Unburdened by Real Estate, Industry Is Having Big Year

WASHINGTON -- Here's some news to lighten up depressed confidence about the economy: The credit union industry, despite a full-blown recession and a banking crisis, is having one of its best years ever.

For the first half of 1991, earnings at the nation's 13,924 credit unions hit a record $970 million, up from $960 million for the year-earlier period.

Delinquent loans remained steady at a modest 1.6%, while charge-offs of a mere 0.6% stood out strongly against the heavy writeoffs at banks and thrifts.

Capital Ratio Climbs

Perhaps most significant was the strengthening of the industry's asset quality. Its capital-to-assets ratio reached an all-time high of 8.1%, compared with 7.8% in the first half of 1990.

And that came as credit unions were growing.

According to the Credit Union National Association, the industry's largest trade group, assets jumped 7% in the first half of the year to $235 billion, from $218 billion in the 1990 period. Deposits soared by 7.5% to $214 billion from $199 billion, while loans inched up to $139 billion from $138 billion.

"It has been a phenomenal year," said Robert C. Dettmer, chief operations officer of San Antonio City Employees Federal Credit Union.

The Texas thrift's earnings rocketed nearly 76% to $700,000 in the first nine months of 1991. Its credit-card delinquencies stand at a mere 1% of outstandings.

Even credit unions in the most depressed regions of the nation are doing relatively well. New England institutions posted the highest number of delinquencies, at 3.4% of their loan portfolios, but still maintained an 8% capital-to-assets ratio.

"It is as if the recession had never happened for credit unions," said Charles W. Filson, president of Callahan & Associates, a Washington-based credit union consulting firm.

"We have no foreign risk, we have no commercial risk, we don't finance TWA, we haven't financed Braniff, we haven't financed Pan Am," said Wendell Sebastian, president of GTE Federal Credit Union, which has $222 million of assets.

Best in History

The last two months were the most profitable in the Tampa, Fla.-based credit union's 56-year existence, he said.

It earned $300,000 in the first six months of the year, and should report $1.5 million for the second half, Mr. Sebastian predicted. "We have become very aggressive at lending," he said.

Most credit unions have avoided the commercial real estate trap that snared so many banks. The losses at the few that did succumb to real estate, primarily in New England, were responsible for the National Credit Union Administration's decision to impose an insurance premium on the industry for the first time in seven years.

Loan demand, meanwhile, is solid.

A Bigger Piece of the Pie

"Car loans are an all-time high," said John Siefken, president of Construction Equipment Federal Credit Union, a $751 million-asset institution in Peoria, Ill. "We are just getting a much bigger piece of the pie."

Construction Equipment saw a 14% jump in profits to $7.2 million in the first nine months of 1991 and maintains a 70% loan-to-deposit ratio.

Mr. Siefken says his credit union is benefiting from problems at banks as well as from public concern about the soundness of the Bank Insurance Fund.

Credit unions also are marketing themselves more aggressively. San Antonio City offers a service called Loan Express that promises to dispatch and process loan applications with 24 hours. It delivers applications by fax and, occasionally, even by loan officer.

The Texas credit union booked $400,000 of loans in the first month of the program last December. Originations rose to $1 million in October, shepherded by one loan officer and two assistants.

Rates on Deposits

GTE Federal, for its part, has been attracting 50 to 100 new credit card accounts a day because of recently reduced rates - to 15.9% from 16.6%, according to Mr. Sebastian.

Credit unions also are becoming more hard-nosed. The rates they pay on deposits tend to outpace those at banks, but they have been falling.

William Hampel, chief economist at the Credit Union National Association, said the average passbook rate dropped to 5.5% in August, from 6% a year earlier.

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