Credit unions fall in numbers, grow in assets

| Sunday, May 11, 2008

As the economy sags and credit markets remain roiled, the number of Pennsylvania credit unions has slumped below 600, the worst showing in 60 years.

So why was the mood so positive recently at the Pennsylvania Credit Union Association's annual convention Downtown?

"In these bad times, credit unions see there are opportunities for them," said association Chief Executive James McCormack. "They are not cutting back. They have money to lend."

Credit unions, those quaint little nonprofit financial institutions, have more than survived. As Pennsylvania plants closed and companies collapsed over the years, credit unions converted from company charters to community charters and merged with other credit unions -- bolstering balance sheets to exploit market opportunities.

Like mortgage refinancing. The many homeowners these days with adjustable-rate mortgages that are resetting to unaffordable levels are finding friends at their local credit unions.

"Mortgage refis is probably our busiest area right now," said Kevin Anglemyer, CEO of Allegent Community Federal Credit Union, Downtown. "People are trying to get out of their ARMs (adjustable-rate mortgages) and into a fixed-rate loan."

Allegent expects to originate an average dozen or so mortgage loans a month, or nearly $10 million in total, over the next 12 months, said Anglemyer. That's considerable, given Allegent's total assets of just $112 million as of March 31. That number's tiny compared to commercial banks such as PNC and Citizens, which have billions in assets.

A nice bump in refi volume is showing up at Hershey Federal Credit Union, said President Diana Roberts, who chairs the state credit union association. The Hershey institution's 5.87 percent fixed rate for a 30-year mortgage and 5.37 percent for 15-year fixed roughly matched national averages in early May, according to figures from

"Federal credit unions are a safe haven from some of the things that are going on in the economy right now," said Roberts. "We tell members we did not make any subprime loans, so we're not affected by what's been going on."

With few, if any exceptions, Pennsylvania credit unions originated no subprime loans, said association CEO McCormack. So they have not been beset by spikes in mortgage defaults and deflated home values, as have many commercial banks that did write subprime mortgages.

Rather, credit unions have responded to other challenges. "Like many other industries, our movement has been consolidating," said McCormack. "Companies in Pennsylvania have either closed up or downsized."

That phenomenon depressed the state's number of credit unions from an all-time high of 1,556 in 1980 to today's 590. That's lower than at any time since 1948, 60 years ago, when they numbered 596, say association records.

But credit union assets and deposits have continued to grow because they either merged or converted from company charters to community ones. For instance, Pennsylvania had 1,008 credit unions with about $9 billion in deposits and $10 billion in assets at year-end 1992. At year-end 2007, it was 599 credit unions, but with more than $22 billion in deposits and almost $26 billion in assets.

The former US Airways Federal Credit Union in Moon is a classic example. With its airline-worker members being laid off in droves, it converted to a community charter. Clearview Federal Credit Union was formed in September 2004 when US Airways declared its second of two bankruptcies in two years.

"The negative impact of the US Airways name was carrying over to us," said Clearview Vice President Ralph Canterbury, explaining the charter change. "We had to keep telling people we were not part of the airline and that we were profitable."

US Airways' cutbacks in Pittsburgh and other bases cut into the credit union's scope. Where it once had a dozen branches at base cities such as San Diego and Indianapolis, the credit union's only office outside the Pittsburgh area now is in Charlotte, N.C.

Clearview had 70,000 members at its inception in 2004, when about 70 percent of members worked for the airline. That's grown to 76,000 -- remaining Western Pennsylvania's largest credit union -- but only 50 percent work for US Airways.

A big part of Clearview's growth was through a merger in February. It combined with Hopewell Joint School Employees Federal Credit Union, which added about 3,000 members and some $15 million in assets, said Canterbury.

Clearview has added six area branches in the last two years. And it expects to open two more, in Pine and in McMurray, by the end of the year, he said.

Credit unions have branched into business lending in the last five years or so. About one in six Pennsylvania credit unions writes business loans, said McCormack. The typical business loan is between $100,000 and $1 million and often for a piece of equipment, he said.

"As credit has dried up at banks, credit unions are welcoming small-business loans," said McCormack.

"It's a niche that credit unions have found because larger banks don't want to deal with small loans, like $1,000 for a truck," said Canterbury.

In the last few years, credit unions have expanded their business lending by forming joint ventures called "credit union service organizations." For example, Allegent is joining such a venture to provide auto loans through car dealers, which should be operating by year-end.

"We expect the vast majority of dealers in Western Pennsylvania would sign on," said Anglemyer. When a car buyer obtains the so-called indirect auto loan at the dealer, he or she becomes a credit union member.

Pennsylvania has eight such joint ventures, with nearly all in the eastern half of the state. The exception is Keystone Business Lending Solutions, formed in 2006 by Clearview and six other local credit unions.

"We probably have about $5 million to $7 million on our books from Keystone," out of Clearview's roughly $600 million in assets, said Canterbury. "That's not a lot by bank standards, but it's significant for us."

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