MADISON, Wis. - This is the epicenter of the credit union movement.

On the northwest side of town, University of Wisconsin Credit Union has opened a plush $8 million headquarters that's the envy of the town's bankers. Early this year, on the northeastern part of town, State Capitol Employees Credit Union raised its new home in an office park.

Besides being sandwiched between these two large institutions, Madison is home to 26 other credit unions as well as the industry's dominant trade group, the Credit Union National Association.

If you think all this gets Mad Town bankers riled, you'd be right.

"They're very, very tough competition in our marketplace," said E. David Locke, president and chief executive of McFarland State Bank. UW Credit Union in particular is "renowned for being aggressive," he noted.

"They've been expanding their physical size; I'm expecting the size of their business to grow as well," said James Bradley, chief executive of $100 million-asset Home Savings and Loan Association, across the street from the state capitol.

Still, the assets of Madison's seven banks dwarf those of its 28 credit unions, $3.3 billion compared with $770 million. Also, bankers have prospered in the city's robust economy: Last year they racked up a 1.08% return on assets, the same as credit unions'.

Indeed, Andrew Faust, chief executive of State Capitol Employees, dismisses the thought that bankers could be threatened by his $168 million- asset institution, the area's second-largest credit union behind UW Credit Union.

"I don't see Bank One or (Marshall & Ilsley) shaking in their boots because we're in the marketplace," said Mr. Faust, who started at the credit union 20 years ago as a teller and remembers when a calculator was considered high tech.

Credit unions may be mere gnats to the midwestern regionals, but, with low loan rates and high yields on deposits, their bite is sharp enough for community banks to notice.

"They're very competitive for loans and deposits, particularly deposits," said Gary S. Harrop, president and chief executive of $33 million-asset Mazomanie State Bank, just outside Madison.

Officials at AnchorBank, with $1.7 billion of assets, agree that credit unions have to be taken into account.

"They're unquestionably major competitors," said chief executive Doug Timmerman. "They're competitive in all areas of depository products and term accounts, and they also have a vast array of consumer-oriented loan products."

Mr. Faust said State Capitol Employees doesn't set out to be a rate shark.

"We concentrate on helping members with their needs," he said. "We don't consciously stack ourselves up against a particular institution."

Car loans are the bread-and-butter businesses for both big credit unions, but they are making inroads into home loans.

UW Credit Union is looking to expand its presence in the mortgage business. To that end, it is cultivating relationships with real estate brokers. Its new headquarters contains several empty offices for future mortgage loan officers.

"We want to be players in the mortgage market," said Don Percy, president and chief executive of the UW Credit Union, which has $276 million of assets.

Mr. Bradley of Home Savings sees credit unions as growing contenders for residential real estate loans, particularly during refinancing cycles.

"When rate becomes important, they are very strong competitors," he said.

Also galling to bankers is that virtually any Madisonian can join a credit union.

The area's two largest credit unions were chartered to serve, and have easy access to, two important constituencies in Wisconsin's capital: state employees and university workers and students.

But they also have expanded their membership base. For instance, State Capitol Employees recently changed its charter to include anyone who lives or works in Dane County, the county containing Madison. UW Credit Union's membership field includes anyone living within a mile of its eight branches.

Believing that the Madison market is saturated, Telco Community Credit Union has looked to the rural communities surrounding it. It serves all of nearby Grant County and is trying to expand its charter to include Iowa County, which is adjacent to Dane.

Telco Community's expansion especially has teed off bankers. Sources said last year the Wisconsin Bankers Association and some banks investigated the feasibility of suing the $52 million-asset credit union.

Nothing has come of that yet, but association executive vice president Harry J. Argue said the trade group will remain vigilant.

"We are keeping our eyes open," he said. "If we see a violation, we will bring action."

Bankers gripe about credit union encroachment, but other credit unions seem to tolerate turf battles.

"We have a lot of overlapping charters, but we also cooperate with each other," Mr. Faust said.

For example, some area credit unions are opening a chain of jointly owned branches, known as shared branches. And for the past five years, State Capitol Employees, UW Credit Union, Telco Community, and Commonwealth Credit Union have jointly run a telephone-based bill-paying system.

Officials of Dane County credit unions also gather once a month for breakfast to talk about issues.

In some parts of the country, small credit unions have lambasted their larger peers for being too aggressive. That isn't the case in Madison.

"There's competition anywhere," said Marcia L. Burkhardt, chief executive of UW Employees Credit Union, which has $7 million of assets and serves full-time, nonteaching employees. "We do what we do and hope our members like it."

When credit union officials are asked why they're succeeding, they offer the industry's standard line: They treat people well.

"When you look in the paper, there's this much difference in rates," Mr. Percy said, holding his thumb and forefinger a hair's breadth apart. "It boils down to service."

UW Credit Union and Mr. Percy take service seriously. To keep it up to snuff, the credit union requires every employee to receive training in different parts of the business.

"Learning is highly valued here," said Mr. Percy, a former university professor and administrator, who also has worked under two former Wisconsin governors. "Loyalty can be fleeting. You have to prove yourself again and again."

Across town, State Capitol Employees shows signs of that same philosophy.

"We break all kinds of rules" for our members, Mr. Faust said. "We mold products to our customers' needs, rather than just sell them what we have. We offer first mortgages for when someone doesn't fit the secondary-market cookie-cutter approach."

Indeed, some bankers concede that credit unions do enjoy a solid relationship with their members.

"They really do hold an affinity with their membership," said Mr. Bradley.

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