With weak loan demand among consumers, Rocky Hill-based Nutmeg State Federal Credit Union is looking to expand its loan portfolio with plans to begin commercial lending and lifestyle loans this fall, said John Holt, the credit union’s president and CEO.
The move will mean Nutmeg joins only a handful of other Connecticut credit unions that do small business lending, which is the bread and butter of the community banking industry.
With $333 million in assets and about 27,000 members, Nutmeg has the size, scope and capital to get into the business, Holt said.
“We are working aggressively to offer loan and deposit products for businesses,” said Holt, who took the helm of Nutmeg State Federal Credit Union last fall.
Holt said weak consumer loan demand has impacted all Connecticut credit unions, which is forcing lenders to rethink their portfolios. Mortgage lending in particular has slowed because refinancing and home sales remain stagnant, Holt said.
The sparse loan demand is reflected in National Credit Union Administration data, which shows that Connecticut credit unions held $4.33 billion in loans on their books at the end of March, down 1 percent from a year earlier, and nearly 3 percent from the end of 2009.
To try to compete for business, some not-for-profit cooperatives are getting more aggressive on rates. For others, like Nutmeg, the goal is to try to broaden their loan offerings.
In terms of lifestyle loans, Holt said the credit union is planning to unveil a new product in September, which will likely provide financing for things like plastic surgery, expensive dental work or Lasik eye surgery, and be priced more competitively than typical personal loans.
Also, this fall Nutmeg plans to begin commercial lending, including offering loan and deposit products for businesses.
Credit unions getting involved in commercial lending has always been a touchy subject, especially for banks, which are the for-profit counterparts to the credit union industry.
There has been a push nationally to try to expand the commercial lending capacity of credit unions. Currently credit unions are allowed to lend up to 12.25 percent of their total assets, but proposals in Congress have attempted to raise the limit as high as 27.5 percent.
But banks have pushed back, arguing that it would give credit unions a competitive advantage since they are already given certain tax exemptions and regulatory advantages because of their not-for-profit status.
Tony Emerson, president and CEO of the Credit Union League of Connecticut, said only three or four credit unions in the state do commercial lending, mainly because very few of the member-owned cooperatives in Connecticut have the size and scope to do it.
Holt, who was a former executive vice president for a $500 million credit union in Florida, said he has been eyeing expansion for Nutmeg since he started there in September.
The strategy will also mean growing the branch network in addition to the loan portfolio. Holt said he wants to open two new branches a year and has immediate plans to open Nutmeg’s seventh full-service branch, inside the Price Chopper supermarket in Newington.
The 550-square-foot full-service branch will employ about five people. Holt said Nutmeg will be one of the first Connecticut credit unions to open a location in a grocery store, something that has become much more common in the banking industry.
Credit union on notice
Connecticut Banking Commissioner Howard Pitkin has asked a small Norwalk-based credit union to shape up its financial performance.
Pitkin recently issued a consent order to The Greater Norwalk Area Credit Union demanding the not-for-profit cooperative reduce its level of delinquent loans, convene a supervisory committee and develop a plan to restore its net worth ratio back up to minimally required levels.
The consent order was filed after the banking department conducted an examination and investigation of the credit union and found that the credit union appears to be engaging in “unsafe” and “unsound” practices.
The Greater Norwalk Area Credit Union has 4,225 members and $21.5 million in assets, according to the National Credit Union Administration.
A plan to reduce its delinquent loan levels and improve its net worth ratio must be filed with the state banking department within 90 days.
In his consent order, Pitkin said Greater Norwalk must get to a net worth ratio of at least 7 percent. It’s not clear what the credit union’s current net worth ratio is.
Greater Norwalk must also get regulatory permission before it pays any cash dividends to its members.
Greg Bordonaro writes the Financial Sense column every other week. Reach him at gbordonaro@HartfordBusiness.com.
