Credit Union Membership Up; Strong Gains in Assets, Loans

With membership on the rise, the nation's credit unions last year posted their biggest asset gains in five years.

Credit union assets jumped 7%, to $355 billion, as membership in the organizations swelled by more than two million people, to 72.1 million, according to data from Sheshunoff Information Services.

The growth was especially pronounced among the top 75 credit unions. Their assets jumped 9%, to $85 billion.

The fastest growing of the top 75 was Digital Employees Credit Union in Maynard, Mass., which grew by 26.33%, to $576 million. The largest, Navy Federal Credit Union, grew 8.33%, to$9.7 billion. (Complete tables begin on page 9.)

Ironically, some credit union officials attribute the gains to the efforts of commercial banks. A high-profile dispute between banks and credit unions over credit union membership has had the effect of raising public awareness about the benefits of the organizations, said John Annaloro, president and chief executive officer of the Washington Credit Union League in Washington State.

He pointed to advertising campaigns in which the banking industry complains of credit unions offering better rates because of tax advantages. "The banks have done our industry a great favor," Mr. Annaloro said. "I don't think many people listen beyond the first sentence of those ads before they say, 'Where can I sign up?'"

The 7% asset growth at credit unions, up from 6.3% in 1996, was the largest one-year gain since 1992's 11%.

Assets grew faster at commercial banks than at credit unions last year- by 9.5%, to $5.01 trillion, according to the Federal Deposit Insurance Corp. But loans grew faster at credit unions than at either banks or thrifts, according to the Sheshunoff data.

The top 75 credit unions boosted loan holdings by 10.36%, to $54.8 billion. Loans at all credit unions climbed 10.88%, to nearly $235 billion. Particularly active was the State Employees Credit Union in Raleigh, N.C., the nation's second-largest credit union. It boosted its loan portfolio by 22%, to $4 billion.

By comparison, loans in-creased 5.7% at commercial banks and just 1.4% at thrifts, according to the FDIC.

Meanwhile, large credit unions, which serve 17% of the industry's customers, posted stronger earnings than their smaller counterparts. Net income at the 75 largest credit unions increased 3.41%, to $889 million, while profits for the industry as a whole fell 1.03%, according to the Sheshunoff data.

Bill Hampel, chief economist for the Credit Union National Association in Washington, said the drop in net income is not an indication of the industry's health. "The goal of credit unions is to put earnings back into operations," he said. "If their capital levels are fine, there is no need to grow income."

In fact, he said, he had expected net income to fall more dramatically. A drop in short-term interest rates caused income levels to jump during the early 1990s, and "I thought it would come down just as fast," Mr. Hampel said.

The smallest credit unions-those with 500 or fewer members-seem to be having a harder time finding quality loans. Nonperforming loans made up 5.72% of the portfolios of the smallest institutions, compared to the industry average of 2.61%.

As with small banks, the performance of smaller credit unions is hindered by high overhead, said Chip Filson, president of credit union consulting firm Callahan & Associates Inc., Washington. "They have to meet the same regulatory and administrative expectations as all credit unions, but have less resources to do so," Mr. Filson said. For that reason, he said, many small credit unions have merged.

The number of credit unions declined 2% in 1997, to 11,363. A decade ago more than 15,000 credit unions were operating.

Credit unions have the highest share of deposits in Kansas, with 35.3% of all depository-institution deposits; in Alaska, with 29.7%; and in Utah, with 20.4%.

Laws on the books in some of those states have helped credit unions grow, Mr. Hampel said. Utah, for example, lets its institutions serve the entire state.

Nationwide, credit unions' share of insured deposits decreased slightly in 1997, from 9.15% to 9.12%. Credit unions hold less than 3% of deposits in Puerto Rico (1.1%), Delaware (1.6%), and Arkansas (2.8%).

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