New York’s tenth largest credit union by assets, the $1.7 billion Melrose CU, was placed into conservatorship Friday by the New York State Department of Financial Services, which appointed the NCUA as the conservator, according to the federal agency.
The state regulator took possession for Melrose CU in Briarwood because of its unsafe and unsound practices initially identified during a an examination by state and federal regulators in 2015. That examination revealed alleged violations of laws and regulations, and significant supervisory concerns, leading the state regulator to issue a consent order against the undercapitalized credit union.
Those areas that Melrose was required to address in the consent order included loan policy deficiencies, the funding of an allowance for loan/lease losses shortfall, and a concentration reduction plan for its $1.5 billion taxi medallion loan portfolio that was underperforming because of fierce competition from ride-sharing services such as Uber and Lyft. Melrose was managing more than 3,000 taxi medallion loans.
Apparently, Melrose was unable to resolve the consent order’s laundry list of violations and other internal operational issues as the credit union’s financial losses continued to mount throughout last year.
At the end of 2016, Melrose CU posted a net income loss of $98.6 million, which was a much lower loss than at the end of 2015 when the credit union posted a net income loss of $176 million.
From the end of 2015 when Melrose’s loan delinquencies totaled 7%, it loan delinquencies shot up to double digits throughout 2016. At the end of the first quarter, the credit union posted loan delinquencies at 18% and they continued to climb up to 28% by the end of last year, according to NCUA’s financial performance reports.
Melrose’s net worth plunged to 5.73% at the end of 2016 from 10% at the end of 2015. Its ROAA was -5.33% in the fourth quarter of last year compared to an ROAA of -8.86% at the end of the fourth quarter of 2015.
Melrose first became undercapitalized after its second quarter 2016 Call Report was released by the NCUA.
Melrose posted a net worth of 7.49% at the end of the second quarter compared to its net worth of 18% at the end of the second quarter of 2015.
However, because Melrose is considered to be a complex cooperative by the NCUA, its risk-based net worth requirement was 9.89%, which classified credit union as undercapitalized.
The undercapitalization placed Melrose into prompt corrective action and it was required to submit a net worth restoration plan to the NCUA.
After Melrose’s third quarter Call Report was released, it showed the credit union remained undercapitalized.
Melrose posted a net worth of 7.52% at the end of the third quarter, buy its risk-based net worth requirement was 9.14%, which classified the credit union as undercapitalized.
Nevertheless, when contacted in November by the CU Times about the credit union’s continuing financial troubles, Melrose Interim President/CEO Steven Krauser was nothing but optimistic about the future.
“The marketplace is improving, and a strong rebound on earnings growth should improve the economy for our members and beyond,” Krauser said. “A pro-growth agenda in 2017 should stimulate the economy, which should in-turn stimulate lending. It would be premature to speculate on our level of growth at this point, but we retain a positive outlook.”
Melrose announced last summer that it was diversifying into other loan products and services.
Krauser did not answer a CU Times request for comment Friday.
Melrose CU became the second credit union to be placed into conservatorship because of its underperforming taxi medallion loan portfolio.
In September 2015, New York regulators took possession of the $178 million Montauk Credit Union in New York City.
By March 2016, Montauk CU was merged into the $6.9 billion Bethpage Federal Credit Union in Bethpage, N.Y.
