themselves why, next time.

  11. Melrose's failure belongs squarely on the shoulders of their Board.

    1. When you have a bad CEO, you need a good board.
      When you have a bad CEO and a bad board, you need a good regulator.
      When you have a bad CEO, bad board and a bad regulator, you need a congress.
      Any congress.
      What's congress waiting for?

  12. So what happens to those that had a medallion loan and were half way the morgatege payments.