NEW YORK–The American Bankers Association is objecting to the sudden announcement of a merger between Progressive Credit Union, a taxi medallion-lending CU that has struggled with profitability, and Pentagon Federal Credit Union, saying the move hurts both taxpayers and small credit unions.
The shuttering of Progressive CU brings to a close the last major CU in New York City that focused on making loans for taxi medallions.
In a letter to members, Robert Familant, CEO of the $382-million Progressive CU, said the surprise merger was effective Jan. 1, 2019 and that the “pressure” on taxi medallion CUs was a primary driver of the decision to merge into the $24-billion, Virginia-based PenFed.
“Although Progressive has plenty of capital to ensure its safety and soundness in the short term, the board of directors of Progressive decided that a merger is the best strategic option for Progressive,” said Familant in a letter posted on the CU’s website.
‘Exceeding Original Mission’
But the ABA is alleging the merger is about more than just coming to the rescue of a struggling credit union.
“In acquiring the century-old credit union in an ‘emergency merger,’ PenFed also acquired Progressive’s unusual open charter — a relic of the days before the Federal Credit Union Act,” the ABA said in a statement.
ABA EVP Ken Clayton added in the same statement, “This merger is just the latest example of large credit unions far exceeding their original mission to serve targeted communities of modest means. This not only hurts small credit unions playing by the rules, but also taxpayers who are unknowingly subsidizing this national expansion.”
The ABA also criticized NCUA for allowing the merger to occur.
“The CU lost $35.3 million in the third quarter, cutting its net worth almost in half. Under NCUA procedures, the agency ‘may approve an emergency merger without regard to common bond or other legal constraints’ for CUs at risk of insolvency,” the ABA said.
Clayton said the “'emergency merger' has been enabled by the very federal regulator that is supposed to be overseeing the industry,” Clayton added. “Congress should look no further than this combination to quickly see the fiction that large credit unions have become.”
Members Told of New Options
In his letter to Progressive’s approximately 3,000 members, Familant reassured members they will continue to have access to their accounts, as well as expanded product options, including a 2% APY-paying Premium Online Savings Account and rates as high as 3.5% on a five-year certificate.
“PenFed’s strong balance sheet made it the leading choice to provide Progressive the liquidity and capital needed to provide stability and support to our members,” wrote Familant. “PenFed is one of the nation’s strongest credit unions. It’s America’s second-largest federal credit union, with total assets of more than $24 billion. PenFed is dedicated to serving the unique needs of their valued members and their families.”
Familant said all of Progressive CU’s employees are being retained.
In a number of earlier interviews with CUToday.info, including here, Familant had said he believed the credit union could weather the plunge in taxi medallion values that has been brought about by ride-sharing services. Familant had also expressed his expectation medallion prices in this city would stabilize before capital eroded to levels that would concern the CU and NCUA.
Capital in Decline
Capital at Progressive CU, while still strong through Sept. 30, 2018, slipped to 11.63% from 38.83% in 2014. In that same period, ROA fell from 1.48% to -16.64%.
The $383-million Progressive lost $57.3 million in 2016, $97.1 million in 2017, and $53.2 million through September of 2018, according to call report data.
Progressive was the last remaining major New York City taxi medallion lending credit union. Melrose CU and LOMTO FCU were closed last year by NCUA and Montauk CU was merged into Bethpage FCU in 2016.
NCUA announced in 2018 it had set aside nearly three-quarters of a billion dollars in reserves to cover losses caused by taxi medallion CUs.