While some credit unions and community banks anticipated interest rate increases and offered high returns to attract deposits, Crescent Credit Union in Brockton followed a more conservative strategy.

The National Credit Union Administration has issued a report that found credit unions across the nation posted “strong growth” in the first six months of 2002. Local credit union officials, meanwhile, say that while results in the first half of the year were mixed, the industry overall is poised to match in 2002 the strong showing it had in 2001.

Nationally, total assets at credit unions grew 7.45 percent to $538.9 billion by June, up from $501.5 billion at the end of 2001, according to the NCUA, which gathered the data from call reports of the nation’s federally insured credit unions.

Nationally, savings increased 7.68 percent to $470.7 billion, aided by growth in both shares (12.9 percent) and money market accounts (15.3 percent).

In general, local credit unions also are experiencing a good year overall, said Robert B. Kimmett, senior vice president of the Massachusetts Credit Union League. If this year’s first-half figures are annualized, it looks as if the credit unions of Massachusetts are on target to match 2001’s growth rate of 14 percent, he said. In 2001, credit unions in the Bay State had $16.7 billion in assets.

“2002 is shaping up to be another good year for credit unions as consumers continue to look for local institutions that provide caring, quality service. Deposits continue to flow in from consumers that have embraced a more conservative money management style. Loans outstanding continues to grow, led by real estate,” Kimmett said.

Grafton Suburban Credit Union, which has assets of $105 million, experienced 10 percent growth across the board – including assets, loans and deposits – in the first half of 2002, the same growth rate it had in 2001, said William B. Connor, Grafton’s chief financial officer.

“We’ve been averaging between 8 and 10 percent [growth] the past three or four years,” he said.

Additionally, Grafton has experienced a 5 percent growth in membership to 14,000 as compared to the national average of 1.1 percent. Nationwide, there are now 80.3 million people who are members of credit unions.

Solving the Puzzle

The recession has definitely had a part to play in the growth of the credit union, said Connor. “Especially with the stock market, we’re seeing a lot of people come to the safe haven of the credit union. They’re confident that we’ll protect their money,” he said.

But Brian W. Neal, chief executive officer and president of Key Credit Union in Revere, said his credit union’s growth was so far in 2002 is flat compared to last year. Neal sees a combination of factors that played into the lack of growth. In part, increasing competition among the regional banks such as FleetBoston Financial has resulted in a much more aggressive bid for market share as those institutions seek to compensate for increased stress on the balance sheet, he said.

“They’re spending lots of money. That increases the competition among community banks, as well, [which] have ramped up their level of competition and also their level of consolidation,” he said. While this isn’t necessarily negative for credit unions like Key, which still has a solid niche, it results in fewer opportunities for growth at the $27 million-asset institution.

Demographics play a big role in how an institution fares during the recession. According to Connor, Grafton is in the midst of a growth cycle. “Grafton and the surrounding towns have seen an enormous growth in new housing, bringing in new people to the area – that’s another piece of the puzzle,” he said. Additionally, low interest rates have bolstered residential loan volume.

Even if the stock market reverses and people begin to draw their money back out of the credit unions, Connor said he thinks Grafton will be able to maintain its 10 percent growth rate. “We had a strategic planning session a couple of weeks ago and [with] the growth projections of the towns that we serve, we can easily maintain that 8 to 10 percent growth per year,” he said.

Key has a more urban market, including a Charlestown branch in the Hood Office Park. “We saw a number of tech companies, for instance, come and go within the 24 months that we opened that branch. So that effected us on a location basis,” said Neal.

But a high growth rate isn’t a golden goal for Key, said Neal. While real estate is booming because of low financing rates and Key has benefited as a result, “we weren’t aggressively going after the real estate market simply because we didn’t want to overly expose ourselves to the risks associated with that,” he said. As a result, Key had a slightly negative loan volume growth rate. “Just after the first of the year, credit quality started to decline and credit quality of the average borrower started to decline. That was generally because people were leveraging themselves out more and more,” he said. As a result, Key was less aggressive with its loan marketing, which has mitigated the increased risk some other institutions faced. Key recently decreased its 60-day loan delinquency rate to less than one-half of 1 percent, said Neal.

Key saw about a 3 percent growth rate compared to last year, which Neal said is desirable. “We’re fairly conservative in our approach. We don’t chase earnings, we don’t chase growth just for the sake of growth,” he said.

Neal said that commercial banks might feel more pressure to produce earnings. Key’s focus is on making the customer happy. If growing the credit union meshes with that mission, all the better, he said. But for Key, growth isn’t a priority for its own sake.

As was the case with Grafton, Key’s growth is in part attributable to an exodus of funds from the stock market. “We saw people liquidating money out of the equities and even some of the debt securities and moving them into CDs and more conservative investments. That’s where we got a good portion of our growth,” Neal said. The mean age of Key’s customer base is the mid-50s, a group that saw much of its retirement savings evaporate in the bear market. Neal said he believes that even when the flow of money back toward the stock market begins, it won’t herald a sea change at Key. Many investors, he said, will remain cautious and the money that poured into credit unions won’t be moved back out again all at once.

“We won’t see a ton of money outflow but we will see some,” he said. “Enough people suffered some losses that they realized they need to be diversified. Part of that diversification is maintaining a certain percentage of your assets in conservative vehicles, such as a CD.”

Crescent Credit Union has also been conservative during these times. With $260 million in assets, the Brockton-based credit union experienced flat growth for deposits in the first half of 2002. Although some credit unions and banks bet on interest rates going back up and offered higher rates to attract deposits, Crescent didn’t because it wasn’t sure rates would increase. “As it turns out, rates didn’t go up,” said Robert W. Gustafson, president and chief executive officer of Crescent. “So now those banks and credit unions have those funds at higher costs.”

Loan volume at Crescent has increased 11 percent over the past year in all categories, including mortgages, auto loans and equity, he said. Crescent has also experienced about a 10 percent increase in membership to 42,000. Gustafson attributes that growth to the increase in loans for which applicants must be a member of the credit union.

Overall, credit union executives said the health of the industry remains strong. “I think we’re fairly healthy and we’ll weather any downside fairly well,” said Neal.