This is an extremely good article just published summarizing the very recent status of Progressive Credit Union’s approach from their point of view.
However, there are many assumptions, opinions and forecasts that can very credibly be refuted.
How Progressive CU Is Addressing Medallion Issue
Contact Frank J. Diekmann at Frank@CUToday.info
February 22, 2017
NEW YORK—While taxi medallion lenders here continue to struggle against the impact of ride sharing—with two such CUs slipping into conservatorship—one credit union believes it can ride out the current problems.
Progressive CU CEO Robert Familant told CUToday.info there are several reasons why his $597-million credit union will weather the storm until the playing field between Uber and the taxi industry eventually levels in this city. He pointed to the credit union’s huge 33.55% capital cushion today and the fact that Progressive has been effectively reworking medallion loans, taking some charge-offs, keeping many of its borrowers “in the game and not walking away.”
“Our goal is to work with members to modify and restructure loans in a variety of different ways,” said Familant. “We are getting a lot of help and guidance from the New York State Department of Financial Services and NCUA. We have been successful.”
Melrose Credit Union recently became the second New York City taxi medallion CU to be conserved due to the impact of ride sharing services on taxi medallion values in the Big Apple. That conservatorship followed the earlier takeover of Montauk Credit Union by regulators in September of 2015. It was later merged into Bethpage FCU.
Much Higher Capital
“Maybe they made some bad loans,” said Familant referring to Montauk and Melrose. “Maybe they were not as successful as we have been in restructuring loans,” said Familant. “Plus, we have always had much more capital than any of the other medallion lenders here. So, put those things together and that is why Progressive is still here and intends to stay here.”
Familant said Progressive is “right-sizing” many of the medallion loans it holds.
“When we have a medallion loan and it’s now for more than the value of the collateral, we now modify it into an A and a B note,” said Familant. “You make a new note that reflects 80%-85% of the new value of the collateral. You make the loan at market rate. And the B note is the difference, the overage. You are obligated by accounting rules to charge that off when you make the new notes.”
Familant said the B note remains in abeyance and is not forgiven.
“At least for now we are not forgiving those notes. You never know what will happen in the future, and the notes could be forgiven. But those notes continue on as a liability by the member in the hope that the market returns to some level of normalcy and stability at which time that obligation will begin to be paid again,” he said.
But when will that normalcy return, and the playing field between the regulated taxi industry and unregulated ride-sharing companies somewhat level? Familant is not certain. A year ago he spoke with CUToday.info and expressed his belief the market would stabilize. But today the CEO says when that may happen is not clear.
Familant said there are a lot of initiatives currently being floated that may help the taxi industry and bring some regulation to the ride-sharing companies.
“At the end of the day, no one wants the taxi industry to go away,” said Familant. “I think we will reach some level of stability. I could not tell you when that will be. I wish I knew. I wish we had gotten there already, but we haven’t. But when we get there it will be the new normal and we will deal with it.”
Ready For ‘Rainy Day’
Progressive’s big capital cushion may help the CU see that day while others fall before them. Year end 2016 Call Report data shows that medallion lender LOMTO FCU’s capital has slipped to 5.87%. The $236-million LOMTO is based in Woodside, N.Y.
According to Call Report data, Progressive’s capital stood at 44.42% at the close of 2012, 38.29% at the end of 2013, 38.83% in December of 2014, 39.08% the following year, and 33.55 at the close of 2016.
As Familant has stated in the past, the CU built is capital cushion for a “rainy day,” and the cushion also allowed it provide members with the most competitive loan and deposit rates in the market.
“So our members benefitted. We had that capital for a rainy day, but no one years ago could have predicted this situation,” said Familant. “Yes, we knew medallion values had reached very high prices, and, yes, there could be some readjustment, such what as the housing market goes through. But had there been only an adjustment we would have been just fine, because over the years we have been making loans at a maximum of 60%-65% loan to value. But then medallion values fell by 50% and we had to work with members to protect them from failure.”
Medallion Values Cut In Half
Reports in the last six months show that medallion values have been chopped in half, with medallions valued at $1 million in 2014 now worth about $500,000.
Familant said that delinquencies have stabilized for now. The CU even posted a $265,000 profit in Q4 2016. For the year, however, Progressive lost $52.1 million. Progressive had set aside a $61.7 loan loss provision for 2016.
Progressive faced $66.5 million in delinquent loans at the end of 2016, down $4.1 million from the prior quarter, lowering delinquencies from 11.62% in September to 11.45% at the end of 2016.
While the days of high medallion values may be gone for good, Familant remains confident that the taxi industry will come back from the troubles facing it today, predicting many Uber drivers will return to driving Yellow Cabs, and that ride sharing companies will face regulation similar to that of the taxi industry.
“How far off is the horizon for medallion values returning to more normal levels? I couldn’t tell you anymore,” acknowledged Familant. “I don’t know anything in particular that is going to happen that would bring about a stabilization, but I know it simply has to happen by the laws of economics.”
A Medallion Comeback?
Familant said Uber drivers are complaining about not making enough money, and that many are now illegally picking up rides and not using the Uber app.
“New York City now charges these drivers a $2,000 fine for the first such offense and $5,000 for the second. So there is some regulation coming down on these guys,” said Familant, who also noted that Yellow Cab is working to improve its mobile app. “Some of these Uber drivers, too, are driving around with two to three apps in their car to make a living. I am not sure when these drivers will reach their tipping point and come back. But Yellow Cabs need those drivers. They don’t need that many, maybe 3,000, to make a difference. That would change the complexion of this situation and we could then see medallion values reappreciating. But for now, it remains a battle.”