Medallion Loans on Books at 122 Credit Unions
Financial data from the NCUA show more credit unions may suffer losses as a result of the declining value of predominately New York City-based taxi medallions than previously thought.
While the agency said its data appeared to indicate the situation would not grow into a crisis, information from several other sources pointed to a growing struggle for credit unions involved with taxi medallion lending.
As of June 30, 2015, four New York credit unions – the $179 million, 2,900-member Montauk Credit Union of New York City; the $271 million, 3,000-member LOMTO Federal Credit Union in Woodside; the $2.1 billion, 24,000-member Melrose Credit Union in Briarwood and the $692 million, 3,800-member Progressive Credit Union in New York City – collectively sold 1,442 member business loans totaling more than $814.5 million, according to the NCUA.
The NCUA's records did not reveal how many of the loan participations were for taxi medallion loans.
However, the agency said a substantial portion of Montauk CU's 136 participated business loans, worth $90.5 million, involved taxi medallions. The NCUA took over Montauk on Sept. 18.
In addition, LOMTO FCU President/CEO Richard Kay reported that 100% of LOMTO FCU's 201 participated business loans, worth $101 million, involved taxi medallions.
Progressive reported having sold participations in 1,021 business loans, worth roughly $572.7 million as of June 30, 2015, while Melrose reported having sold participations in 84 business loans totaling a little more than $50 million.
However, while loan delinquencies have been rising for the four taxi medallion lending credit unions, they did not report a similar rise in delinquencies for their participated loans.
Melrose reported in its June 30 5300 report that 27 of its 84 participated business loans, worth more than $202,000, were at least 60 days delinquent. That figure included 10 that were more than 360 days delinquent.
LOMTO FCU reported that six of its 201 participated loans, worth just less than $1.6 million, were delinquent, according to its call report.
However, Progressive, the credit union with the greatest number and amount of business loan participations of the four, reported only three of its participated loans, worth slightly more than $90,000, as delinquent.
Before it was seized by the NCUA, Montauk reported two participated loans, worth slightly less than $163,000, as delinquent.
NCUA Public Affairs Specialist John Fairbanks sought to put the number of taxi medallion loans into context by pointing out that the taxi medallion loans represent far less than 1% of the credit unions’ total lending activity.
He also said that the four New York credit unions account for all of the taxi medallion lending in the country.
“Taxi medallion lending outside that circle of four is not significant,” Fairbanks wrote in an email.
He also reported that about 122 credit unions have purchased participations in taxi medallion loans, but that “the overwhelming majority do not have a concentration risk.”
He did acknowledge, however, that “a very small number of these credit unions have that risk.”
Fairbanks also pointed out that credit unions have only taken about 33% of the total taxi medallion lending market.
Despite the facts Fairbanks cited, other facts suggest the situation could worsen for taxi medallion lenders before it improves.
First, when taxi medallion assets have been marked to market, at least for Montauk, they have moved into foreclosure.
According to the city of Chicago's public information portal, foreclosure proceedings have been launched or are about to be launched against one taxi medallion owner who owns a total of 11 medallions, all of which show Montauk CU as the lender.
James Hickman, chief investment officer for the Boston-based HVM Capital, said he has noticed a flurry of Montauk-related foreclosure proceedings since the NCUA took control of the cooperative, which he said made him wonder if the agency acted against the credit union's larger debtors.
HVM Capital has taken a short position on taxi medallion values, with Hickman stating on the record that he believes taxi medallion values should be even lower.
Fairbanks declined to comment on this matter other than to say the NCUA has been operating in the best interests of Montauk's members.
“(The) NCUA is working to resolve operating issues at Montauk Credit Union, and continued service to members and protecting members’ accounts are priorities for the agency,” he said.
Second, lending trends for two of the three taxi medallion lending credit unions that have not been conserved appeared to be heading in the wrong direction for the past year.
According to the NCUA's data, LOMTO closed June 2015 with a total delinquent loans to net worth ratio of 20.23% compared to just 0.17% in June 2014. Melrose posted a ratio of 14.46% for the same time period compared to 1.40% one year earlier.
Montauk reported its total delinquent loans to net worth ratio as 26.81% as of June 2015, just before it was conserved by the NCUA.
Progressive reported its ratio for the same time period as only 2.36%, up from the 2.10% it reported one year earlier.
LOMTO's situation appears to be particularly serious, as Sageworks Bank Information calculated the credit union's Texas Ratio at 22.93% as of the end of June 2015 – more than 2% higher than Montauk's during its last reported quarter.
Derived from dividing the sum of a credit union's total delinquent loans and total foreclosed assets by its total net worth plus allowance for lien losses, the Texas Ratio has been used as a barometer for financial institution fiscal health since the Great Recession. The higher the number, the closer the institution may be to failure.
However, LOMTO CFO Monte Silberger reported that the credit union expected to close on a refinance and forbearance agreement with a major borrower as of press time. The Chicago-based borrower is giving the credit union more collateral in the form of real estate, Silberger explained, and once the agreement is in place, the credit union's ratio of delinquent loans to assets ratio should drop from 3.38% to less than 1.4%.
He said the borrower had taken loans backed by taxi medallions worth $16 million, and LOMTO had participated out $10 million of that among seven other credit unions.
“When you look at our numbers, particularly compared to where they had been, they look awful; there's no getting around that,” Silberger said. “But we believe our credit union remains solidly capitalized and we have enough in reserve to weather the storm. Everything in economics has a cycle and there hasn't been a down cycle with taxi medallions for some time. Now there is, but we believe the market will stabilize in time.”