Navigant now biggest credit union, Pawtucket drops to No. 2

Navigant Credit Union has retaken the distinction of Rhode Island’s largest credit union as Navigant and other local credit unions report higher deposits but – like their banking counterparts – sagging demand for loans.
In midyear regulatory filings, Smithfield-based Navigant reported $1.22 billion in total assets – an increase of more than 5 percent since the start of the year – edging out Pawtucket Credit Union’s $1.2 billion in assets as of June 30.
PCU, which had been the largest by assets since 2008, acknowledged last month that it had stumbled a bit in the first half of the year when it misjudged where interest rates were headed in 2010.
“We believed interest rates were going to be higher, so we were priced higher,” said Karl A. Kozak, president of Pawtucket Credit Union.
Those higher rates dampened lending at PCU, particularly in a bright spot for the industry: refinancing mortgages. Waves of homeowners have been looking to take advantage of lower rates, but many are also doing some rate shopping before filling out the paperwork.
Indeed, the credit union recorded 1,943 loans in the first six months of 2010, down almost one-third from 2009 levels.
“We started to react and get a little more aggressive with our pricing closer to June,” Kozak told Providence Business News last week. “But by the time you do that, it takes a couple of months for people to notice that you’re a little stronger in the market.”
Now, he said, Pawtucket is poised to have a stronger second half. The lower rates are spurring new loans, as are new products such as a 12-year, adjustable- rate mortgage.
Still, the sputtering economy hasn’t made things easy for Kozak and his counterparts at other credit unions.
The nonprofit institutions largely avoided the subprime mortgage meltdown a few years ago, but a cool real estate market and the state’s high level of joblessness have taken their toll.
While credit unions say that defaults and delinquent loans appear to be stabilizing, those signs of troubled loan portfolios are still at elevated levels. The same goes for the money the credit unions are setting aside in anticipation of loans going bad.
For instance, Middletown-based People’s Credit Union – No. 3 in Rhode Island by total assets – boosted its loan-loss provision from $600,000 in the first six months of 2009 to $1.04 million in the same period of 2010.
Also taking a bite out of the bottom line: Assessments by the National Credit Union Administration to replenish its deposit insurance fund, which was depleted after it was used to rescue several large “corporate” credit unions.
Even the increased activity in refinancing because of lower interest rates has its pitfalls.
“We’re taking some new business in from other [institutions], but we’re also working hard to refi our own mortgages so we can make less money,” joked Gary Furtado, president of Navigant. “It’s a double-edged sword.”
And the low rates could present a risk problem for the balance sheets in the future.
Furtado said Navigant is attempting to keep many long-term loans with low interest rates off the books, selling a higher rate of its 30-year mortgages to other entities.
“We’re all concerned about what happens when rates turn around and start climbing,” he said. “It’ll be a challenge.”
Furtado said even with interest rates at historic lows, the credit unions haven’t seen much activity in other consumer lending, such as auto loans. “We’re still pretty soft in that.”
Ellen N. Ford, president of People’s, said the lack of qualified borrowers has meant the credit union hasn’t been able to use its growing amount of deposits for loans to its members.
“We can certainly accommodate more than the demand that’s out there,” she said. “We have a significant amount of money to lend.”
As a result, it has to pay back millions of dollars it had borrowed from outside entities such as the Federal Home Loan Bank of Boston, a wholesale bank that lends to other banks at discount interest rates.
“We don’t need to pay for those borrowings, so we’re retiring them as they come due,” Ford said.
Borrowings from outside entities declined from $63 million at the beginning of the year to $43 million as of June 30, which in turn helped deflate the credit union’s total assets from $402.89 million to $380.33 million in the first half of the year.
Those borrowings would typically have been either loaned out or invested. But with fewer potential borrowers and low returns on investments, People’s has returned the money.
People’s said in regulatory filings that it suffered a $1.25 million loss on investments in the first six months of the year as it registered a $1.27 million net loss for that same period.
People’s has fielded more interest in small-business loans, an arena that the credit union got into about two months ago. Ford said the credit union is planning a marketing campaign in the next two months.
“We see there’s a need,” Ford said.
At Navigant, the credit union has seen about a 10 percent growth in total assets from July 1, 2009 to June 30, 2010 – mostly from a surge in deposits despite the low interest rates.
Those additional assets, for the most part, have gone into safe, low-yielding investments. That has pushed the credit union’s loans-to-assets ratio from about 64 percent to 58 percent.
“It’s not where we want to be,” Furtado said. “We’re trying to lend. It’s not because we don’t want to.”
By the measurement of total assets, Navigant is ahead of the pack in Rhode Island. Furtado said being the biggest credit union isn’t important to Navigant.
“It’s never been a point of ours, that we are the biggest or want to be the biggest,” he said last week. “Our theory is we’re trying to be the best financial institution in the state.” •