PenFed Invests in Puerto Rico

Since Hurricane Maria ravaged Puerto Rico in 2017, the island has returned to normalcy, especially in the cities of San Juan, Ponce and Hatillo, where one can feel the bustling energy building momentum.

The $24 billion Pentagon Federal Credit Union, headquartered in McLean, Va., is doing its part to keep that momentum going. In January, PenFed President/CEO James Schenck traveled to Puerto Rico to officially open a new $4 million branch that created 30 jobs.

“A lot of folks, tens of thousands, have left for Orlando and New York City, so what Puerto Rico needs is other businesses like PenFed to continue to invest in Puerto Rico, because every community needs jobs, and when you create jobs you create strong communities,” Schenck said.

To attract new investments, Puerto Rico is offering aggressive tax incentives. Moreover, the entire island was designated last year as an Opportunity Zone under the Tax Cuts & Jobs Act, which will offer 10-year tax deferrals for real estate firms that invest in development projects.

In addition to PenFed’s 6,000-square-foot Hatillo branch and its commitment to open two more branches, Puerto Rico’s seven federally-chartered credit unions are managing to grow and serve their members, despite five of them experiencing membership losses because of the island’s declining population.

Since Hurricane Maria, an estimated 130,000 have left the island, the U.S. Census Bureau reported in December. However, the federal agency also reported that an additional 530,000 have left Puerto Rico since 2010. In addition to the hurricane, the exodus is due to the island’s 13-year economic recession that began in 2006, and its unresolved $74 billion bond debt crisis and $49 billion in unfunded pension liabilities.

Puerto Rico’s current population is about 3.3 million, down from nearly 3.9 million in 2000, according to the Puerto Rico Report, a non-profit educational organization. The organization also reported that El Nuevo Dia, Puerto Rico’s major newspaper, conducted a survey of the island’s population last November. That survey revealed 25% of Puerto Ricans expect to leave the island this year.

Five of Puerto Rico’s seven federally-insured credit unions have seen declines in their memberships that have ranged from less than 1% to nearly 6.5% from 2017 to 2018. Only two credit unions, the $395 million Caribe Federal Credit Union in Guanynabo and $146 million Puerto Rico Federal Credit Union in Caparra, have posted membership gains of more than 17% and 6%, respectively, from 2017 to 2018.

Although these credit unions have seen varying increases in delinquent loans, charge-offs and bankruptcies from 2017 to 2018 because of Hurricane Maria, all of them are well capitalized, according to NCUA financial performance reports.

“Economy-wise we’re still struggling, but it was like that before Maria,” Elba Rodriguez, president/CEO of the $3.3 million Glamour Community Federal Credit Union in Quebradillas, said. “I guess Maria made it a little bit worse. All financial institutions on the island are suffering one way or the other because everything is so unstable. People are insecure. People are afraid of buying a house. A lot of people are leaving the island. Puerto Rico is going through a lot of issues.”

Despite the population loss and economic instability, Caribe saw its membership jump from 32,019 to 37,699. Moreover, the credit union’s total loan portfolio increased from $264 million in 2017 to more than $301 million last year, which included a nearly 7% increase in real estate loans and more than 17% increase in car loans.

Jorge Vadell, president/CEO of Caribe, noted private industry is doing better, and new government incentives are attracting business investments and venture capital from the U.S.

“I think we are going to become more stable than in the years before,” he said.

And even though the population is dropping, there is more than enough market for credit union growth, according to Vadell, who noted Caribe opened a new branch in Ponce last year, bringing its total branches to four. This year, the credit union expects to expand its digital banking services.

For PenFed, investing in Puerto Rico makes business sense because it serves nearly 200,000 members there – substantially more than the 88,963 combined membership of the seven federally-insured credit unions. PenFed’s Puerto Rican members hold more than $400 million in deposits and nearly $200 million in loans.

But for Schenck, investing in Puerto Rico is more than just good business sense.

“What really resonated with me is that after 9/11 it was the Mortuary Affairs Unit out of Fort Buchanan in Puerto Rico that identified and removed all of the remains at the Pentagon in Arlington after the 9/11 attack,” Schenck recalled. “Here’s a loyal, veteran-friendly community that has given more to our nation than most people realize as far as service to the armed forces. We’re very proud being a defense credit union. Puerto Rico has a very large percentage of veterans and we’re very proud to serve them.”

PenFed planted its flag in Puerto Rico in 2006 when it merged with Fort Buchanan Federal Credit Union.

In addition to its branch at Fort Buchannan in San Juan, PenFed also operates a branch in Guaynabo.

“Hatillo is our third branch, so right now we have about 100 employees, and we plan to continue to invest in at least two more branches over the next 12 months in the cities of Ponce and Fajardo,” Schenck said.

Even with the risk of another natural disaster striking Puerto Rico in the future, PenFed is prepared to continue business operations, just as it was soon after Hurricane Maria. Because PenFed maintains redundant power and connectivity systems at its branches, the credit union managed to reopen within 72 hours.

In addition to providing more than $150,000 in aid packages and cash to all of its employees, PenFed’s ATMs began working on the second day after the hurricane and fees were waived for all Puerto Ricans. Additionally, the credit union supplied more than 50 power generators for all of its employees.

The new Hatillo facility, built to sustain more than 200-mile-an-hour winds, was outfitted with special glass windows and shutters, and redundancies for power, connectivity and satellite phones.

What’s more, the new branch houses showers, ready-to-eat meals and potable water supplies. Taking care of employees in the immediate aftermath of a disaster is an essential part of business continuity planning – if employees don’t have power at home, access to food, drinkable water and day care services for their children, they won’t be able to report to work to serve members.

Just six months after Hurricane Maria, PenFed sponsored a benefit concert headlined by Gary Sinise & the Lt. Dan Band to raise awareness about Puerto Rico’s hurricane recovery needs. The concert, made possible by PenFed’s $100,000 contribution to the Gary Sinise Foundation, was also sponsored by American Airlines, its Envoy Air subsidiary and Fogo de Chão San Juan, a Brazilian steakhouse.

At about this time, Schenck heard from Puerto Rico’s leaders there was also a need for financial literacy education for the island’s public and private schools.

The credit union partnered with EVERFI, a Washington, D.C.-based education company, to provide a financial education technology platform at no cost to public and private K-12 schools across Puerto Rico. Students gain access to a curriculum called “Tu Dinero, Tu Sueño” (“Your Money, Your Dreams”). The program teaches students how to make smart financial decisions and achieve success in life.