By Ray Birch
NEW YORK—At 40.91% capital, Progressive CU is easily in the best position of any credit union specializing in taxi medallion loans to ride out the assault by Uber and Lyft on medallion values and the resulting loan defaults.
For the $665-million CU to create its stockpile, it has had to have the foresight to recognize that medallion lending can become a “volatile” business, the CU explained. That volatility has already led to the conservatorship of one taxi medallion CU.
In an interview with CUToday.info, Robert Familant, who has guided Progressive for 40 years—including previous periods of fluctuating medallion values—talked about how his credit union has viewed medallion lending and what the impact of ride sharing may mean on Big Apple medallion lenders.
“The position of our board has always been that we always want to be on very solid financial footing,” said Familant. “We are in a volatile industry and always felt it important that we raise our capital levels as we grew.”
Medallion Value Falling
The value of taxi medallion loans in New York—as well as in other cities across the U.S.—has dropped significantly due to ride-sharing services such as Uber.
Problems for credit unions making taxi medallion loans in this city markedly increased it the fourth quarter of 2015, according to Call Report data—including a huge annual loss at Melrose CU of $176.6 million due in large part to increased allowance for loan losses.
The $1.9-billion Melrose reported its first losses of the year in the third quarter ($21.2 million), having reported a positive $4.9 million in Q1. Allowance for loan loss reserves at Melrose more than tripled in Q4 to $230 million from $68 million in the third quarter. Delinquent loans to total loans stood at 7.8% at the end of the year, with charge-offs 0.06%. Capital dropped to a well-capitalized 10.69% at the end of 2015, but that figure is down from 18.44% at the end of 2014 and 17.30% at the end of September 2015.
Losses at the conserved Montauk CU totaled $17.6 million by the end of last year, with most of the net-income loss arriving during the fourth quarter. The New York State Department of Financial Services placed Montauk into conservatorship on Sept. 18, 2015 and appointed NCUA as conservator. Montauk watched its capital slide to 1.74% at year-end 2015, from 12.35% at the close of 2014 and 10.34% by the end of June last year.
Another taxi medallion lender, LOMTO FCU, lost $2.9 million by the close of 2015, including $1.4 million in Q3, and $236,885 in Q2. The $274-million credit union reported positive net income of $650,988 in the first quarter and $4 million in 2014. LOMTO’s net worth slipped slightly to 15.56% at the close of 2015.
Year-End Gain, But ...
Progressive CU reported a year-end $411,110 gain, but income was markedly down from the third quarter ($5.5 million).
“Delinquencies at Progressive are up (3.45% delinquent loans/total loans at the close of 2015), and we have reserved an additional $16 million to account for those, TDRs, and lower medallion values,” said Familant. “The portfolio now needs to be managed appropriately and we are doing that.”
With sky-high net worth, moving money into loan loss reserves is not having the impact at Progressive that is being felt at Melrose. Familant emphasized that such high capital has not come at the expense of members’ wallets.
“Look back on Call Reports and Callahan’s data over the last 35 years and you will see that we are one of the top five to 10 most profitable credit unions in the country,” said Familant. “We have a very good organizational structure and a strong handle on our expenses.”
The CU made $17.1 million in 2011, $17.6 million in 2012, $18.4 million the following year and $10.2 million in 2014.
Robert Familant, Progressive
A portion of income always goes to reserves, but Melrose has always had enough money to give members above-market loan and deposit rates, said Familant.
“We consistently have given our members good deals on our products, which is why they stay with us,” said Familant.
While confident high reserves will carry Progressive through the current medallion value downturn, Familant—who has guided the CU through previous periods of declining medallion value—said this time the impact on values is different.
“Just in terms of economic cycles it always made sense that the medallion value would probably stumble at times and come back,” said Familant. “And it has. But the X factor this time is different. It’s not some kind of ‘bubble.’ The interloper is the ride share companies and how the municipalities at the end of the day will regulate that kind of service so everyone who provides transportation to the public has their proper place.”
Familant is confident that the rideshare/Yellow Cab playing field will level out and medallion values will stabilize, but he is not certain when that will occur.
“This is not so much an issue about a (medallion value) number as it is about confidence,” said Familant. “The investors and taxi owners need to get confidence back in the system. What has happened is the municipalities have let them down. For years the taxi industry has been protected—and some will say it should not be protected—and it has paid dearly for that protection in terms of considerable regulation and vetting of drivers and vehicles.”
But Familant is hopeful that Uber and its drivers in this city will face increasing regulation, pointing out that Uber drivers are unhappy with the ride share company recently cutting fares to “increase corporate profits.”
He said Uber drivers are grumbling about the income cut, and that they are working longer hours to keep their families afloat, often not making as much as they did before Uber changed its fare structure.
Waiting For Market Stability
Familant pointed to a New York Post story that reported on one Uber driver who said he now works 14-hour days in a losing battle to make up for lower fares. Familant thinks those longer hours will draw the attention of municipalities to limit how long Uber drivers can work in a day.
“You can’t work 14 hours a day in Yellow Cab, that is considered unsafe for the passenger and for the driver as well,” said Familant. “Uber’s abuse of the system and their drivers being unhappy will catch up to them, and that is when the taxi industry will get back its confidence, investors and stability.”
Despite Montauk being conserved, Familant is hopeful that will be the last of the Big Apple taxi CUs to require regulator intervention in this medallion value downturn.
“We all will get hurt a little bit, but we all will survive once the stability comes back to the marketplace,” said Familant. “We are working closely with NCUA. They are being very helpful and I compliment them on that, and together we will get through all of this.”