ALEXANDRIA, Va. - Pentagon Federal Credit Union is retrenching as its military sponsors - the Army and Air Force - cut back.

The country's third-largest credit union is concentrating on retaining its 418,000 members by cross-selling products and adding services.

"There are fewer and fewer Army and Air Force members, so we have to focus on member retention, and we have to sell them more things," said president and chief executive Ronald L. Snellings, a 34-year industry veteran who has been at Pentagon Federal since February 1987.

Keeping members after they leave the military "gets down to whether they're satisfied with the service," said Mr. Snellings, 61, whose office looks out on the Potomac River and his birthplace, Washington.

So far, Pentagon Federal's approach appears to be working. Last year, its membership grew only 2%, but its assets jumped 21%, and its loan portfolio swelled 23%.

This year, assets are on track to grow another 13%, to nearly $2.3 billion, and Mr. Snellings is confident this pace is sustainable.

"As long as we're able to support it with deposits, we're fine," he said. The credit union's capital ratio stands at 9.1%, and its total delinquency ratio is only 0.4%.

Last year, Pentagon Federal attracted funds by pushing competitively priced certificates of deposit, including some new instruments. Rates on 30-month money market and individual retirement account certificates ranged above 7.5%.

Meanwhile, it aggressively made loans. New-auto loan rates dipped as low as 5.9% in 1994, and new adjustable-rate mortgage products helped Pentagon Federal increase its real estate portfolio by 21%, to $336 million.

Pentagon Federal also started a mutual fund program in 1993 to hang on to members who were interested in nondeposit financial products.

"If we can get you to use four different products, you're locked into us unless we really foul up," Mr. Snellings said.

To ensure that Pentagon Federal doesn't foul up, Mr. Snellings has been making it easier for members to do business with the credit union. With only 14 branches, it relies heavily on telephone and mail to reach its membership.

The credit union has phone banks in Virginia and Nebraska to field questions from members. It is considering opening a center in Oregon to handle callers better in the Pacific time zone. And working with the Defense Switched Network, members overseas can call the credit union toll- free from anywhere in the world.

"If you're a member of Pentagon, there's virtually no place on Earth where you can go that we can't get to," he said.

The credit union also maintains, and last year upgraded, a 24-hour audio-response system that members can use to apply for loans and buy CDs. It is now testing out PC-based home banking.

"I don't see any reason to deny a member a means of access to the credit union," Mr. Snellings said.

For the past few years, Pentagon Federal has used focus groups and other marketing techniques to keep tabs on what its members want. This fall, it plans to roll out a checking product aimed at members who don't keep minimum balances. The account pays no interest, but it charges no fee and will allow three to five free transactions a month at automated teller machines.

The credit union also checks up on service quality.

For instance, two or three times a year, it calls members to find out how long they had to wait in a teller line and how well they were treated, Mr. Snellings said.

But more needs to be done to keep members satisfied, he said. For instance, the credit union denies 30% of loan applications, a ratio Mr. Snellings said is too high, particularly because a good number of those denials are reversed on appeal.

"We need to get that number down," he said.

Mr. Snellings said he might not be around to guide Pentagon Federal much longer. He may retire as early as February 1997 when he will have completed his 10th year at the credit union and 36 years in some of the industry's largest institutions.

Mr. Snellings started in credit unions in 1961 when he left the bank where he had worked since age 15 to be assistant manager at Navy Federal Credit Union.

He quit the bank after realizing it offered no room for him to advance, and the same motivation pushed him to leave Navy Federal in 1979. He had lost out for the top job to Joseph Scoggen who, unlike Mr. Snellings, had military experience.

Mr. Snellings headed west, where he worked at San Francisco-based Patelco Credit Union. In 1987, he returned east to take the top job at Pentagon Federal.

When he talks about changes he's witnessed in the industry, Mr. Snellings mentions its explosion in size and increased sophistication. But he also notes the attendant controversy.

"It's amazing to me the industry is in so much conflict right now," he said. "I don't know if it's egos ... or what."

Mr. Snellings has injected himself into the fray on two recent occasions.

This year, Pentagon Federal quit the Credit Union National Association because he opposed its decision to sue the National Credit Union Administration. CUNA is fighting the agency's attempt to eliminate shared management between industry trade groups and liquidity centers.

Some have charged Mr. Snellings with playing trade group politics because the National Association of Federal Credit Unions - of which he is a director - also criticized the lawsuit.

Mr. Snellings said the decision isn't necessarily permanent.

"I think if they get it resolved, we'll probably be back - but it'll be a while," he said.

Although Mr. Snellings doesn't approve of suing a regulator, he's not above criticizing one. For instance, he has led a group of institutions that lost money in the failure of Capital Corporate Federal Credit Union.

They charge that NCUA didn't sufficiently protect their capital deposits during Cap Corp's resolution. They're demanding reimbursement; Pentagon Federal lost $1 million in the debacle.

"I think it could have been saved," said Mr. Snellings. "It was only a big liquidity problem."

So far, the efforts of Mr. Snellings and the other credit union officials appear futile. During a recent closed meeting with more than 100 former Cap Corp members, NCUA Chairman Norman E. D'Amours made it very plain that no refund would be coming.

Perhaps Mr. Snellings' recent experiences have helped form one ambition that would pull him away from retirement and a return to the golf course: serving on the NCUA board.

"As someone with experience in the industry, I think I could make a difference," he said. "Otherwise, I'll try to get below 100 again."

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