THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Sunday, August 13, 1995 TAG: 9508140108
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY TOM SHEAN, STAFF WRITER
LENGTH: Long : 188 lines
When David Antonicelli applied for an auto loan from Amphibious Base Federal Credit Union last year, he learned within minutes whether he would qualify.
Because of its attentive, low-cost service, the 29-year-old supermarket manager was already using the Virginia Beach credit union for his checking account and savings.
``They have the best service around,'' Antonicelli, a Chesapeake resident, said recently while depositing a paycheck.
For years, credit unions have won high marks from members like Antonicelli. In a 1994 survey by the financial newspaper American Banker, 72 percent of the credit-union users polled said they were ``very satisfied'' with the service they received.
That was significantly better than the 61 percent of bank customers and 54 percent of thrift customers who said they were ``very satisfied.''
Despite the loyalty of their 68 million members and their generally strong financial shape, the nation's 12,400 credit unions have some powerful critics: federal regulators and banks.
In the wake of a widely publicized failure of a Maryland credit union in January, the agency that supervises federally chartered credit unions has stepped up its oversight and is drafting more stringent rules for credit-union investments.
The failed credit union, Capital Corporate Federal Credit Union in Lanham, Md., triggered the heightened scrutiny by regulators because of its unusually risky investment practices. It had been a so-called ``wholesale'' credit union that invested excess funds for regular credit unions and provided them with loans and check-clearing services.
On a separate front, banks have stepped up their criticism that some credit unions have expanded their fields of membership so broadly that they have overstepped their legal boundaries. Since 1990, banking organizations have taken this argument to courts in eight states. Several of these cases are still pending or are on appeal.
Bankers also have advocated that credit unions' tax-exempt status be lifted when they reach a certain size.
``Their lower fee structure is due to the fact that they are not paying taxes,'' said Walter C. Ayers, executive vice president of the Virginia Bankers Association. ``Credit unions have clearly made the decision to compete with banks. We feel there's no longer a justification for their tax exemption.''
Ayers is one of 15 members on a American Bankers Association task force created earlier this year to study credit-union issues.
Credit unions are member-owned, nonprofit organizations whose history dates back to 19th-century Germany. Early in this century, they took root in the United States because they enabled workers, church parishioners and others to pool their savings and make small loans to fellow members.
With the deregulation of financial services that began in the 1970s, credit unions have been able to offer consumers most of what banks and thrifts can, including credit cards and home loans.
Over the years, the credit-union movement developed strong ties with the armed forces because they provided many military personnel with greater access to savings accounts, checking accounts and other financial services. Membership in defense-related credit unions became widespread in Hampton Roads, where four of the region's five largest credit unions have ties to military installations.
Despite their growth locally, credit unions still account for only a modest share of the financial-services industry nationwide. With combined assets of $309 billion, they have less than half the assets of thrifts and only 8 percent of the $4.1 trillion of assets at banks.
In Virginia, the overall number of credit unions has been declining. But their membership has climbed by almost one-third since 1990 to 3.6 million. During the same period, their loans have swelled 62 percent to $11 billion, and deposits have jumped 69 percent to almost $15 billion.
Navy Federal Credit Union accounts for part of that. The Vienna-based organization has assets of more than $8 billion and operations throughout the world.
However, two-thirds of the 74 credit unions based in Hampton Roads have assets of less than $10 million each.
Credit-union managers in the region attribute the increases in membership, loans and deposits partly to consumer dissatisfaction with banks over fee increases for checking accounts and other services.
Most credit unions provide checking accounts without a monthly service charge or a minimum balance. Many offer credit cards without an annual fee.
``Consumers have realized that there is an alternative to banks,'' said Ronald L. Burniske, president and chief executive officer of Naval Air Federal Credit Union in Virginia Beach. ``In the last three years, we haven't touched our fees.''
Credit-union managers say their institutions also have attracted members by providing small personal loans, which banks tend to avoid because of their administrative cost.
The Navy Yard Credit Union in Portsmouth makes personal loans for as little as $250 with minimum monthly payments as small as $25, said David Martin, executive vice president of the 17,000-member credit union.
But for Walter P. Jones of Chesapeake, credit-union membership has meant more than low-interest loans and good personal service.
Within months of taking a job as an insulator at the Norfolk Naval Shipyard in 1962, Jones joined the Portsmouth shipyard's Navy Yard Credit Union. The members, he said, have a voice in the credit union's operation and elect their fellow workers to the board.
``You built up a rapport with people,'' said Jones, who is retired. ``You knew whether Joe was someone you could trust with your money.''
The strict definition of a credit union's ``common bond'' among members began to erode in the early 1980s when a severe recession brought a wave of factory closings. Rather than disband the credit unions at these plants, federal regulators arranged to have them folded into other credit unions. Regulators also became more flexible when interpreting the common-bond requirement for expansion-minded credit unions.
At Naval Air Federal Credit Union, the field of membership began with employees and service personnel at the Norfolk Naval Air Station. But the Virginia Beach-based credit union gradually extended its membership eligibility to employees at more than 500 companies.
Today it has 130,000 members, including 60,000 in Hampton Roads. Naval Air is providing a service to the 500 companies and their employees, said Burniske, the credit union's president.
``They aren't big enough to have their own credit unions. Why should their employees be denied the availability of a credit union?''
Bankers say they have a legitimate reason why.
``We have a lot of little credit unions that are not a problem, but some others are huge,'' said James F. Babcock, chairman and chief executive officer of First Virginia Bank of Tidewater in Norfolk. ``What they have done is expand their definition of `common bond' to the point where it's meaningless.''
Despite the mounting pressures from banks and regulators, credit-union managers say they are pressing ahead with ways to better deliver their organizations' services.
It's not an idle concern. For the 10 or so years that the American Banker newspaper has surveyed customer satisfaction with banks, thrifts and credit unions, the results for credit unions have routinely surpassed the numbers for banks and thrifts. But the level of satisfaction with credit unions has been slipping.
The 72 percent of credit-union members who said in newspaper's 1994 survey that they were ``very satisfied'' was down from 78 percent in 1991.
Like their counterparts at banks and thrifts, credit-union managers acknowledge that they must find new ways to deliver convenient service while holding down expenses. To do that, a group of 34 Virginia credit unions has opened three shared branches in Hampton Roads.
The first opened last year in Newport News; a second opened in Chesapeake last summer, and a third began operating earlier this month in Virginia Beach in a former bank branch on Virginia Beach Boulevard near Lynnhaven Parkway.
Robert E. Morgan Sr., president and chief executive officer of Amphibious Base Federal Credit Union, said several of his organization's 1,500 members in Chesapeake had asked for a branch in Chesapeake.
Building and operating its own Chesapeake branch would have been too costly for his credit union, Morgan said. By splitting the cost with other credit unions, the Amphibious Base credit union has met the needs of its members in Chesapeake, he said.
Like banks, several of the region's credit unions also are investigating ways to deliver their services by home computer. Applying advanced technology will be crucial to holding onto their members, managers agree.
Navy Yard Credit Union is working on a home-banking system because 43 percent of its members have home computers, said Martin, its executive vice president.
In February, Naval Air Federal Credit Union began posting information about its services and membership eligibility on the Internet. Use of this computerized billboard and reference service already has paid off.
``We had 8,000 inquiries last month and 127 loan applications.'' Burniske said. ILLUSTRATION: Color photo
VICKI CRONIS/Staff
David Antonicelli is very happy with his credit union, Virginia
Beach's Amphibious Base Federal.
Graphics
ROBERT D. VOROS/Staff
HAMPTON ROADS CREDIT UNIONS
Charted by asset size, as of Dec. 31, 1994.
CREDIT UNIONS IN HAMPTON ROADS
[For complete graphics, please see microfilm]
DEFINITIONS
Assets: Loans, investments, real estate, equipment and other items
owned by the credit union on Dec. 31, 1994; the principal measure of
size.
Capital and reserves: The credit union's total capital at year-end
1994; the higher the amount of capital, the better.
Capital ratio: Regulatory capital as a percentage of assets; the
higher the ratio, the better.
Profit: Net income for the year ending Dec. 31, 1994.
by CNB