Banking On
A Good Idea

Mike Field
Staff Writer

But what about the seven Hopkins employees who each coughed up five dollars to create a financial entity that has grown to more than $82 million in assets?

The Johns Hopkins Federal Credit Union, currently celebrating the 25th anniversary of its founding in 1971, is a Cinderella story among financial institutions. From its modest beginnings with seven members and $35 in assets, it has grown to become the 11th largest credit union in the state, serving 22,000 members from the university and hospital communities.

"When we first started, all services were provided on a strictly volunteer basis," said Fred DeKuyper, associate general counsel for the University. DeKuyper, who at that time served as the university's labor relations officer, was one of the original seven participants whose deposits allowed the fledgling organization to be registered with the National Credit Union Administration. On June 2, 1971, the national organization granted the Johns Hopkins Federal Credit Union its charter, enabling the new financial institution to open its doors for business.

The only problem was, there were no doors to open. Initially an institution on paper only, the credit union had no office, no employees and nary even a deposit slot. Automatic payroll deductions accounted for more than 98 percent of all savings deposits. Loans, which became available in November of that year- -but only to members who had six or more months' service with the university--could be made up to the amount of $250. Membership in the credit union was restricted to university employees and their families.

Yet even with these limited services, the credit union grew and grew, perhaps because the idea itself had proved so successful elsewhere. The first credit union was established in Germany in 1848, when the members of a town banded together to pool their savings and make loans to each other at a low interest rate.

Credit unions are democratic. The depositors, who become members by purchasing "shares" in the organization equal to the value of their deposits, elect their own directors and officers who, in turn, oversee the operation of the venture. Profits--made by charging interest on loans, charging bank fees and making investments with cash reserves--are returned to members in the form of dividends on their account balance. Because the credit union exists specifically to benefit its members, loans made by the institution are generally at a lower rate--sometimes significantly lower--than are available through commercial lenders.

"On the top of our organizational chart are our members, which makes us quite different from conventional banks," said Michael Mesta, president and CEO of the Johns Hopkins Federal Credit Union. Members choose representatives to the 13-person board, whose directors are elected for three-, four- or five-year terms. The board oversees the administration of the credit union, which currently includes two branches, one administrative office and 32 full-time employees.

Currently, the Hopkins Credit Union keeps reserves equal to 12.5 percent of its assets, a fairly conservative ratio that insures fiscal solvency in even the most hard-pressed economic times. Conventional banks, by contrast, often have reserves of only 3 to 4 percent of assets, said Mesta.

"Of our loans outstanding to members we are split into thirds: approximately one-third of the amount is lent in unsecured signature loans, one-third in car loans and one-third in real estate," he said. In recent years the credit union has made inroads into the highly competitive home equity loans, initially offering the loans at prime plus 1 percent.

"We started there, but after about three years we reduced the rate to prime plus one-half percent," Mesta said. "Anyone who had signed an agreement with us previously had his or her loan automatically lowered to the new rate." Recently, the credit union lowered the home equity rate to prime. Once again, all previous lenders were automatically readjusted to the new rate. "Membership," said Mesta, "has it advantages."

Automation has always been an integral feature of the credit union's operation, and in the future Mesta predicts an expansion of its electronic services such as the popular Touchtone Teller Service, which currently logs over 30,000 calls per month. "We're looking for a P.C.-based system that will allow our members to perform many of their banking services from their own computer," he said. "And members should look for a Web site in the next year."

The goal, said Mesta, is to continually improve member services while achieving new efficiencies to help keep costs down--and dividends up. "The success has been just phenomenal," said DeKuyper of the way the credit union has grown in recent years. One of the original depositors whose $5 help launched the venture, he remains a regular member to this day. "I have just one bank account and that's at the credit union," he said. "It has always served me well. I expect it always will."