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Federal credit union operation: A case study

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Federal credit union operation: A case study

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Content FEDERAL CREDIT UNION OPERATION: A CASE STUDY ti , by Paul Gee U * A Thesis Presented to the FACULTY OF THE GRADUATE SCHOOL UNIVERSITY OF SOUTHERN CALIFORNIA In Partial Fulfillment of the Requirements for the Degree MASTER OF ARTS (Economics) August 1959 UMI Number: EP44771 All rights reserved INFORMATION TO ALL USERS The quality of this reproduction is dependent upon the quality of the copy submitted. In the unlikely event that the author did not send a complete manuscript and there are missing pages, these will be noted. Also, if material had to be removed, a note will indicate the deletion. Published by ProQuest LLC (2014). Copyright in the Dissertation held by the Author. Dissertation Publishing UMI EP44771 Microform Edition © ProQuest LLC. All rights reserved. This work is protected against unauthorized copying under Title 17, United States Code ProQuest LLC. 789 East Eisenhower Parkway P.O. Box 1346 Ann Arbor, Ml 48106-1346 U N IV E R S ITY O F S O U TH E R N C A L IF O R N IA GRADUATE SCHOOL UNIVERSITY PARK LOS ANGELES 7. CALIFORNIA Ed. Go Gr 7 This thesis, w ritte n by ...............JEa.ul— Gee................ under the direction of hXs...Thesis Com m ittee, and approved by a ll its members, has been p re sented to and accepted by the Graduate School, in p a rtia l fu lfillm e n t of requirements fo r the degree of MASTER OE ARTS j c D ate..... Auj^stx. . l ? 5 9 . THESIS COMMITTEE lhairman TABLE OF CONTENTS CHAPTER PAGE I. THE PROBLEM AND DEFINITIONS OF TERMS USED . 1 The problem .......... ........ 1 Statement of the problem ....... 2 Background of the problem ....... 2 Importance of the study ....... 5 Definitions of terms used ....... 5 Credit union ........ 5 Federal credit union ......... 6 Hughes Aircraft Employees Federal Credit Union (HAEFCU) ....... 6 Other terms ............. 7 Review of the literature ........ 7 Credit union operation ........ 8 Analytical techniques ........ 9 Branch operation ........... 10 Method of procedure .......... 11 Empirical data ........... 11 Techniques of measurement ...... 12 Membership ............. 12 Total assets .......... 15 Average shares ................. 15 Average loan ........... 14 iii TABLE Of CONTENTS (continued) CHAPTER PAGE Gross income . « . . » . . . m e » 9 9 14 Organization of the remainder of the theSIS ooBoo.eo.0 *9 9•9 14 II. FORMATION AND GROWTH, 194-0-1958 •9 09© 16 Formation . . . . . » < , . . e© ©9ft 16 The role of management ® . •« © 09 17 Charter #»*«••««* •© ©•• 18 Growth o®o©®oo*o»* e© e99 18 Period of experimentation, 194C-194-9 © 19 Membership . » . ® . . .o9 9«© 20 Total assets 9 ©99 23 Patterns of growth • . .•9 999 23 Average shares per member »9 9 99 24 Average loan per borrower • 9 990 24 Liquidation contemplated 0 9 9«© 24 Leadership and management o9 99 a 25 Revival of growth . • » .o9 9O0 26 Period of rapid growth, 1950-1958 ©© 26 Membership „©9 99© 2? Total assets ® . . . . .•0 999 28 Average shares per member o9 0 99 28 Average loan per borrower 99 90© 29 Loan policy changes . . ® 29 i v TABLE OF CONTENTS (continued) CHAPTER PAGE Interest rates.................... 30 Changes in operating practices . . 30 Branch offices . . . .'.......... 31 Summary . .............. 32 III. AN ANALYSIS OF ASSETS AND LIABILITIES . . 33 Assets.............................. 33 Loans to members * ............ . . 34 Cash .................... 4-0 Investments .................. 43 United States Government obligations 44 Savings and loan shares ...... 44 Loans to other credit unions . . . 44 Other assets ............ 45 Liabilities ............. 45 Members’ shares .................... 47 Regular reserve .................... 49 Undivided earnings . ............. 49 Accounts payable and other liabilities 51 Summary ............ 51 IV. SAVINGS AND LOAN OPERATIONS ....... 53 Members’ shares ............ 53 Shares pard xn .oa.oo.o... 33 V TABLE OP'CONTENTS (continued) CHAPTER PAGE Share -withdrawals . . . . ........ 55 Size of share accounts ....... 55 Relationship of shares to loans . . . 58 Loans to members .................. 60 Funds available for loans ..... 60 Types of loans.............. 62 Personal loans ............ 62 Share loans ................ 63 Automobile loans ......... 63 FHA home improvement loans .... 67 Stock loans ............ . 68 Distribution of loans by type . . 68 The demand for loans.......... 70 Reasons for borrowing .......... 70 Cost analysis of loans . ........ 74- Loan turnover ................ 77 Delinquent loans .......... 79 Summary ........ . . . . . . . 79 V. ANALYSIS OF INCOME, EXPENSE, AND RELATED DATA ............ 82 Measurement of expansion ....... 82 v i TABLE OP CONTENTS (continued) CHAPTER PAGE Income................................ 84- Interest on loans to members .... 86 Investments ..... ............ 89 United States Government obligations 93 Savings and loan shares.......... 94- Othei? income.......... 95 Rate of return on average loans and investments . ................ 96 Expense .......................... 96 Salaries.......................... 98 Borrowers' insurance ........ 100 Other expenses ........... 101 Net earnings and dividends............. 105 Net worth and rate of return on average shares ................ 105 Operating ratios ...................... 107 Ratio of expenses to income .... 107 Ratio of salaries to income .... 107 Summary ...................... 109 VI. BRANCH OFFICES........................ Ill The opening of branch offices .... 112 Branch credit union defined .... 112 vii TABLE OP CONTENTS (continued) CHAPTER PAGE Location of HAEFCU branches ..... 114- Culver City branch ........ 115 El Segundo branch ,«•••».. 120 Airport branch . . . . ... • • . 121 Fullerton branch . . . . . . • * 122 Costa Mesa branch ........ 123 Structure of organization ...... 124 Prior to 1955 124 The president .......... 126 The vice-president . . . . . . . . 126 The treasurer ......... 126 The clerk 127 The credit committee.......... . 127 The supervisory committee .... 128 The educational committee .... 128 After 1955 The manager ........... 129 Assistant managers ........ 131 The treasurer .......... 131 Branch office operations . . . . * . • 132 Advantages ..... .............. 132 Financial strength ........ 132 vlii TABLE OF CONTENTS (continued) CHAPTER PAGE Experienced management ............ 133 A stronger educational program . . 133 Disadvantages . . .................. 134 Loss of compactness .............. 134 Increased operating expenses . . * 133 Delays in loan approvals.......... 136 The supervisory problem ............ 137 Summary ............................ 138 VII. SUMMARY, CONCLUSIONS, AND RECOMMENDATION 141 Summary ......................... 141 Pattern of growth ......... 141 Brief history of HAEFCU ............ 143 Period of experimentation .... 143 Period of rapid growth ...... 144 Assets and liabilities.............. 144 Shareholdings of members .......... 145 Loans to members ................ 145 Dividends ............ 146 Income and expense.................. 147 Branch offices ........... 147 Conclusions .......................... 147 ix TABLE OF CONTENTS (continued) CHAPTER PAGE Expansion and c o s t s................. 14-7 Success versus indebtedness ......... 152 Recommendation .................... 155 BIBLIOGRAPHY .................................... 155 LIST OF TABLES TABLE I. Membership, 1940-1958 ............... II* Total Assets, Average Shareholdings, and Average Loan, 1940-1958 .............. III. Percentages of Total Assets, December 31» 1954 through December 31» 1958 . . * . . IV. Investments, December 31» 1954 through December 31, 1958 . . .............. V. Total Liabilities, December 31» 1954 through December 31» 1958 ...... ........ VI. Shares Paid In by Months, 1954-1958 .... VII. Share Withdrawals by Months, 1954-1958 . . VIII. Percentage Distribution of Size of Share Accounts, December 31, 1958 .......... IX. Ratios of Loans to Shares and of Borrowers to Total Members, 1954-1958 .......... X. Terms of Personal Loans . .............. XI. Terms of Automobile Loans ............ . XII. Percentage Distribution of Types of Loans, December 31, 1958 ........... XIII. Humber and Amount of Hew Loans by Months, 1954-1958 ..... .................. XIV. Reasons Given for Borrowing ............ PAGE 21 22 39 41 48 54 56 57 59 64 66 69 71 73 LIST OF TABLES (continued) TABLE XV. Cost Analysis of Loans, 1954—1958 . . . . XVI. Loan Turnover and Related Ratios, December 31, 1954- through December 31» 1958 . . . XVII. Delinquent Loans, Loans Charged Off, and Ratios of Reserve to Total Loans and De linquent Loans, 1954—1958 ....... XVIII. Gross Income and Operating Expense, 1940- 1958 ................................... XIX. Gross Income by Components, 1940-1958 ♦ . XX. -Investments by Types, 1940-1958 ........ XXI. Rates of Return on Average Loans and Average Investments, 1940-1958 . . . . XXII. Elements of Total Expense, 1940-1958 . . . XXIII. Detailed Breakdown of Other Expenses, December 31» 1958 .................... XXIV. Net Earnings and Dividends, 1940-1958 . . XXV. Rates of Return on Average Shares and on Average Net Worth, 1940-1958 ...... XXVI. Selected Operating Ratios, 1940-1958 . . . XXVII. Membership by Branches, December 31, 1958 XXVIII. Shares and Loans by Branches, December 31, 1958 .................................. xi PAGE 76 78 80 85 87 91 97 99 102 104 106 108 117 118 xii TABLE XXIX. LIST OP TABLES (continued) Percentage Distribution of Shares and Loans by Branches, December 51* 1958 PAGE 119 LIST OF FIGURES FIGURE PAG! 1. Growth in Assets, 1954—1958 35 2. Percentage Distribution of Assets, December Jl, 194-0 through December 31, 1958 .... 38 3. Percentage Distribution of Liabilities, DeJ cember 31, 1940 through December 31* 1958 . 4-6 4. Growth in Savings of Membership, December 31* 1954 through December 31* 1958 50 5. Loans Outstanding and Members1 Shareholdings, December 31* 1954- through December 31* 1958 * 61 6. Types Of Income and Their Percentages Of Total, December 31* 1940 through December 31* 1958 88 7. Types of Investments and Their Percentages of Total, December 31, 1940 through Decem ber 31, 1958 * . * 92 8. Branch Locations in Los Angeles Vicinity, December 31, 1958 116 9* Organizational Structure of Hughes Aircraft Employees Federal Credit Union, 1940-1955 . 125 10. Organizational Structure of Hughes Aircraft Employees Federal Credit Union, 1955^1958 . 130 11. Relation of Curves for Total Assets * Poten tial and Actual Membership, 1940-1958 . . 142 xiv LIST OP PAGE FIGURE 12. Relation of Curves for Total Expense and Gross Income, 1940-1958 ............ 148 CHAPTER I THE PROBLEM AND DEFINITIONS OF TERMS USED The phenomenal growth in the number and size of federal credit unions during the past quarter of a cen tury has generated much interest in the control and man agement of these novel institutions of personal finance® One year after the enactment of the Federal Credit Union Act of 1934-, approximately 770 federal credit unions were functioning. This number grew to more than 8,700 by the end of 1957, with memberships totaling almost five million and an accumulated capital of more than $1.5 billion. In terms of assets, the average federal credit union at the end of 1957 iiad approximately $204,000, although 2 seventeen had assets of $5 million or more at that time. This study is concerned with an analysis of the develop ment of one of those seventeen— Hughes Aircraft Employees Federal Credit Union. I. THE PROBLEM At the end of 1940 Hughes Aircraft Employees 1 United States Department of Health, Education, and Welfare, Bureau of Federal Credit Unions, 1957 Report of Operations, Federal Credit Unions (Washington: Gov ernment Printing Office, 1958), p. 8. 2Ibid., p. 12. 2 Federal Credit Union had a membership of 175 and assets of slightly more than $4-,000; at the end of 1958 its mem bership was I?>4-00 and its assets approximately $8 mil lion. Such a record is worthy of study by anyone con cerned with consumer finance. Statement of the Problem An analysis of the expansion of any credit union should include an answer to the question: Is a particu lar pattern of growth discernible? If so, what tools are needed to measure this pattern? It was the purpose of this study to find an answer to this question as it per tained to Hughes Aircraft Employees Federal,Credit Union (HAEFCU) by means of: 1. An examination, analysis and measurement of the component parts of the expansion of this credit union. 2. An evaluation of the advantages and disadvan tages of branch credit union operation. 5. The application of tools thus far developed and the creation of additional tools for the measurement and analysis of the individual credit union. Background of the Problem Early studies of credit union operations have re- vealed that (1) in order to develop a true cooperative, the growth of a credit union must not "be forced; and (2) small credit unions with memberships ranging from forty 3 to 200 tend to be more stable than large ones. These conclusions were reflected in the recommendations made to all federal credit unions by the Farm Credit Admin istration, predecessor of the Bureau of Federal Credit Unions: (1) that federal credit unions should limit their size because efficiency tends to decline when the membership exceeds 200; and (2) that separate unions should be established when membership reaches 200. How ever, the conclusions drawn from these early studies seem to be premature in the light of a recent survey of liquidations in federal credit unions which revealed that ninety-three per cent occurred in unions with fewer than 250 members from 1935 to 1953-^ Importance of the Study The present investigation should provide signifi cant factual data from which answers can be formulated to the following questions: 1. To what extent has HAEFCU, or any one particu- * ^M. R. Heifeld, Cooperative Consumer Credit (Hew York: Harper and Brothers, 1936), pp. 80-81. 4. John T. Croteau, The Federal Credit Union. Policy and Practice (Hew York: Harper and Brothers, 1956)» P• 99* 4 lar credit union, been able to achieve its stated purposes of promoting thrift among its members and providing a source of credit for productive purposes? 2. Is there any new development in operations at HAEFCU that is different from those in other credit unions? 3. In what way, if any, should the organiza tional structure of HAEFCU be modified to improve its service to members? 4. What are some of the advantages and disad vantages of operating branch offices? 5. What was HAEFCU’s experience with costs of operation? Although this study encompasses the full eighteen-r year life of HAEFCU (1940-1958), its five most fruitful years (1954-1958) will receive particular scrutiny with the expectation that new insights may be brought to bear on the operation of other credit unions. HAEFCU was chosen for study because of its typical origin and the way in which its development demonstrates the potentials of credit union operation and organiza tion. It is typical by virtue of being chartered •under the Federal Credit Union Act. It maintains complete 5 statistical and financial data on its operations, thus permitting easy observation, evaluation, and analysis. This credit union has four branches, and it was organ ized prior to World War II, thus providing a view of the effects of war on a credit union. Immediately following the war, HAEFCU reached the brink of liquidation and re vived to become one of the largest federal credit unions of the present time. For all these reasons, it was felt that an analysis of this particular credit union could be of benefit to the management of others. II. DEFINITIONS OF TERMS USED Credit Union The term credit union denotes a cooperative sav ings and loan corporation owned and democratically con trolled by its membership. It may be chartered by ei ther the state or federal government; it has a corporate form of organization; and it is limited to a group of persons having a common bond of occupation, association, or residence. Its aim is service to its members. Its functions are to (l) promote thrift by providing a con venient place for its members to save; (2) create a source of credit at low rates of interest; and (3) fur nish a means of educating its members to manage their 6 5 own financial affairs wisely. Federal Credit Union The term federal credit union denotes a credit union organized in accordance with the provisions of the Federal Credit Union Act of 1934-• It can operate in any state or territory, whether or not local credit union legislation exists. Hughes Aircraft Employees Federal Credit Union (HAEFCU) This credit union was created for the purpose of providing convenient savings and loan facilities for the employees of Hughes Aircraft Company, near which no banks were located. It was incorporated under the Federal Credit Union Act of 1934- as amended. Whj.le the members of HAEFCU are employed by Hughes Aircraft Company, these corporations are separate and apart. HAEFCU has share- hplders but no depositors; that is, it receives its funds from the purchase of shares by members who receive divi dends on the basis of per share per month held. The funds accumulated by HAEFCU are loaned to its members at interest rates not exceeding 1 per cent per month on the unpaid balance. Funds not loaned out to members are 5 ■United States Department of Health, Education and Welfare, Bureau of Federal Credit Unions, Federal Credit Union Handbook (Washington: Government Printing Office, 1956), p. 1'. 7 invented as provided by its by-laws. Other Terms All other terms which have a meaning peculiar to this study will be defined at the time of their first usage. III. REVIEW OF THE LITERATURE Very few studies have been made to date on the growth of individual federal credit unions. This does not mean, however, that information for such studies is not plentiful, for the reason that the Federal Credit Union Act requires each credit union to submit annually financial and statistical data to the Bureau of Federal Credit Unions of the Social Security Administration of the United States Department of Health, Education, and Welfare. Obviously, these annual reports furnish signi ficant data for the study of any particular credit union. Many investigations have been made of credit unions within a given city, for instance; some studies have been restricted to credit unions chartered by the state or federal government, but there is a need for more investi gation and analysis of the growth of specified credit pni ons. This section presents a review of some of the studies relevant to the present problem. Credit Union Operation Bridewell attempted to answer the practical and legal questions which arise in connection with the opera tion of a credit union. In the preface of his hook, he said, "... this hook is an endeavor to explain the law and procedures relating to credit union operation 6 from a practical standpoint in non-lawyer language.” His hook purported to deal with credit unions in general, hut gave favorable treatment to the federal credit unions. In the foreword of the handbook published by the Bureau of Federal Credit Unions, Director Gannon re marked , Ho attempt has been made to cover all activities, or problems which may become the concern of direc tors, officers, and committeemen of Federal credit unions. Instead, it is intended that this handbook will provide an over-all picture of credit union operation and a guide to Federal credit union offi cials who have been entrusted with important responsi bilities by their fellow members.7 Crow and Checkver viewed the federal credit union from the legal standpoint, examining the notable provi sions of the Federal Credit Union Act. They reported David A. Bridewell, Credit Unionst Organization, Operation, Questions of Legality (second edition; Hew York; Matthew Bender and Company, Inc., 1955)* P« iii. ^United States Department of Health, Education, and Welfare, Federal Credit Union Handbook, op. cit., Fore word. 9 that the intent of the Act was to (1) establish a fed eral credit union system; (2) establish a further market for the securities of the United States; and (3) make credit for provident purposes more available to the peo ple of small means through a national system of coopera tive credit, thereby helping to stabilize the credit Q structure of the United States. . . . the Federal Credit Union Act comes to forge a link between the old and the new. It voices the peaceful process of evolution. Representing the right of the people at large to govern their own monetary program, it seeks to set up a democratic credit system for all the people. The Act in effect authorizes the formation of credit unions in every city, town and hamlet in the land. . . ^ Analytical Techniques Wilcox, in studying the competitive position of the credit unions and the Household Finance Corporation of Chicago, utilized the analytical approach to credit union statistics, making full use of balance sheet data and other related statistics concerning credit unions. This study will . . . cover the operations of credit unions, in the period from 1928 to 1937? in terms of such subjects as balance sheet charac teristics, types of membership, size of unions, 8 William H. Crow and Samuel Checkver, Federal Credit Union (New York: The Orion Press, 1935)? P« 53• ^Ibid., p. 10. 10 geographic location, members' loan balances, in terest rates charged, operating expenses, divi dends, members' deposits, discontinued unions and their liquidation record, etc.I0 The study -was confined to federal- and state-chartered credit unions in the State of Sew York. Croteau, in attempting to analyze the policies and practices of federal credit unions, employed some of the tools used by Wilcox and some of the techniques used in bank analysis, such as loan turnover, cost of loans, and operating ratios. His study was limited to federal credit unions. He pointed out, . . . statistical description and analysis of the federal credit union which compose the body of this study are intended to expose uniformities of development and to afford a basis for predictions of growth. Norms of operation set forth can be applied to the individual credit union and will afford some basis for the evaluation of perform ance and of progress.H Branch Operation Hogenson, in studying the economics of multiple- unit banking, has presented some of the advantages and disadvantages which are also relevant to multiple office or branch banking. He said; Francis E. Wilcox, A Statistical Study of Credit Unions in New York (Chicago; University of Chicago Press , 194-0), p. 2. 11 Croteau, op. cit. , p. 4, 11 If holding company control leads to greater economic stability and more soundly managed banks, society gains. If absentee control over local credit institutions leads to unnecessary delays and failure to provide proper bank credit, society loses. . . Other sources of data consulted in connection -with this study were trade Journals, government publications, and empirical data. IV. METHOD OF PROCEDURE The procedure followed in making this study was to establish techniques for measuring the growth of HAEFCU and to apply them to the empirical data obtained from its records. Seligman said: In order to answer the questions with any rea^ sonable hope of success, the student must utilize all the opportunities that are put at his disposal by modern economics. In some respects, the most promising avenue of approach is afforded by induc tive research; that is, by a collection of facts which can serve as a basis for the conclusion.13 Empirical Data In this study the empirical data were taken from three chief sources: (l) HAEFCU*s published monthly 12 Palmer T. Hogenson, The Economics of Group Bank ing (Washington: Public Affairs Press, 1955)? P« 150. 13 E. R. A. Seligman, The Economics of Installment Selling (Hew York: Harper and Brothers, 1927)? Vol. I, p . 132. 12 financial and statistical reports to the membership; (2) the annual report of operations to the membership by the board of directors, the credit and supervisory committees, and the treasurer; and (3) personal inter views with officials of HAEFCU. Techniques of Measurement The growth of HAEFCU encompassed several areas: membership, shares, loans, income, and braneh offices. Obviously, no single tool or technique of measurement could serve to measure all these areas of expansion; thus, it was necessary to compile several series of data, each depicting one area of the expansion of HAEFCU. Four of these series-*-membership, total assets, average shares, and average loans— provide a measurement Of the credit union’s ability to serve its members and the extent to which members have been served. One other series— gross income— reveals the capacity of HAEFCU to reward its shareholders. Since each of the five series measures a different area of growth, each will be exam ined separately. Membership. Since HAEFCU is a service organiza tion, it must have participation in order to function. Participation means membership; therefore, the presenta tion of data relating to membership depicts the expan 13 sion of HAEFCU in terms of members or number of partici pants . Along with the series of figures representing ac tual membership for each period, a complementary series representing potential membership is presented to show the maximum number of members HAEFCU could possibly have at the end of each period* Total assets» The assets are the resources of an organization. The growth in total assets reflects the changing size of the organization; in the case of a credit union, they reflect its ability to meet demands for loans. The assets of HAEFCU include such items as loans outstanding, cash, investments, office furniture, fixtures and equipment. Total assets are seriously affected by membership; thus, it is important that the series on total assets be presented with the series on membership. Average shares. Average shares for any given period of time were calculated by dividing the number of shares by the number of members. For the purpose of this study, average shares per member were computed at the end of each year. This series provides a measure ment of the growth of the average shareholding per member. 14 Average loan* The average loan series was devel oped by dividing the amount of loans outstanding by the number of loans at the end of the year. It measures the average size per loan per borrowing member. Gross income. The income of HAEFCU is derived from interest on loans to members, earnings from invest ments, donations, and other sources. Each of these sources will be discussed at length in Chapter V. Gross income minus total expenses gives net income. Dividends and funds for the regular reserve (or bad loans) account are derived from net income. V. ORGANIZATION OF THE REMAINDER OF THE THESIS Chapter II presents an account of the formation and growth of HAEFCU, supplemented by statistical tables. I?he history of HAEFCU can be divided into two periods: the decade from its inception to the time of the Korean War, and the decade after the Korean War. An attempt is made in this chapter, therefore, to show the effects of war on a credit union. A detailed analysis is made of HAEFCU's balance sheet in Chapter III. The balance sheet consists of assets and liabilities, the total assets being a good measure of the fluctuating size of the credit union. Assets are the tangible resources, such as cash on hand 15 and in the bank, loans to members, investments, furni ture, fixtures and equipment. Liabilities, on the other hand, are amounts owed to members and creditors. An ex amination of balance sheet accounts reveals changes in role and characteristics of HAEFCU and shows perform ance or achievements for a given period. An attempt is made in Chapter IY to determine whether there was a seasonal pattern in savings, with drawals , and loans. Chapter Y presents a detailed analysis of the in come statement, which shows income and expenditures; the difference between them is net earnings. Ihis statement provides valuable information pertaining to the effi ciency of the enterprise. In this chapter, the dividend record and some of the operating ratios are examined. Ihe economic advantages and disadvantages of oper ating branch credit union offices are discussed in Chap ter VI, along with recent developments within the credit union that are pertinent to the study.- Chapter VII presents a summary of the study, con clusions drawn from it, and a recommended change in or ganizational structure. A bibliography of pertinent literature concludes the study. CHAPTER I I FORMATION AND GROWTH, 1940-1958 As noted previously, HAEFCU is a savings and loan organization formed by the employees of the Hughes Air craft Company. It is an employee undertaking separate and apart from the Hughes Aircraft Company. On October 29, 1958, it celebrated its eighteenth anniversary and the fact that it had become the fifth largest federal credit union west of the Rockies.1 I. FORMATION In 1940 the Hughes Aircraft Company, then known as the Aircraft Division of the Hughes Tool Company, was located in Hangar 3 at the Union Air Terminal in Burbank, California. As the employees increased in number, the lack of nearby banking facilities pointed up the need for credit resources and savings plans. A credit union of their own seemed to be justified. If they £the members of the groupj| have a need to save money and if they have credit prob lems and no normal credit resources and if many members of the group buy things on the installment plan, which they can buy more advantageously for 1The Californian Hughesnews, Vol. 17, No. 24, November 21, 1958, p. 1. 17 cash and if the members of the group need to become seasonal buyers in quantity of the things they use^— then there is within the group a real need for a credit union.2 That a credit union for the benefit of the Hughes Air craft Company employees was justified, can be readily seen in the fact that 175? seventy per cent, of those 250 employees became members within two months of its formation. The Role of Management In a meeting with management, the organizers pointed out the aims and purposes of a credit union and the benefits that both employer and employees could ex pect from its organization. Management’s cooperation and support were reflected immediately in its offer to (1) authorize payroll deduc tions in.purchasing shares and repaying loans; (2) pro vide office space, utilities, furniture, and equipment; and (3) provide clerical assistance and the counsel of the employee services section of the Employee Relations Department; and (h) grant officials of HAEECU the privi lege of performing their credit union duties on company time . 2 Roy F. Bergengren, Credit Union National Associa tion Emerges (second edition; Madison, Wisconsin: Credit Union National Association, 1936), p. 38* 18 Charter HAEFCU received Charter Humber 4142 on October 29, 1940, from the Director of the Bureau of Federal Credit Uni ons. The duties of the first board of directors were to t L Obtain a bond for the treasurer, who was to handle the funds* 2. Designate the California Bank as the deposi tory for credit union funds* 3. Set a limit of $5,000 on the value of shares that any one member could hold* 4. Establish an interest rate of 1 per cent per month on the unpaid balance on loans to members. 5. Authorize the purchase of stationery and sup plies with credit union funds. 6. Set the hours for the transaction of credit union business. II. GEOWTH From its small beginning with only 175 members, HAEFCU grew to a membership of 17,400 with assets slightly less than $8 million at the close of 1958. In addition, it now has a group of branch offices 19 located geographically to serve expanding facilities of the Hughes Aircraft Company* In discussing the long-term growth of federal credit unions, Croteau applied to the federal credit union system the four periods of growth that Prescott claimed for any industry: (1) the period of experimen tation; (2) the period of growth into the social fabric; (3) the period of growth at a diminishing rate; and (4) the period of stability. He admitted that it is proba bly too early in the history of the system of credit unions to determine with any degree of accuracy the long term trend of growth, but added that there are indica tions that the system is in the second of the above- mentioned stages of growth. The period of experimentation in HAEFCU covered the first decade of its existence— 194-0 through 194-9. The second period of growth into the social fabric began in 1950 and continued through 1958 when this study was terminated. Period of Experimentation, 194-0-194-9 After a brief period of growth in the first decade ^John T. Croteau, The Federal Credit Union (Hew York: Harper and Brothers, 1958), pi 51 citing E. D. Prescott, "Law of Growth in Forecasting Demand," Journal of the American Statistical Association, Vol. XVIII "(Dec. 1922), pp. 4-71-79* 20 of its life, HAEPCU suffered a disastrous decline and was brought back from the brink of liquidation only by vigorous leadership and the support of management. Table I shows the membership and the ratio of actual to potential membership during both decades of the life of this credit union. The total assets, the average share holdings and average loan per borrower can be traced in Table II for any given year. Membership. It can be noted in Table I that the actual membership rose steadily from 175 at the end of 1940 to 811 by the end of 1944. This rise may be attri buted to the rapid increase in the number of potential members during the war years; there was a 58 per cent increase in actual membership at the end of 1942, the first year of the war. After 1944 actual membership dpopped rapidly to 68 by the end of 1947? due to the termination of war contracts which resulted in an adjustment in employment. Actual membership then rose to 651 by the end of 1949» Potential membership during this period, on the other hand, dropped from 2,448 at the end of 1944 to 1,246 at the end of 1945. Potential membership stabilized at around 1,100 from 1945 to 1948, then rose to 5,102 at the end of 1949. This rise in potential membership 21 TABLE I MEMBERSHIP, 1940-1958 Membership Actual to Year Actual Potential End Potential No. Per Cent Change Ratio 194-0 250 175 70.0 194-1 626 365 108.5 58.3 194-2 3,000 576 57.8 19.2 1943 3,862 775 34.5 20.0 1944 2,448 811 4.6 33.1 1945 1,246 174 -78.6 14.0 1946 1,202 99 -43.2 8.2 194? 1,022 68 -31*4 6.6 1948 1,178 260 282.4 22.0 1949 3,102 651 150.4 21.0 1950 6,359 1,400 115.0 22.0 1951 12,034 3,407 143.4 28.3 1952 13,827 5,313 55.9 38.4 1953 15,226 7,975 50.1 52.4 1954 14,008 7,998 • 3 57.0 1955 15,582 9,080 13.5 58.2 1956 20,598 11,979 31.9 58*2 1957 23,234 15,716 31.2 67.6 1958 26,818 17,401 10.7 64.8 Source : From the records of Hughes Aircraft Employees Federal Credit Union and the Hughes Aircraft Company. 22 TABLE II TOTAL ASSETS, AVERAGE SHAREHOLDINGS, AND AVERAGE LOAN 1940-1958 Year End Total Assets Per cent Amount Change Average Shareholdings per Member Average Loan per Borrower 1940 $4,388 $25 * 1941 19,121 335.8 50 * 1942 66,013 245.2 63 $51 1943 98,261 48.8 86 100 1944 123,418 25.6 146 119 1945 39,334 -68.1 197 75 1946 24,845 -36.8 118 66 1947 18,337 -26.2 125 0 1948 49,244 168.5 138 98** 1949 1-03,928 111.0 124 210 1950 253,759 144.2 138 232 1931 585,292 130.6 164 203 1952 1,262,014 115.6 230 196 1953 2,406,333 90.6 289 282 1954 2,783,024 15*6 332 250 1935 3,378,221 21.4 352 315 1956 4,691,167 38.8 372 388 1957 6,155,468 31.2 376 417 1958 7,749,274 25.8 420 473 *Not available. * *Estimated. Source: Prom the records of Hughes Aircraft Employees Federal Credit Union. could plausibly be attributed to the Korean incident that erupted into a war in the middle of 1950* The ratio of actual to potential membership showed that 70 per cent of the employees at the Hughes Aircraft Company participated in HAEFCU by the end of 1940. The ratio dropped gradually after 194-0 and reached its low est point of 6.6 per cent at the close of 194-7® Al though potential membership had stabilized after 194-5* actual membership continued to drop, indicating that there may have been a loss of interest or leadership, 05? both. Total assets. Table II shows that total assets rose from $4,388 at the end of 1940 to $123)418 by the end of 1944, then dropped rapidly to $18,337 at the close of 1947® The pattern of growth and decline of assets paralleled closely that of actual membership; for example, when actual membership was at its peak during the first decade, total assets were also at their highest level. Patterns of growth„ A comparison of the rate of growth between actual membership and total assets indi cates that the rate of asset growth was greater than that of actual membership. It is difficult to deter mine what portion of the increase in assets was attri 24 butable to the increase in savings of existing members; and what portion, to the increase in actual membership. However, Table I records some general tendencies. As potential membership increases, there is a tendency for actual membership to increase; conversely, a decline in potential membership portends a decline in actual mem bership. As actual membership increases, total assets tend to increase; and conversely, they tend to decrease with a drop in actual membership. Average shares per member. Table II reveals that while total assets and actual membership fluctuated widely from 1940 through 1949, average shareholdings per member showed a steady rise from 1940 to 1945, then stayed with little variation around $120 through 1949. Average loan per borrower. Table II indicates that the average loan per borrower varied widely from the end of 1942 to the end of 1948. This average rose from $51 at the close of 1942 to $119 at the end of 1944 and then dropped to zero by the end of 1947 when all loans were suspended. When the suspension was lifted, the average loan per borrower rose from zero at the end of 1947 to $210 at the close of 1949. Liquidation contemplated. As membership declined 25 from a wartime peak of more than 800 to a post-war low of fewer than 100, HAEFCU officials announced the sus pension of all new loans in January, 194-6. This was the initial step toward liquidation. Although new loans were no longer made, the purchase of shares was not interrupted; then, if liquidation took place, HAEFCU would have only to reimburse the shareholders. Fortun ately, the sponsor was able to assure HAEFCU of expan sion plans that would increase potential membership for HAEFCU, thus obviating the necessity for liquidation. While the drop in membership did not affect the average shareholdings per member, total assets declined when membership increased. As can be seen in Table I, the ratio of actual to potential membership was 55 per cent in 194-4, the year in which actual membership reached its highest level during the first decade. The ratio dropped to 14 per cent at the end of 19451 to 8 per cent in 1946, and to 6 per cent at the close of 1947. Leadership and management. HAEFCU can attribute much of its growth and stability to the unfailing sup port of its company-sponsor and to vigorous leadership within its ranks. As the credit union helps both workers and man agement, so do workers and management contribute 26 toward the credit union to assure its success. Workers, who form the membership of the credit union, have the leading roles, contribute actively in time and effort and capital. Management's part, while of a more passive nature, is nonetheless an integral part of the credit union structure. . . In 194-7 HAEFCU organized an educational committee for the purpose of disseminating information about its activities. The committee called on the Credit Union National Association for some literature and supple mented it with leaflets and letters of personal appeal. It was in this same year of 1947 that the company extended its support of HAEFCU to include in the orien tation program for new employees a presentation of the benefits and services offered by the credit union. Revival of growth. At the close of 1949 actual membership had reached 651, compared with 68 at the end o| 1947• The rate of growth was 282 per cent between 1947 and 1948. This marked the beginning of the revival of HAEFCU. Period of Rapid Growth, 1950-1958 At about the time of the Korean War, HAEFCU began to grow rapidly and continued to do so through 1958, al though at a decelerated rate. During the eight-year 4_ David A. Bridewell, Credit Unions: Organization. Operation, Questions of Legality (second edition; New York: Matthew Bender and Company, Inc., 1955)? p. 10. 27 period between 1950 and 1958, growth was noted in member ship, shareholdings, and total assets; changes were made in operating practices and loan policies; and branch of fices of the credit union were established. Membership. Actual membership of HAEFCU rose from 651 at the end of 194-9 to 1,4-00 at the end of 1950, an increase of 115 per cent. A membership of 7?975 was reached by the end of 1953; then after a leveling-off period in 1954-, another gradual rise brought the actual membership to 17,4-01 by the end of 1958. The leveling off was due to the loss of approximately 7Q0 members to the Hughes Tool Company Employees Federal Credit Union. The creation of this new credit union came about as a result of organizational changes within the company- sponsor. Prior to 1954* the Hughes Aircraft Company was known as the Aircraft Division of the Hughes Tool Com-^- pany. Early in 1954- the Aircraft Division became the Hughes Aircraft Company, a wholly owned subsidiary of the Howard Hughes Medical Institute, chartered as a non profit, charitable organization incorporated for the ex- 5 press purpose of doing medical research. This maneuver The Californian Hughesnews, Vol. 17, Ho. 21, October 10, 1958* 28 resulted in the transfer of fewer than 10 per cent of HAEFCU members to the credit union serving the Hughes Tool Company. Employees remaining with the Hughes Tool Company were placed in a new division--*the Aeronautical Division* Such changes within the company naturally created problems temporarily for HAEFCU. First, it was necessary to get approval from the Bureau of Federal Credit Unions to split the membership of the existing credit union to create another to be called Hughes Tool Employees Fed eral Credit Union* Then, after a special general meet ing of all members to approve the separation, transfer was made of loans, shares, assets, and 700 members* The ratio of actual to potential membership sta bilized at around 22 per cent at the end of the first decade of operation in 194-9* It reached 50 per cent after 1952, was close to 58 per cent through 1956, and rose to 68 per cent before falling back to 64- per cent at the close of 1958* Total assets. Total assets rose from $1035928 at the end of 1949 to $7,749s274 at the close of 1958. The rate of increase began to slow down after 1953 and appeared to level off in the years 1957 and 1958. Average shares per member. It will be noted in 29 Table II that the average shareholdings per member rose steadily from $124 in 1949 to $376 in 1957? then jumped sharply to $420 in 1958* This sudden increase in 1958 can be attributed to a change in the limit placed on shareholdings. In 1957 this limit was raised from $5,000 to $10,000; the first $5,000 to be deposited, the second $5,000 to be deducted from the payroll. Average loan per borrower. The average loan per borrower grew steadily after 1949, although this amount fluctuated somewhat at the end of 1952. From 1954 through 1958 there was a tendency for the average loan to rise because of the shift from small emergency loans to larger loans for the purchase of automobiles. Loan policy changes. As previously noted, total assets increased by 100 per cent in 1952, creating the need to dispose of surplus funds. Therefore, require ments for personal loans were revised to encourage more members to borrow. Prior to 1951 a member had to be employed at the company for a period of not less than six months before he was eligible for a loan of $50. For the maximum loan of $400, he had to be employed four years or more; but after 1951 these requirements were relaxed to a minimum of three months1 employment for a $50 loan and 30 three years' employment for one of $400. The revision of loan requirements produced a rapid growth in the npmber of shares, which created the prob lem of thrift incentive. This was solved by increasing the rate of dividends to 4-1/2 per cent in 1951» an in crease of 1/2 of 1 per cent from the previous year. Interest rates. At the same time requirements for personal loans were reduced, the interest rate on this type of loan was reduced. Prior to 1951 the interest rate on all loans, except new- and used-car loans, was 1 per cent per month on the unpaid balance. In 1951 the interest rate on all loans was made a uniform 3/4 of 1 per cent per month on the unpaid balance. However, be cause of greatly increased operating expenses in 1952, the interest rate on personal loans was changed back to 1 per cent on the unpaid balance and remained there till the end of 1958. It is of interest to note that loans to members increased from $127,180 at the end of 1950 to $311,544 at the end of 1951. As the interest rate was raised in 1952, loans to members were $463,334 at the end of the year, reflecting an increase of $151,790 from the previous year; whereas the increase from 1950 to 1951 was $184,364. Changes in operating practices. Operating costs of HAEFCU rose in 1954- "because of the establishment of / several branches and the assumption of responsibility to pay its own employees* Salaries climbed from $5*720 at the end of 1955 to $26,982 at the end of 1954-, repre senting an increase of 371 per cent* To reduce these rising operating costs, it was de cided to post the ledger monthly instead of weekly and to accommodate withdrawals up to the amount of $500 with cash instead of checks. It was estimated that these changes resulted in savings equivalent to the sal- ary of one office employee. Branch offices. After 1954- the most notable stride in the expansion of HAEFCU was the establishment of branch offices managed by full-time managers assisted by staffs of employees. It is true that as early as 1951 credit union business was transacted at the Airport Site and the Long Beach-Wilmington Site on a part-time basis through the Employees' Service Office, but these were not true branch offices. By the end of 1958 four branch offices were operating in the following places: El Segundo, Airport, Fullerton and Costa Mesa. ^Annual Report of the board of directors of Hughes Aircraft Employees Federal Credit Union for the Year 1954-. 32 III. SUMMARY The period between 194-0 and 194-9 was the "period of experimentation" (a term used by Croteau) in the life of HAEFCU. By the end of 1944-, the period covering the war, HAEFCU grew to a membership of more than 800, with assets of approximately $123,000. Its growth, however, was short-lived. Immediately following the war, member ship dropped to less than 70 in 194-7« At the same time, assets dropped to approximately $18,000. Although HAEFCU was hit hard by the impact of post-war adjust ment at the Hughes Aircraft Company, it did not collapse. Membership began to gain in 194-8, an indication that the adjustment period was over. By the end of the first lecade of its operation in 194-9? HAEFCU was moving into a new era, an era of growth exceeding any it had previ ously experienced. The period between 1950 and 1958 saw the unimpeded growth of HAEFCU to a membership of more than 17,4-00 and assets slightly less than $8 million. In order to serve the members at locations quite distant from its original site, four branch offices were opened. Rapid growth created expansion problems that required changes in policies and operating practices. The trend in the growth pattern at the end of 1958 indicated continued growth, but at a slower pace. CHAPTER III AH ANALYSIS OF ASSETS AND LIABILITIES The Bureau of Federal Credit Unions requires that all federal credit unions make annual financial and sta tistical reports to its director. “Federal credit unions shall he under the supervision of the Director and shall make such financial reports to him (at least annually) as he may require. . . These reports in clude (1) the balance sheet, (2) a statement of income and expense, and (3) relevant statistical information. This chapter is concerned with only the balance sheet of HAEFCU's report. Other phases of the report will be treated in subsequent chapters. I. ASSETS The assets of HAEFCU fall into four main cate gories : 1. Loans to members 2. Cash 3. Investments a. United States Government obligations ■^Section 6 of the Federal Credit Union Act as amended to July 31, 1956, entitled "Reports and Examina tions ." 34 b. Savings and loan shares c. Loans to other credit unions 4. Other assets a. Furniture, fixtures and equipment b. Prepaid insurance e. Miscellaneous Furniture, fixtures, equipment and prepaid insurance comprise less than 1 per cent of the total assets 5 therefore, they have been combined with the Other Assets account for the purpose of this analysis. It can be noted in Table II that the period 1954 through 1958 showed an increase in assets of approxi mately $1 million per year, the most significant five- year period in the life of HAEFCU. Figure 1 shows this increase of assets for the same period in a graphic way. Total assets covering the 18-year life of the credit union rose from slightly more than $4,000 in 1940 to approximately $7«7 million in 1958. Loans to Members Figure 2 shows the percentage distribution of assets. This figure reveals that loans to members drop ped from 79 per cent of total assets in 1940 to 31 per cent in 1942. The figure then rose slightly to 45 per cent in 1943 and dropped back sharply to 4 per cent in 1945. After stabilizing at the 4 per cent level through 35 Millions of Dollars 8 7 6 5 4 3 2 1 0 Other Assets Investments Cash Loans to Members 4.6 6.2 3.4 2.8 7.7 1954 1955 1956 1957 1958 FIGURE 1 GROWTH I K ASSETS 1954-1958 Source; Based on data from Annual Reports of Hughes Aircraft Employees Federal Credit Union. 36 PEE CENT 100 90 80 70 60 50 40 30 20 10 0 O CM •4 -4 ( J N ON i— I r— I ON cO -4 ON r— I CO O LA ON ON i — ! r-4 C M L f\ LfN ON ON L0 CO LfN LfN ON ON i —I i —I LOANS CASH INVESTo 0THEE ASSETS EIGUEE 2 PEECENTAGE DISTRIBUTION OF ASSETS DECEMBER 31, 1940 THROUGH DECEMBER 3 1 , 1958 Source: From the records of Hughes Aircraft Employees Federal Credit Union. 37 1946, it dropped to zero in 1947• This indicated that there were no loans outstanding at the end of 1947* Al though new loans to members were suspended after Janu ary 1, 1946, it took two full years for all outstanding loans to mature. The suspension of loans to members may be attri buted largely to the cumulative effect of three factors: 1, Regulation W. Regulation W was a device used by the Federal Reserve Board to tighten its control from 2 time to time over the volume of consumer credit. 2. The shortage of consumer goods. With the ad vent of the wartime economy in 1943, consumer goods were in short supply and rationing was instituted, along with other types of controls. 3® Loss of membership. As a result of demobili zation when war supply contracts terminated, membership dropped from 811 in 1944 to 68 in 1947. This rapid de cline in membership affected the volume of both share holdings and loans. After 1947 loans to members rose from zero to 51 per cent of total assets in 1949® After 1949 the figure fluctuated from 50 per cent in 1950 to 53 per cent in 1951 and then dropped to 37 per cent in 1952. It rose 2 Persia Campbell, The Consumer Interest: A Study in Consumer Economics (Hew York: Harper & Brothers, 1949), p. 311® 38 again after 1952 to 48 per cent in 1955, then dropped to 37 per cent in 1954, "but climbed steadily to 72 per cent in 1958. Normally, the assets of HAEFCU consist almost en tirely of loans to members. However, in 1954 only 37«2 per cent of the assets consisted of loans to members, as can be seen in Table III. After 1954 these loans be gan to increase both as a percentage of total assets and in absolute amount. At the close of 1955, total assets were more than $3*5 million; of this amount almost $1.4 million, or 40.8 per cent, were in loans to members. By the end of 1958, total assets were more than $7.7 million. Of this, more than $5*5, or 72.1 per cent, were in loans to members. Figure 2 shows that at the time the volume of loans to members dropped, funds were invested exclu sively in United States Government securities, which rose from 11 per cent of total assets in 1942 to 48 per cent in 1944. In 1945 a major lay-off occurred at the company. In anticipation of heavy withdrawals, all United States Government securities were liquidated. Thus, in 1945 the conversion of United States Bonds to cash brought the total cash on hand for that year to 96 per cent of total assets. It is apparent from the figures in Table I that \ TABLE III PERCENTAGES OF TOTAL ASSETS, DECEMBER 31, 1954 THROUGH DECEMBER 31, 1958 Year Loans to Members Cash* Investments Other Assets Total Assets Dollars % Dollars % Dollars % Dollars % Dollars % 1954 1,037,040 37o2 292,028 10.5 1,430,000 51.4 23,955 .9 2,783,023 100.0 1955 1,380,853 40.8 383,604 11.5 1,595,000 47.2 18,763 .5 3,378,220 100.0 1956 2,488,066 53.0 329,648 7.1 1,865,000 39.7 8,453 .2 4,691,167 100.0 1957 3,938,838 64.0 556,037 9.0 1,645,000 26.8 15,593 .2 6,155,468 100.0 1958 5,585,825 72.1 621,811 8.0 1,515,000 19.6 26,638 .3 7,749,274 100.0 *Cash on hand and in the bank Source: From the records of Hughes Aircraft Employees Federal Credit Union. VN \0 40 the management of HAEFCU exerted effort to expand loan facilities to members. Croteau said of loans to members . . . Loans to members are the ideal credit union investment; here the organization is extending a unique service to its membership— in fact, in the membership loan might be said to be found the es sence of the credit union. Moreover, the return on loans to members is psually higher than on other types of investment; that is, United States Government obligations, savings and loan shares, and loans to other credit unions. . Investment in United States Government securities was discontinued after 1956, as seen in Table IV. Loans to members, for example, constituted more than 70 per cent of total assets at the end of 1958, a figure com parable to that of 1940 when loans to members amounted to 79 per cent of total assets. In dollars, loans to members rose to slightly more than $5*5 million by the end of 1958* The trend for loans to members appears to continue upward. Cash Figure 2 indicates that while cash on hand and in the bank was not always the bulk of total assets, cash held the largest percentage distribution of total assets from 1945 through 1948. The main reason for this un usual situation was the decline in the volume of loans. 7. •^John T. Croteau, The Federal Credit Union, Policy and Practice (New York: Harper and Brothers, 1956), p. INVESTMENTS, TABLE DECEMBER 31, 1954- IV THROUGH DECEMBER 31, 1958 U.S. Gov Bonds 't Savings & Loans Loans to Other Unions Total Investments Tear Total % Total % Total % Total % 1954 $100,000 3.6 $1,350,000 47.8 — — $1,430,000 51.4 1955 100,000 3.0 1,490,000 44.1 $5,000 .1 1,595,000 47.2 1956 100,000 2.1 1,750,000 37.5 15,000 .3 1,865,000 39.7 1957 ----- — 1,630,000 26.5 15,000 .3 1,645,000 26.8 1958 — —* — — 1,510,000 19.5 5,000 .1 1,515,000 19.6 Source: From the records of Hughes Aircraft Employees Federal Credit Union. H 42 As noted previously, when HAJSFCU prepared to liquidate in 1946, no new loans were made. By the end of 1947 assets were entirely in cash when all loans outstanding were repaid. After 1950 the volume of cash fluctuated between 7 and 14 per cent of total assets. The bulk of the surplus funds, i.e., funds not committed in loans to members, were invested in savings and loan shares. The reason for this maneuver was that savings and loan shares yielded a higher return than United States Govern ment securities. Since 1954 loans to members gradually increased and savings and loan shares gradually de creased. Although cash in the bank and on hand yields no earnings, cash comprised a fairly sizable proportion of total assets of HAEFCU in the 1954-1958 period, as can be seen in Table III. The cash account at the close of 1954 was slightly over $.29 million, or 10.5 per cent of total assets. After 1954 it rose to $.38 million, or 11.5 per cent of total assets, It then dropped to slightly less than $.35 million in 1956, or 7*1 per cent of total assets. It fluctuated from 7.1 per cent of total assets in 1956 to 9»0 per cent in 1957 and amounted to 8.0 per cent in 1958. Cash in the bank and on hand is for meeting de mands for cash withdrawals and for supplying emergency 43 needs; but since no income is derived from it, the cash reserve should be reduced to the lowest amount consist- 4 ent with a prudent liquidity. The change fund account was set up for the sole purpose of meeting demands for cash withdrawals. The change fund, which is a part of total cash, amounted to $25*000 or .9 per cent of total assets at the close of 1954. By the end of 1958 this amount had risen to $100,000, yet it was only 1.2 per cent of total assets. In order to accommodate increased withdrawals as HAEFCU grew'in membership, the change fund had to be increased. Investments ■■■■■"' ! ■ ' i . i i The types of investments that HAEFCU has made, other than loans to members, are the following: 1. United States Government obligations 2. Savings and loan shares 3- Loans to other credit unions During the period studied none of these investments yielded a return higher than that on loans to credit union members. So long as there are surplus funds to investj it is obvious that there is a need for the ex pansion of loan facilities to members. Total invest ments at the end of 1954 amounted to more than $1.4 4Ibid. 44- million, or 51*4 per cent of total assets* This figure rose to slightly more than $1.5 million, or 19.6'per eent of total assets, at the end of 1958. As additional avenues for loans to members were opened, the volume of loans increased in quantity and quality. All other types of investment declined from a high point of more than $1.8 million in 1956 to $1.5 million in 1958. United States Government obligations. HAEFCU had $100,000 invested in United States Government bonds from 1954 to 1956. This amount comprised from 2 to 5.6 per eent of total assets. In order to obtain more funds to meet loan demands, the United States Govern ment bonds were converted into cash. Other things being equal, it was a prudent policy to liquidate the low-interest investments to meet de mands for cash. Savings and loan shares. After 1954 investment in savings and loan shares fluctuated from $1.35 million to $1*75 million. Although savings and loan shares were 4? per cent of total assets in 1954-, at the end of 1958 they comprised only 19.5 per cent of the assets. Loans to other credit unions. Loans to other 4-5 credit unions were not significant either in number or amount. 'Prom $5,000 at the end of 1955, these loans rose to $15,000 by the end of 1956 and then dropped back to $5,000 at the close of 1958. Loans to other credit unions were less than 1 per cent of total assets from 1954- to 1958. Other Assets Other assets dropped from $23,955, or .9 per cent, in 1954- to $8,433, or less than .2 per cent of total assets in 1956. After 1956 they climbed to $26,638, representing .3 per cent of total assets in 1958. While in absolute amount other assets increased as a per cent of total assets, they dropped after 1954. Furniture, fixtures and equipment rose from $10,000 in 1954 to $20,000 in 1958, yet the percentage of these items dropped from .4 per cent in 1954- to .2 per cent in 1958. Prepaid insurance dropped from $1,200 in 1957 to $800 in 1958. II. LIABILITIES The liabilities of HAEFCU consist of (1) members* Shareholdings; (2) regular reserve; (3) undivided earn ings; and (4) accounts payable and other liabilities. The percentage distribution of liabilities for the 1940-1958 period is shown in Figure 3» This figure 46 PEE CENT 100 90 80 70 60 50 40 50 20 10 0 4' L A L0 L A 00 LA o C\J 00 CM L A CA rH CA CA CA i — I CA CA rH CA i — I CA CA rH CA i — I ^ Shares Regular Reserve Undivided Earnings Other Liabilities FIGURE 3 PERCENTAGE DISTRIBUTION OF LIABILITIES DECEMBER 31, 1940 THROUGH DECEMBER 31, 1958 Sourcei From the records of Hughes Aircraft Employees Federal Credit Union. 47 shows that the relationship of shares to total liabili ties fluctuated widely during the first decade of the operation of HAEFCU. During World War II the credit union acted as an agency of the United States Treasury in issuing and redeeming United States Government bonds. HAEFCU carried the proceeds from the sale of bonds as an account payable under liabilities. This distorted the percentage distribution of liabilities during the first decade of operation with respect to investments. After 1950 the accounts which comprised the major com ponents of liabilities tended to maintain stable propor tions. Table V presents the data pertaining to liabili ties for the years 1954 through 1958. Members 1 Shares Members’ shares comprised around 95 per cent of the total liabilities for the period 1954-1958, as can be seen in Table V. In absolute amount, however, these shares steadily increased. At the end of 1954 they were slightly more than $2.6 million, or 95*5 per cent of total liabilities. By the end of 1958 members' shares climbed to more than $7*3 million, y6t this figure was only 94.2 per cent of total liabilities. The increase in members' shares is influenced by both the increase in actual membership in HAEFCU and in TABLE V TOTAL LIABILITIES, DECEMBER 31, 1954 THROUGH DECEMBER 51, 1958 Year Members 1 Shares Regular Reserve Undivided Earnings Other Liabilities* Total Liabilities Dollars % Dollars % Dollars % Dollars % Dollars % 1954 2,659,089 95.5 39,295 1.5 84,612 3.0 27 T * — 2,783,023 100. ( 1955 3,204,474 94.8 57,089 1.7 99,940 3.0 16,717 .5 3,378,220 100.1 1956 4,463,614 95.2 83,890 1.8 136,850 2.9 6,813 .1 4,691,167 100,1 1957 5,812,580 94.4 125,378 2.0 200,164 3.3 17,346 .3 6,155,468 100.1 1958 7,300,858 94.2 171,360 2.2 258,858 3.4 18,198 .2 7,749,274 100.1 *Includes Accounts Payable Source: Prom the records of Hughes Aircraft Employees Federal Credit Union. 00 49 share purchases made by existipg members. The growth in savings for the period 1954-1958 is shown in Figure 4. Regular Reserve The regular reserve account was formerly called the reserve for bad loans account,, This item of total liabilities showed a steady rise. At the end of 1954 the regular reserve account was more than $39*000, or 1.5 per cent of total liabilities. In 1955 it rose to $57*000, or 1.7 per cent. By the end of 1958 the regu lar reserve amounted to more than $171,000, or 2.2 per cent of total liabilities. The increase in the regular reserve may be attri buted to the fact that the Federal Credit Union Act requires that 20 per cent of all earnings and entrance fees be set aside as a contingency for bad loans. Earn ings, for example, increased from approximately $100,000 in 1954 to more than $270,000 in 1958. The Federal Credit Union Act further provides that if at any time the reserve account is equal to 10 per cent of paid-in shares, then no further addition is required; this point has not yet been reached by HAEFCU. Undivided Earnings The undivided earnings are the accumulated net earnings after the required reserve has been set aside. 50 Millions of Dollars 8 7 6 5 4 3 2 0 195* 1955 1956 1957 1958 FIGURE 4 GROWTH IN SAVINGS OF MEMBERSHIP DECEMBER 51, 1954 THROUGH DECEMBER 31, 1958 Source: Based on data from Annual Reports of Hughes Aircraft Employees Federal Credit Union. 51 At the end of 1954- undivided earnings were $84,612, or 3.0 per cent of total liabilities. They were slightly less than $100,000 at the close of 1955 > euad by the end of 1958 they were more than $250,000. Although undi vided earnings tripled after 1955» they remained a com paratively stable 3 per cent of total liabilities. Accounts Payable and Other Liabilities Accounts payable and other liabilities amounted to $27, or .001 per cent of total liabilities at the end of 1954. Items in this account include employees' in come tax deductions and other tax deductions. By the end of 1958 accounts payable were slightly more than $18,000, or .2 per cent of total liabilities. There were no other liabilities at the end of 1958. III. SUMMARY The assets and liabilities of HAEFCU rose from slightly more than $4,000 at the close of 1940 to more than $7»7 million in 1958. This growth was due largely to the increase in shareholdings resulting from an in crease in membership and to the rise in the volume of loans to members. The various asset and liability accounts were dis proportionate during the first decade of the operation of HAEFCU; for example, during World War II, loans to 52 members dropped while the membership increased. This situation was attributable to the working of Regulation W and the shortage of consumer goods. In 194-5 and 194-6 loans to members comprised only 4 - per cent of total assets; remaining assets consisted entirely of cash. The post-war adjustment in employment at the Hughes Aircraft Company reduced potential and actual membership in the Credit Union to its lowest level. With the drop in actual membership, assets and liabili ties also dropped to their lowest levels. At the close of 194-7 total assets consisted entirely of cash. At this time severe losses in both membership and assets caused liquidation of HAEFCU to bq considered; but be cause of encouragement from management, this considera tion was abandoned and the whole complexion of HAEFCU1s history changed when the downward trend was reversed in 194-8. During the second decade of the operation of HAEFCU, the asset and liability accounts were more proportionate, probably due to the steady growth in mem bership. The fluctuation which occurred during this period was largely due to the division of the actual members and their assets and liabilities into two sepa rate credit unions. After 1954- HAEFCU added an average of approxi mately $1 million each year to its total assets. CHAPTER IV SAVINGS AND LOAN OPERATIONS The savings and loan operations of HAEFCU consti tute its most important function. Since the growth in members' shares and loans was historically treated in the preceding chapter, this chapter will use available data to make a detailed analysis of saving and borrowing history of the five-year period beginning the f irst of 1954- and ending with December, 1958. I. MEMBERS' SHARES Since data relating to the reasons that members save and the amount of their incomes are not recorded by HAEFCU, the examination of members' shareholdings must necessarily be confined to areas in which data are available. Three such areas are shares paid in, shares withdrawn, and size of share accounts. Shares Paid In The data pertaining to the monthly changes in membership and in shares paid in are presented in Table VI. In 1954- shares paid in had reached $502,436 by the end of June, but dropped to $304,390 at the close of July. As noted previously, the drop was due to the TABLE VI SHARES PAID IN BY MONTHS, 1954-1958 1954 1955 ...... 1956 “ .."1957"... .T?5B“ ' Month Mem bers Dollars Paid In Mem bers Dollars Paid In , Mem bers Dollars Paid In Mem bers Dollars Paid In Mem bers Dollars Paid In Jan. 8297 290,806 8141 368,986 9417 466,799 12,663 634,791 15,696 1,188,996 Feb. 8411 288,474 8224 282,876 9626 309,853 12,949 506,682 15,539 615,188 Mar. 8475 289,184 8255 292,206 9832 374,328 13,209 579,411 15,923 744,722 Apr. 8510 524,014 8415 350,780 10,021 486,480 13,476 764,710 16,235 886,567 May 8484 328,944 8501 310,431 10,106 396,720 13,727 579,877 16,221 828,156 Jun. 8483 502,436 8560 307,833 10,269 395,403 13,978 743,586 16,279 706,407 Jul. 7707 304,390 8643 349,875 10,518 404,265 14,437 554,924 16,479 1,002,514 Aug. 7768 243,952 8730 307,519 10,602 423,896 15,736 532,881 16,627 704,112 Sep. 7817 251,283 8770 355,298 10,824 499,448 15,120 742,074 16,818 720,871 Oct. 7855 317,476 8910 305,080 11,091 441,872 15,356 579,986 17,072 1,013,597 Nov. 7911 255,632 8966 324,282 11,467 461,496 15,513 593,559 17,264 751,943 Dec. 7998 313,642 9080 387,883 11,921 555,132 15,716 610,852 17,401 786,907 Source: Hughes Aircraft Employees Federal Credit Union records. 55 division of the credit union when HAEFCU lost more than 700 members and approximately $200,000 in shares to the Hughes Tool Company Employees Federal Credit Union. An examination of Table VI reveals very little fluctuation in the "shares paid in" column for the en tire 12-month period of 1955 • However, that column for the years 1956, 1957 and 1958 shows a clearly discerni ble rise. Three months in 1958 show shares paid in of more than $1,000,000 each. This table further reveals the lending power of HAEFCU. The power or ability to make loans depends largely on shares paid in and cash on hand and in the bank. Share Withdrawals The number and amount of share withdrawals each month, as shown in Table VII, indicate that withdrawals were more frequent in the month of December; but the amounts withdrawn were larger in January, indicating possibly that the heavy January withdrawals were for bills incurred the previous December. This table also indicates the month-to-month need for cash to meet with drawals under normal conditions. Size of Share Accounts Table VIII shows that there were 12,564 share accounts in the $10-to-$l,000 category at the end of TABLE VII SHARE WITHDRAWALS BY MONTHS, 1954-1958 1954 , 1955 1956 1957 1958 Month No. Amount No 0 Amount No. Amount No. Amount No. Amount Jan. 173.0 $350,790 2014 $465,841 2479 $520,528 3303 $814,863 * $1,365,828 Feb. 1532 247,465 1932 301,554 2795 392,539 3251 545,406 581,941 Mar. 1759 268,100 2114 311,900 2519 294,006 3462 486,098 645,921 Apr. 1535 431,270 2081 274,314 2697 307,782 3470 551,490 633,403 May 1535 371,532 2087 268,426 2686 350,622 3889 507,237 799,239 Jun. 1818 411,738 2165 295,097 2636 310,450 3825 527,631 711,135 Jul. 1174 168,764 2080 244,092 2809 284,186 3929 517,152 746,663 Aug. 1430 201,741 2298 252,830 2866 383,290 4122 485,202 683,904 Sep. 1470 188,027 2271 274,198 2497 292,572 3479 492,865 606,706 Oct. 1369 172,980 2115 234,953 2797 303,198 3829 457,789 603,878 Nov. 1737 198,928 2151 230,112 2901 306,631 3902 404,603 573,955 Dec. 2397 218,070 2893 244,349 3470 308,506 4515 507,746 671,334 *Not available. Source: From the records of Hughes Aircraft Employees Federal Credit Union. v n TABLE VIII PERCENTAGE DISTRIBUTION OF SIZE OF SHARE ACCOUNTS DECEMBER 51, 1958 Number Shares Size of Accounts Accounts Cumulative Percentage Percentage Amount Percentage Cumulative Percentage Less than $10 2,140 12.5 12.5 $ 146,097 2.0 2.0 $10 to $1,000 12,564 71.9 84.2 2,264,505 51.0 33.0 $1,000-82,500 1,827 10.7 94.9 2,191,457 50.0 65.0 Over $2,500 870 5.1 100.0 2,702,799 37-0 100.0 Totals 17,401 100.0 $7,504,858 100.0 Source: From the records of Hughes Aircraft Employees Federal Credit Union. vn -a 58 1958. This number represents 71 <*9 per cent of the total number of share accounts, but only 31.0 per cent of the total number of shares. There were 870 share accounts in the $2,500-and-over category, representing 5«1 per cent of the total number of accounts and 37*0 per cent of the total number of shares. This means that 94-.9 per cent of the number of accounts under $2,500 accounted for only 63.0 per cent of the total number of shares. Table VIII tends to confirm the belief that in vestors in credit unions are usually small investors; that is, the bulk of the share accounts are in the $10- to-$l,000 category. Relationship of Shares to Loans Table IX presents the average shares per member, the average loan per borrower, the ratio of loans to shares, and the ratio of borrowers to total members. The most revealing feature of this table is the inter- related character of shares and loans. It can be seen that the average value of shares per member rose from $352 at the end of 1954- to $4-20 at the end of 1958. The average loan per borrower also showed an increase from $230 at the end of 195'4- to $4-73 at the end of 1958; the ■^■John T. Croteau, The Federal Credit Union, Policy and Practice (New York: Harper and Brothers, 1956"), P. 56. 59 TABLE IX RATIOS OF LOANS TO SHARES AND OF BORROWERS TO TOTAL MEMBERS, 1954-1958 Year End Average Shares Average Loan Ratio of Loans to Shares (Per Cent) featio of Borrowers to Total Members (Per Cent) 1954 8332 $250 39-0 51.8 1955 353 315 43.1 48.2 1956 374 588 55-7 53.6 1957 370 417 66.6 60.1 1958 420 473 76.5 67.9 Source: From the records of Hughes Aircraft Employees Federal Credit Union. 60 rate of increase in average loan per borrower, however, was higher than that for the increase in average shares per member. This fact is clearly revealed in the ratio of loans to shares. This ratio at the end of 1954 was 39 per cent; by the close of 1958 it had climbed to 76 per cent. The high ratio of borrowers to total members reflects the inclusion of loans refinanced after the minimum waiting period; it does not show a true picture of the actual number of borrowers in relation to the total membership. The interrelated character of shares and loans from 1954 to 1958 is further shown in Figure 5« II. LOANS TO MEMBERS One of the main goals of HAEFCU is to create a source of credit for all members. In this connection the question may be raised as to what extent credit union funds are being used to achieve this goal. The answer to this question will be found in the funds avail able for loans, the type of loan service provided, and the demand for loans from members. Funds Available for Loans As previously mentioned, the funds available to members for loans depend to a large extent on: 1. The shares being paid in. 2. The amount of cash on hand and in the bank. Millions of Dollars 1954 1955 1956 1957 1958 FIGURE 5 LOAETS OUTSTANDING AND MEMBERS' SHAREHOLDINGS DECEMBER 31, 1954 THROUGH DECEMBER 31, 1958 Source: From the records of Hughes Aircraft Employees Federal Credit Union* 62 3. The amount of investments which can be liqui dated without loss, or which can be used as collateral. 4. The line of credit which HAEFCU has estab lished at the bank or with other credit unions. Types of Loans Loans to members currently offered by HAEFCU are categorized as follows? 1. Personal or "signature” loans, which are un secured except by the character of the bor rower. 2. Share loans made against the members1 share holdings as collateral. 3. Automobile loans, using the automobile as security. 4. Home improvement loans under Federal Housing Administration Title I, which are secured loans. 5» Stock loans, using stocks as security. Personal loans. While HAEFCU does not finance outright such items as purchase of furniture, household appliances, medical bills, car repairs, or vacation ex penses, a personal loan can be arranged for these pur- poses. Loans up to $400 are made to members on the 63 basis of length of employment with the company, earnings, and credit rating. Personal loans are unsecured, yet the percentage of delinquent loans charged off since the organization date of HAEFCU has been less than 1 per cent. The interest rate on personal loans has varied from time to time; at the end of 1958 it was 1 per cent per month on the unpaid balance. Table X shows the terms governing personal loans at HAEFCU, Share loans. Share loans are those granted on the basis of the shares in a member's account. .This type of loan, therefore, is a secured loan. The shares in the borrowing member's account are held as collateral for the loan. The interest charge on jshare loans is 3/4- of 1 per cent per month on the unpaid balance. Minimum required payments are computed so that they equal inter est charges. Share loans are particularly advantageous to a member who needs cash for a short period of time, especially near the end of the year. By getting a share loan, he avoids losing dividends that would be lost by • withdrawal of shares before their earnings for the year are realized. Automobile loans. The automobile loan policy of HAEFCU was modified after 1953 to meet the needs of mem- 64 TABLE X TEEMS OF PEESONAL LOANS Months of Employment Maximum Amount of Loan Minimum Payment Per Week 3 $75.00 $2.50 8 100.00 3.00 9 150.00 4.00 12 200.00 4.50 18 250.00 5.00 24 300.00 6.00 27 350.00 7.00 30 400.00 8.00 Source: From the Federal ___________ records of Hughes Credit Union. Aircraft Employees 6 5 ber borrowers. Until December 51, 1958, multiple inter est rates were applied on automobile loans, depending on whether the automobile was made abroad or in the United States and on whether it was new or used. These multiple rates were presumably based on the degree of risk in volved. Table XI shows the terms of automobile loans as they were made up to 1958. On ears of the latest model, the maximum loan was 70 per cent of the sales price, and the interest rate was 3/4- of 1 per cent per month on the unpaid balance. The maximum time for repayment was 30 months. Used cars of the latest models had a ceiling of 80 per cent of the Blue Book wholesale price; for ex ample, if the Blue Book, wholesale price of a used 1958 model was $3,000, the maximum amount that could be loaned on it was $2,400. The interest rate for this . type of loan was 5/6 of 1 per cent per month on the un paid balance, and the maximum repayment time was 30 months. On models for the years 1957, 1956, 1955 and 1954-, loans could be made up to 70 per cent of the Blue Book wholesale price, and the interest rate was 5/6 of 1 per cent per month. The maximum repayment time was 30 months. As of December, 1958, the maximum loan on new foreign-made cars was 60% of the selling price on all TABLE XI TEEMS OF AUTOMOBILE LOANS DOMESTIC FOREIGN* Age of Car Maximum Loan Interest Rate Payment fDime Maximum Loan Interest Rate Payment Time New 70%** 3/4 of 1% 30 mos. 70%** 3/4 of 1% 24 mos. Used 80* ♦* 5/6 of 1% 30 mos. r?Q* * * 5/6 of 1% 18 mos. ♦Volkswagon, MG, Morris Minor, Renault, and Hillman Minx only. All other new foreign cars up to 60% of the selling price. ♦♦Selling price. ♦♦♦Blue Book wholesale. Source: Californian Hughesnews, Vol. 15, No. 5, March 2, 1956. Ch cn 67 makes except the Volkswagon, MG, Morris Minor, Renault, and Hillman Minx. On these the maximum loan was 70% of the selling price. The interest rate on new foreign-car loans, regardless of make, was 3/4 of 1 per cent, and the maximum repayment time was 24 months. The maximum loan on used foreign cars of the lat est model was 70 per cent of the Blue Book wholesale price, and the interest rate was 5/6 of 1 per cent. The maximum repayment time was 18 months. Loans on used foreign cars were made on models only two years previous to the current model; for in stance, in 1958 loans could he made on 1957 and 1956 models, hut on none older. No loans were made on used foreign cars except those mentioned ahove. FHA home improvement loans. FHA Title I Home Im provement loans were added to HAEFCU's service in 1957* This new service provides an opportunity for members to remodel or redecorate their homes. The maximum loan for home improvement is $3*500 and the maximum repayment time is 36 months. Although FHA Title I loans can he obtained from the hanks, members of HAEFCU who use this service have the advantage at no extra cost of having their loans protected by borrower's insurance, which 68 automatically pays the loan balance in full in the event of the borrower’s death# Unlike other HAEFCU loans in which the interest is calculated each month on the unpaid balance, the cost of an FHA Title I loan is $5 discount per year for each $100 borrowed up to $2,500, and $4 discount for each $100 over $2,500. This means that the interest charges are added to the total amount of the loan and the deduction is calculated on a "level payment' 1 basis; i.e., each pay ment is the same and the same amount of each is credited against principal and interest. Stock loans. Stock loans are those which use stocks as collateral. These loans can be made for any prudent purpose, including the purchase of additional stocks, HAEFCU loans up to 70 per cent of the current market value of certain stocks, this value based on the current issue of the Fitch Stock Record. The maximum stock loan is $5*500, and the maximum payment time is 56 months. The interest rate on stock loans is 1 per cent per month on the unpaid balance. Distribution of loans by type. The percentage distribution of HAEFCU loans by type for the year 1958 is presented in Table XII. This table shows that while 7 5 per cent of the loans were in the personal loan 69 TABLE XII PERCENTAGE DISTRIBUTION OF TYPES DECEMBER 31, 1958 OF LOANS Percentage Distribution Type of Loan Number of Loans Amount of Loans Personal 75.6 38.0 Shares .6 1.2 Aut omobile 23.8 56.4 FHA Title I 1.5 4.0 Stock .5 .4 Totals 100.0 100.0 Source: From the records of Hughes Aircraft Employees Federal Credit Union. 70 category, the amount loaned in this category was only 38*0 per cent. Although the number of automobile loans was 23.8 per cent, the amount of such loans was 58.4- per cent. The Demand for Loans A detailed breakdown in the number and amount of new loans made each month, as presented in Table XIII, indicates the semblance of a seasonal pattern in borrow ing. This table further indicates that the loan volume reached new record levels at the end of each year since 1954. The trend in borrowing rose steadily over the last five-year period of the study. Reasons for borrowing. HAEFCU makes loans for many purposes for the benefit of its members. Many calls for loans are of an emergency nature, involving medical, dental, hospital, funeral or other unforeseen expenses. Often, especially if a member is pressed by creditors, consolidation of debts is made as an emergency measure. On the other hand, many loans are made for the purpose of self-improvement, family welfare, or the acquisition of items that result in better living for the applicant and his family. Some loans enable the borrower to take advantage of cash buying, which means a substantial sav ing in expenditure because of the low interest rate. 'TABLE XIII NUMBER AND AMOUNT OF NEW LOANS BY MONTHS, 1954-1958 1954 1955 1956 1957 1958 Month No. Amount No. Amount No. Amount No. Amount No. Amount Jan. 502 $140,783 499 $160,351 604 $210,323 1061 $466,770 1474 $871,393 Feb. 659 187,784 515 161,042 737 257,634 986 408,263 1197 553,992 Mai*. 665 184,397 700 223,277 788 319,078 1141 513,850 1456 698,344 Apr. 599 193,330 584 190,400 624 253,954 1386 650,118 1532 682,540 May 553 160,846 642 230,853 924 375,833 1233 . 562,218 1343 868,348 Jun. 736 246,378 639 232,874 815 332,350 1271 573,296 1620 852,600 Jul. 407 127,695 585 223,186 819 288,284 1305 555,318 16 56 882,767 Aug. 660 170,616 654 237,970 792 405,049 1358 539,965 1330 720,596 Sep. 579 158,662 630 237,748 743 289,074 1146 585,852 1339 741,833 Oct. 493 148,142 561 195,068 956 371,522 1131 546,139 1561 860,737 Nov. 621 184,746 593 227,976 1226 490,532 1264 504,857 1511 798,790 Dec. 736 226,088 960 322,131 1408 470,683 2073 751,856 2194 1,083,421 Source: From the records of Hughes Aircraft Employees Federal Credit Union. Occasionally loans are made for sued purposes as buying securities, acquiring a lot or other real estate which will increase the borrower's income. Since there are certain difficulties connected with determining the exact reasons that members borrow, purposes for loans have been categorized broadly as (1) emergency credit, (2) convenience credit, (3) purchase O of durables, and (4) investment credit. It should be noted here that the purposes for loans cannot be readily determined except in the case of those made for the pur chase of an automobile or for home improvement under FHA Title I. The other three types of loans which HAEFCU makes— personal, share, and stock loans— can fall into one or all of the above-mentioned categories. For example, a personal loan may be made for the purpose of paying a dental bill, but there may be enough cash left over to cover an automobile repair billi Similarly, a share loan for the purpose of buying a boat may be used to finance a vacation trip. In view of the difficulty in determining the exact purposes for which loans are made, Table XIV presents only an approximation of purposes. The largest number of loans, 37*9 per cent of the total at the close of 2Ibid., p. 60. 73 TABLE XIV R E A S O N S G I V E N F O R B O R R O W I N G DECEMBER 51, 1958 Percentage Distribution Number Amount Reasons of Loans of Loans Emergency credit: 37*9 18.2 Taxes Funeral expenses Medical expenses Current living One half of "other expenses" Purchase of durables: 25*3 60.4 Automobiles Household goods Other durables Home repair expenses Convenience credit: 35*2 20.3 Insurance premiums Vacation expenses Education Consolidation of debts One half of "other expenses" Investment credit: 1.6 1.1 Totals 100.0 100.0 Source: From the records of Hughes Aircraft Employees Federal Credit Union. 74 1958, were emergency credit loans; but the largest amount in loans, 60.4 per cent of the total, was for the pur chase of durables* This difference is due to the fact that emergency loans are usually personal loans and therefore cannot exceed the 1400 maximum. The ease of obtaining personal loans may account for their great num ber. On the other hand, the large total in loans for the purchase of durables may be attributed in part to the borrowing of considerable amounts to buy automobiles, and in part to home improvement loans under FHA Title I. Investment credit, as a category, covers loans for the purchase of stocks and bonds, and for business ventures, among other things. The number of such loans has been small. Taxes, medical, and dental expenses were the most frequent reasons given for borrowing under emergency credit. Consolidation of debts was the most frequent reason for borrowing under convenience credit. Under purchase of durables, the purchase of automobiles ranked first, while the purchase of stocks was the most frequent reason given for investment loans. Cost Analysis of Loans The demand for loans from the members' point of view has been examined; now the cost of making a loan from HAEFCU*s point of view will be analyzed. 75 Since HAEFCU is subsidized to some extent by its sponsor, its cost of operation must be interpreted with caution. The cost of loans, as presented in Table XV, was estimated on a per-dollar basis or on a per-unit- loan basis. The distinction between the per-dollar mea sure and the per-unit-loan measure was pointed out by Croteau as follows: The per dollar measure is useful particularly in considering losses from bad loans. The per^unit-loan basis, however, provides a figure that is easier to grasp and one which has application in administrative decisions.* With regard to costs, let it be arbitrarily assumed that of the total expense of HAEFCU, 80 per cent is con nected with loans to members and the remaining 20 per cent to investments. At the close of 1958, eighty per cent of the total expenses of $252,0?0 would equal $185,655* This figure, when divided by the total number of loans (18,213), would make tbe average cost per loan $10.19* This means that it costs HAEFCU $10.19, on the average, to make a loan. Since the average return on loans is 9*4-2 per cent, in order to cover costs the credit union must make loans exceeding $106.00 each to be repaid in twelve monthly payments. ^Ibid.. p. 83- TABLE XV COST ANALYSIS OF LOANS, 1954-1958 Year Number of Loans Dollar Amount of Loans Average Loan 80% of Expenses Average Cost per Loan Per cent Average Loan Change Cost per Loan 1954 7,210 $2,129,469 $295034 36,877 5.11 — _ _ 1955 7,491 2,642,880 , 352,80 61,612 8.22 19.5 60.8 1956 10,326 4,353,584 419.66 74,237 7.18 19.0 -12.6 1957 15,555 6,646,394 432.84 125,780 8.19 3.1 13.9 1958 18,213 9,615,288 527.94 185,655 10.19 22.0 24.4 Source: From the records of Hughes Aircraft Employees Federal Credit Union. -o cn 77 Loan Turnover Table XVI shows the average loans outstanding and the average turnover in loans at the end of each year from 1954- to 1958? The average size of loans outstanding and the average size of loans made both showed a tendency to rise. But the average turnover in loans to members stabilized at 212 days for the last three years of the study. The lowering of requirements for obtaining loans influenced the growth in the average size of loans out standing at the close of the year and the average size of loans made during the year. Moreover, personal loans are made simultaneously with automobile loans. In other words, unsecured loans can run concurrently with secured loans, thereby increasing the above-mentioned averages. The sizable variance between the two averages re flects an unusual amount of refinancing of loans during the year. The ratio of loans outstanding to total assets indicates a steady rise from 37 «2 per cent at the end of 1954- to 72.0 per cent at the end of 1958. The ratio of total reserves for bad loans to shareholdings of members stayed close to 1.6 per cent from 1954- t-o 1957* Then, at the close of 1958, the ratio of reserves to shares climbed to 2.3 per cent, which indicates the differential in growth rates in the reserve shares account. TABLE X V I LOAN TURNOVER AND RELATED RATIOS DECEMBER 31, 1954 THROUGH DECEMBER 31, 1958 Average Average RATIOS Year Average Loan Out standing Loan During Year Turnover In Loans (in days) loans Outstanding to Total Assets Total Reserves to Shares 1954 $250.06 $295.54 180 57.2 1.4 1955 315*26 352.80 189 40.8 1.8 1956 387.54 419.66 212 55.0 1.8 1957 417.07 432.84 212 64.0 1.4 1958 472.85 527.94 212 72.0 2.3 Source: From the records of Hughes Aircraft Employees Federal Credit Union. -o CD 79 Delinquent Loans The regular reserve account set up by HAEFCU to insure against losses on bad loans and such other losses as are specified in its bylaws has paralleled the rise and fall of loan balances delinquent two months or more. Table XVII, which presents the data relating to percen tages of delinquent loans and ratios of reserve to total loans and delinquent loans, shows that delinquencies as a percentage of total loans declined, while the reserve for bad loans as a percentage of total loans remained close to 3.0 per cent. The ratio of total reserves to delinquent loans indicated that reserves were approximately 1J0 times the amount in delinquencies at the end of 1958* The percent age of loans charged off since the organization of HAEFCU has remained fairly constant at about .12 per cent during the last five years of the study. This means that HAEFCU has ample coverage for bad loans and has provided an added protection to shareholders. III. SUMMARY An analysis of the savings accounts of HAEFCU shows that the shares paid in by members rose gradually from approximately $300,000 at the beginning of 1954- to more than $600,000 at the end of 1958. January was the TABLE XVII DELINQUENT LOANS, LOANS CHABGED OFF AND RATIOS OF RESERVE TO TOTAL LOANS AND DELINQUENT LOANS, 1954-1958 PERCENTAGE PERCENTAGE RATIO Year End Loan Balance Delinquent Two Months or More Loans Charged Off Since Organization Reserve for Bad Loans to Total Loans Total Reserves to Delinquent Loans 1954 .92 .12 5.8 417.6 1955 • 54 .12 4.1 771.4 1956 .14 .15 3.4 2,552.6 1957 .40 .12 2.0 495.6 1958 .24 .12 3.0 1,297.7 Source: From the records of Hughes Aircraft Employees Federal Credit Union. 00 0 81 heaviest month for -withdrawal of shares; July and August were the lightest. The various types of loans available to members at the end of 1958 fell into five categories as follows: (1) personal, (2) share, (3) automobile, (4) home im provement, and (5) stock. While the greatest number of loans were made for emergency purposes, the largest amount of money was for the purchase of durable goods. As measured by the ratio of loans outstanding to total assets, the volume of loans rose steadily from 37*2 per cent at the end of 1954- to 72 per cent by the close of 1958. While the average size of loan outstanding rose from $250 at the end of 1954- to $472 at the end of 1958, the average turnover in loans to members stabilized at 212 days. The percentage of delinquent loans charged off from 1954- to 1958 was less than 1/5 of 1 per cent. CHAPTER V ANALYSIS OF INCOME, EXPENSE, AND RELATED DATA The purpose of this chapter is to depict the man ner in which income and expense responded to the expan sion of HAEFCUc The sources of income and the ratio of earnings to gross income are studied and their rates of return analyzed, The ratio of earnings to gross income is examined in the light of efficiency of operation. The income data of a business enterprise reflect in a gen eral way the basic trend in the growth of that enter- prise. Therefore, an examination of the income data for HAEFCU will show the pattern of its growth. I. MEASUREMENT OF EXPANSION The expansion of HAEFCU has been measured thus far by means of membership, total assets, shareholdings, and loans to members. Now income will be considered as an other index of growth. For this purpose gross income will be used, because if net earnings were used a dis torted picture would result. For example, gross income rose from $150,000 at the end of 1954- to $175>000 at 1 Gertrude G. Schroeder, The Growth of the Major Steel Companies (Baltimore: Johns Hopkins Press, 1955)» p. 34'. 83 the end of 1955» while net income for these two years dropped from $104,000 to $98,000. The drop in net i:q- come was the result of a rapid rise in expense. The analysis of income and expense involves the calculation of net earnings and dividends. It also in- eludes assessment of operating ratios by means of which the efficiency of operation can be gauged. Expense accounts of HAEFCU fall into 22 categor- ies, as follows: 1. Treasurer’s salary 2. Other salaries 3- Borrower's insurance 4. Surety bond premium 5. Examination fees 6 . Supervision fee 7. Stationery and supplies 8. Educational expense 9. Collection expense 0 o 1 —1 Depreciation of furniture, fixtures equipment and 11. Social security taxes 12. Other insurance 13. Losses on sale of bonds' 14. Cash over and short 15. Other losses 16. Auto transfer fees 84 17. Bookkeeping machine maintenance 18. Property taxes 19. Brink's service charge 20. Burroughs machine rental 21. FHA insurance 22. Miscellaneous In order to provide a more significant figure for analysis, these accounts were consolidated into six gen- eral accounts, as follows; 1. Salaries 2. Borrower's insurance 3. Surety bond premium 4. Examination and supervisory fees 5. Educational expense 6. All other expenses II. INCOME < D £ data pertaining to income and expense from 1940 to 1958 are presented in Table XVIII. This table indicates that gross income rose rapidly from $7 at the end of 1940 to more than $4,300 at the close of 1943* It then fell below this level during the post-war years, reaching $25 at the end of 1946 and $20 at the close of 1947. After 1948 there was a rapid rise from $700 to more than $506,000 at the close of 1958. Concurrent 85 TABLE X V I I I GROSS INCOME AND OPERATING EXPENSE 1940-1958 Year End Income Operating Expense Per Cent of Total Gross Income 1940 $7 «47 671.0 1941 993 373 37.6 1942 1,941 687 35.4 1943 4,361 1,127 25.8 1944 4,078 1,363 33-4 1945 1,948 1,057 54.2 1946 25 292 1,168.0 1947 20 446 2,230.0 1948 725 496 68.4 1949 3,427 654 19.0 1950 9,915 1,022 10.3 1951 20,438 4,3H 21.0 1952 35,843 13,702 38.2 1955 102,368 19,126 18.6 1954 149,826 46,096 30.8 1955 175,492 77,016 43.8 1956 250,221 92,796 37.0 1957 391,242 157,226 40.2 1958 506,666 232,070 45.8 Source: Prom the records of Hughes Aircraft Employees Federal Credit Union. 86 with the rise in gross income, operating expenses showed the same general pattern of increase. While rapid in crease for gross income commenced at the close of 194- 8, operating expense began to rise rapidly after 1950. From more than $1,000 at the end of 1950, operating expense reached $232,000 by the close of 1958. Net income showed a rapid rise from $2,800 at the close of 194-9 to more than $100,000 at the end of 1954- and then dropped to $98,000 in 1955* The drop was a direct result of the splitting of HAEFCU into two credit unions. The division not only affected the actual member ship and total assets, but net earnings as well. HAEFCU*s income falls into three categories: (1) interest on loans to members, (2) investments, and (3) other sources. The data pertaining to the components of the gross income are presented in Table XIX. The percentages of total income of these components are graphically presented in Figure 6. Interest on Loans to Members Table XIX shows that the income from interest on loans to members rose from $7 at the end of 194-0 to $4,319 at the close of 194-3* and then declined to $20 at the end of 194-7- It rose once again after 194-7* reaching $448,715 "by the end of 1958. The rapid rise 87 TABLE XIX GEOSS INCOME BY COMPONENTS 1940-1958 Year End Total Income Members 1 Loans Income from Investments Other Incone 194-0 $7 $7 — — 1941 993 977 -- $16 1942 1,941 1,939 -- 2 1943 4,361 4,319 126 16 1944 4,078 4,021 64 (8) 1945 1,948 1,706 242 — 1946 25 25 — — 1947 20 20 — — 1948 725 725 — -T- 1949 3,427 2,951 425 51 1950 9,915 9,065 850 -- 1951 20,438 16,313 4,125 - 1952 35,843 31,728 4,096 19 1955 102,368 76,134 26,185 49 1954 149,825 107,070 41,836 919 1955 175,492 131,739 43,004 749 1956 250,221 187,017 63,204 - 1957 391,242 323,200 $8,042 - 1958 506,666 448,712 57,894 57 Source: From the records of Hughes Aircraft Employees Federal Credit Union. Per Cent 30 o rH OJ K\ 4 IA LD o- CO OA o rH CM KA 4 IA L0 EN 00 4 4 4 4- 4 4 4 4 4 4 LA LA LA lA IA LA LA LA LA 0- N ON OA oa OA OA OA OA OA OA OA OA OA OA OA OA OA OA OA r —1 rH 1 — 1 rH rH rH rH rH rH rH 1 — 1 i — 1 rH rH 1 — I H rH 1 — 1 l — 1 Income from Loans to Members Income from Investments Other Income FIGURE 6 TYPES OF INCOME AND THEIR PERCENTAGES OF. TOTAL DECEMBER 31, 1940 THROUGH DECEMBER 31, 1958 Source: From the records of Hughes Aircraft Employees Federal Credit Union, oo oo after 1947 reflected the growth in the volume of loans to members. Interest on loans to members accounted for ?1»4 per cent of total income at the end of 1954; 75»0 per cent at the close of 1955; 74.7 per cent at the end of 1956; 82.6 per cent at the end of 1957: ? and 88.6 per cent at the conclusion of 1958. It would be extremely difficult to recount the amount of interest on loans to members in each of their five categories; however, it is comparatively easy to name the components that make up total income. Investments Under the Federal Credit Union Act, HAEFCU is per mitted to invest in the following categories? 1. United States Government obligations, such as Treasury bills, bonds, notes and certi ficates of indebtedness. 2. Securities which are fully guaranteed by the United States Government both as to princi pal and interest. 3. Shares of federally chartered savings and loan associations and other institutions insured by the Federal Savings and Loan Insurance Corporation. 4. Loans to other credit unions not exceeding 90 25 per cent of paid in and unimpaired, capital and surplus# During the eighteen-year period of its existence HAEFCU has had occasion to invest in all hut the second- named of these outlets for idle funds, as can be seen in Table XX# Investments in United States Government oblig ations were first made in 194-2 when the credit union had idle funds amounting to $7,4-00. Government obligations comprised the entire investment portfolio of HAEFCU for the years 1942, 194$ and 1944. The $26 increase appearing at the end of 1943 represents reinvestment of the income derived from Govern ment obligations. In 1944, however, investments rose rapidly to $59,258 as shareholdings climbed from $66,949 at the end of 1943 to $118,033 at the end of 1944. After 1945 the investment program was discontinued because of 1ack of idle funds. Not until 1949 did HAEFCU undertake an investment program again. At the end of that year all idle funds, amounting to $25,000, were placed in Federal savings and loan shares. As can be seen in Table XX, this was a sig nificant shift from HAEFCU's previous investment program. Figure 7 presents the percentages of the components of total investments. The reluctance of HAEFCU to invest in Government 91 TABLE XX INVESTMENTS BY TYPES 1940-1958 Type of Investment Year End U.S. Gov’t Obligations Savings and Loan Shares Credit Unions Total Investments 194-0 ♦ ♦ * * 194-1 * * ♦ * 194-2 $7,400 * * $7,400 194-3 7,426 * * 7,426 194-4 59,258 * ♦ 59,258 1945 * * * # 1946 * * * * 1947 * * * * 1948 ♦ * ♦ * 1949 ♦ $25,000 * 25,000 1950 * 45,100 * 45,100 1951 * 220,000 * 220,000 1952 100,000 510,000 $10,000 620,000 1953 100,000 760,000 10,000 870,000 1954 100,000 1,330,000 * 1,430,000 1955 100,000 1,490,000 5,000 1,595,000 1956 100,000 1,750,000 15,000 1,865,000 1957 * 1,630,000 15,000 1,645,000 1958 * 1,510,000 5,000 1,515,000 *None Source : From the records of Hughes Aircraft Employees Federal Credit Union. Per Cent 100 80 60 40 20 O H C\J (A 4 " 4 " ■ H ’ ^ CA CA (A CA <J\ CO ^ o cf 4- LA CA (A CA rH ( —I rH H OJ fA H- LA LA IA LA LA LA CA <js os OS OS rH rH rH rH rH CD IN 00 LA LA LA CA CA Os Os (A (A m U. S. Bonds B3 Savings and Loan Shares Loans to other Credit Unions FIGURE 7 TYPES OF INVESTMENTS AND THEIR PERCENTAGES OF TOTAL DECEMBER 31, 1940 THROUGH DECEMBER 31, 1958 Source; From the records of Hughes Aircraft Employees Federal Credit Union. 93 Bonds at this time can be explained by an examination of their nature and characteristics. United States Government obligations. . Obligations of the United States Government available to HAEFOU as investment possibilities are treasury bills, bonds, notes, and certificates of indebtedness. These obligations are negotiable. They may be used as collateral and sold-on the open market at any time. Although highly liquid, they are subject to fluctuation, and market conditions may not be favorable at the time of sale when funds are urgently needed. Treasury bills are sold to the highest bidders on a discount basis; that is, the income from this type of investment is the difference between the discounted pur chase price and the par value realized on maturity. Trea sury bills usually mature in 90 days. Treasury bonds, notes, and certificates of indebt edness are offered at par at the time of issue. They carry coupons that entitle the investor to interest pay ments twice a year. Interest payments vary with the type of of investment, the time of maturity, and the money market at the time the Government obligation was issued; consequently, the interest rates range from 1-1/2 per cent to 4 per cent per annum. The time of maturity ranges from one year to twenty-five years. 94 Of the treasury bonds offered as investment possi bilities,. two types are not subject to market fluctua tion— the Series E and Series H savings bonds. In con trast to other treasury bonds, these are not negotiable and cannot be used as collateral. The Series E bonds mature in eight years and eleven months from date of is sue, while the Series H bonds mature in ten years from the date first issued. Both Series E and Series H bonds yield 3-1/4 per cent interest, compounded semi-annually when held to maturity. Investors of Series E and Series H savings bonds are penalized in ease of sale prior to maturity; that is, the yield would be less than 3-1/4 per cent, depending upon the length of time the bonds were held. For example, these bonds earn no more than p 2.80 per cent during the first two years. The foregoing analysis of United States Government obligations provides some of the clues as to why HAEFCU has been reluctant to invest its idle funds in Government obligations. Safety, liquidity, and yield must always be prime considerations in choosing investments* Savings and loan shares. As previously seen in 2 "More and More Troubles for the Treasury," U. S. Hews and World Report * February 20, 1959, Vol. XLVI, No. 18, p. 109* 95 Table XX, HAEFCU's investment program was revived after a quiescent period of four years when $25,000 were in vested in savings and loan shares in 194-9® The figure rose rapidly after 194-9, reaching $1.8 million at the end of 1956 and dropping back to $1.5 million at the close of 1958. The income from investments in savings and loan shares was not significant at the end of the years 194-9, 1950, and 1951, but rose significantly from $850 at the close of 1950 to more than $4-,000 at the end of 1951, as seen in Table XIX. The figure stabilized at the $4-,000 level until after 1952 when it climbed to more than $26,000 at the end of 1953 and $4-1,000 at the close of 1954-. Income from savings and loan shares then rose steadily to $68,000 at the end of 1957 and dropped to slightly less than $58,000 at the close of 1958. Federal credit unions are not permitted to invest more than $10,000 in any federally chartered savings and loan association; because of this limitation, HAEFCU has shareholdings in more than 150 savings and loan associations® Other Income Although the bulk of HAEFCU*s income is from the two above-named sources, interest on loans of $15,000 96 or less to other credit unions and occasional donations from the sponsor are sources of small additional income for HAEFCU. Bates of Return on,.Average Loans and Investments The rate of return on average loans to members from 194-0 to 1958, as shown in Table XXI, stabilized at around 11.6 per cent during the war years. It then dropped to a low of 2.0 per cent in 194-6. Since 194-8 it fluctuated widely between 4-.3 per cent and 11.1 per cent. This may have been due to the effect of multiple rates charged HAEFCU on different types of loans. The rate of return on average investments indi cates a lower figure than that for average loans. The credit union invested in United States Government bonds during the war years. The return, however, was nominal— less than 1 per cent. As loans to members increased in 1957, there was a shift away from Government bonds, ac companied by a decrease in the amount invested in savings and loan shares. Table XXI Indicates that the return on each dollar invested in loans to members approximates three times the return on each dollar placed in other investments. Ill. EXPENSE As previously stated, the expense accounts of RATES OP RETURN 97 TABLE XXI ON AVERAGE LOANS AND AVERAGE INVESTMENTS I94O-1998 Per Cent Return Year Average Average End Loan Balance Investment Balance 1940 .39 ♦ 1941 11.65 * 1942 11.64 ♦ 1943 11.00** .39 1944 10.36 • 19 1945 9-79 .81 1946 1.97 * 1947 4.29 * 1948 11.00** * 1949 9.39 1.7** 1950 10.02 2.43 1951 7-47 3.11 1952 8.19 .98 1955 9.29 3.92 1954 4.31 3.63 1995 11.13 2.84 1996 9*72 3.65 1997 10.02 3.87 1998 9.42 3.66 *17 one * ^Estimated Source: Prom the records of Hughes Aircraft Employees Federal Credit Union. 98 HAEFCU were consolidated for the purposes of this study into six general accounts: (1) salaries, (2) borrow ers 1 insurance, (3) surety bond premiums, (4-) examina tion and supervisory fees, (5) education, and (6) all other expenses. Table XXII shows the size of each of these accounts for every year from 194-0 through 1958. Salaries As can be seen in Table XXII, salaries paid by HAEFCU prior to 1952 were insignificant; in fact, the only salary paid before that time was that of the trea surer. Salaries of clerical assistants for HAEFCU were absorbed by Hughes Aircraft Company. . . . One might almost say that salary costs in a small credit union are a residual and not a con tractual payment: after a reasonable dividend rate, say 3 per cent, has been covered, the Treasurer is paid whatever the residual earnings will provide. In a large credit union, however, salary costs are determined by competitive forces.3 In 1952 when membership increased and more loans were made, HAEFCU assumed responsibility for paying a portion of the salaries of its own employees; in 1954- it assume the entire payroll. This obligation caused total salaries to amount to five times their amount only two years previously. From 1954- until the end of 1958, 3 ^John T. Croteau, The Federal Credit Union. Policy and Practice (New York: Harner and Brothers, isfsrr “ se:-------- ------------ TABLE XXII ELEMENTS'OF TOTAL EXPENSE, 1940-1958 Year End Total Salaries Borrowers’ Insurance Surety Bond Premium Examination & Supervision Fees Educational Expense Other Expenses Total Expense 1940 * ♦ * * * $47 $47 1941 $180 * * * * 193 373 1942 416 * * * * 271 687 1943 238 ♦ $99 $235 $17 538 1,127 1944 533 ♦ 104 10 33 683 1,363 1945 50 * 249 267 * 491 1,057 1946 158 * -10 114 * 30 292 1947 325 * * 100 * 21 446 1948 300 * 135 * * 61 496 1949 300 * * 180 * 174 ,654 1950 300 $280 70 * * 372 1,022 1951 600 1,129 390 604 * 1,588 4,311 1952 4,471 2,366 308 1,731 * 4,826 13,702 1953 5,720 5,322 76 1,334 10 6,664 19,126 1954 26,982 7,269 280 2,295 48 9,222 46,096 1955 59,187 7,044 508 3,040 91 7,146 77,016 1956 70,680 9,844 848 1,463 711 9,250 92,796 1957 119,363 10,663 917 3,486 534 22,263 157,226 1958 172,542 18,958 553 5,086 1,079 33,852 232,070 *None. Sourcet From the records of Hughes Aircraft Employees Federal Credit Union. v£> vO 100 this column of Table XXII shows an increase in total * salaries from $26,982 to $172,542, At the time HAEFCU took over the payment of these salaries, an arrangement was made whereby the company would continue to hire employees for HAEFCU and be re imbursed on a weekly basis for the loan of such employ ees. This system of employment by the company and reim bursement by HAEFCU was for the benefit of the employees. Because they are employees of Hughes Aircraft Company, they are entitled to all fringe benefits and privileges provided by the company. Moreover, they are governed by labor union agreements which the company has with the various labor unions representing the workers. One fea ture of the contract between the labor unions and the company is the escalator clause that provides for in creases in salaries based on the cost-of-living index of the Bureau of Labor Statistics, HAEFCU employees, therefore, receive salary increases resulting from the rise in this index. Borrowers1 Insurance Borrowers' protection insurance did not appear as an expense item until 1950, when the number of loans began to increase from slightly less than 500 at the end of 1949 to more than 1,100 at the close of 1950. 101 This figure rose from $280 at the close of 1950 to more than $18,000 at the end of 1958, representing an in- crease of approximately 60 times the 1950 figure. Other Expenses Other expenses of HAEFCU include the following: 1. Stationery and supplies 2. Collection expense 3* Depreciation of furniture, fixtures and equipment 4. Other insurance 5. Communications 6. Cash over and short 7- Other losses 8. Auto transfer fees 9. Bookkeeping machine maintenance 10* Property taxes 11. Brink’s service charge 12* Burroughs machine rental 13. FHA insurance 14. Miscellaneous Table XXII shows that other expenses rose steadily from $9,000 at the end of 1956 to more than $22,000 at the end of 1957 and to more than $33,000 at the close of 1958. Table XXIII presents a further breakdown of 102 TABLE XXIII DETAILED BREAKDOWN OF OTHER DECEMBER 31, 1958 EXPENSES Item Amount Per Cent of Total Stationery and supplies $10,088.24 29.8 Collection expense 70.03 .2 Depreciation of furni ture, fixtures and equipment 7,390.24 21,8 Other insurance 401.72 1.2 Communi c at i ons 5,383.54 15.9 Cash over or short 123.90 .3 Other losses 142.19 ,4 Auto transfer fee 10.00 — Bookkeeping machine maintenance 968.93 2.8 Property taxes 377.08 1.1 Brink's service charge 2,210.23 6.5 Burroughs's machine rental 667.30 1.9 FHA insurance 1,419.43 4.2 Miscellaneous general expense 4,598.38 13.9 Totals $33,851.21 100.0 Source: From the records of Hughes Aircraft Employees Federal Credit Union. 1 0 3 other expenses, showing that about 70 per cent of the total at the end of 1938 went for stationery and sup plies; depreciation of furniture, fixtures, and equip ment; and communications. Thus, it is seen that the rise in other expenses was due primarily to the rise in expenditures for these items. XV. , NET EARNINGS AND DIVIDENDS Every year except the first of its existence, HAEFCU paid dividends on a per-share, per-month basis. After deducting the required 20 per cent of net earn ings to be set aside for the regular reserve against bad loans, the remainder was available for dividend payments. The maximum dividend permitted by the Federal Credit Union Act is 6 per cent. The data relating to the net earnings and dividends paid by HAEFCU are presented in Table XXIV. This table shows that net income and the amount of dividends paid rose after 194-9* Net income rose from $2,773 at the end of 194-9 to $274,596 at the close of 1958. Dividends paid also rose from $1,381 at the end of 1949 to $197,600 at the close of 1958. The ratio of dividends paid to net earnings fluctuated greatly from 1940 to 1958. TABLE XXIV NET EARNINGS AND DIVIDENDS 1940-1958 104 Dividends Paid Year End Earnings Amount Ratio to Rate Net Earnings 1940 -$40 -- -- 1941 620 $124 3.0 20.0 1942 1,254 497 3.0 39,6 1943 3,234 1,087 3.5 33.6 1944 2,715. 1,730 3.0 63.7 1945 891 609 2.0 68.4 1946 -267 225 2.0 -84.2 1947 -426 155 2.0 -36.4 1948 229 323 2.0 141.0 1949 2,773 1,381 4.0 49.8 1950 8,893 3,335 4.0 37,6 1951 16,127 9,851 4.5 61.0 1952 22,141 26,840 4.5 121.2 1955 83,242 55,848 4.5 67.0 1954 103,730 63,422 4.0 61.1 1935 98,476 88,670 4.5 90.0 19.56 157,425 123,749 4.5 78.6 1957 234,016 157,753 4.5 67.4 1958 274,596 197,600 4.5 71.9 Source• From the Federal records of Hughes Aircraft Credit Union. Employees 105 Net Worth and Rate of Return on Average Shares Table XXV shows net earnings as percentage rate of return on average shares and on average net worth and dividends paid as a rate of return on average shares and as a percentage of net earnings. The table shows that while the rate of return on average share holdings rose from -1.82 at the end of 194-0 to 6.26 per cent at the end of 1945? it dropped to 1.17 per cent at the close of 1945* Due to the suspension of loans in 1946 and 1947, net earnings on average shares reflected a loss of 1.16 per cent and 4.22 per cent, respectively. After 1948 net earnings on average shares stayed around 4 per cent. The return on average net worth followed closely the return on average shares. Net worth is the sum of the members' share account plus 4 the regular reserve and undivided earnings accounts. Table XXV also shows that dividends on average shares rose from 1 per cent in 1941 to slightly more than 2 per cent in 1945, then dropped to less than 1 per cent in 1945 and 1946. After 1947 dividends on average shares fluctuated between 1.5 per cent and 5.2 per cent. The ratio of dividends to net earnings varied widely. However, it was consistently above the 60 per ^Ibid., p. 91♦ TABLE XXV RATES OF RETURN ON AVERAGE SHARES AND AVERAGE NET WORTH, 1940-1958 106 ON Year End Net Earnings As a % Rate of Return Dividends As a % Rate of Return on Average Shares on Average Net Worth on Average Shares on Net Earnings 194-0 -1.82 -1.82 1941 5o43 5.27 1.08 20.0 1942 4.57 4.38 1.81 39»6 1943 6.26 5.90 2.10 33.6 1944 2.94 2.78 1.87 63.7 1945 1.17 1.10 .80 68.4 1946 -1.16 -.96 .98 -84.2 1947 -4.22 -3.14 1.54 -36.4 1948 1.03 .91 1.46 141.0 1949 4.74 4.40 2.36 49.8 1950 6.47 6.06 2.42 37.5 1951 4.28 4.07 2.62 61.0 1952 2.48 2.40 3.01 121.2 1953 4.71 4.34 3.16 67.0 1954 4.18 3.99 2.55 61.1 1955 3.36 3.20 3.02 90.0 1956 4.10 3.91 3.22 78.6 1957 4.51 4.32 3.04 67.4 1938 4.16 3»96 2.99 71.9 Source: From the records of Hughes Aircraft Employees Federal Credit Union. cent level in the five-year period from 1954- to 1958. Y. OPERATING RATIOS The efficiency of a credit union cannot be mea sured in the same way as that of banks or other finan cial institutions - In this regard, Croteau wrote, . . .In many ways the Credit Union is a unique or ganization; it is difficult to compare credit union costs with the ratios and the cost categories which have originally been developed to measure the per formance of banks and personal loan companies. . . . One rough ratio of efficiency, in intracredit union comparisons, is the ratio of expenses to income.^ Ratio of Expenses to Income The data pertaining to operating ratios, such as ratios of expenses to income and salaries to income, are presented in Table XXVI. This table reveals that the ratio of expenses to income was unusually high during the years that HAEFCU suffered from a lack of income. A comparison of ratios for the period 194-0-1953 > when clerical assistance was provided by the company, with the period '1’ 95.4—1958, when HAEFCU paid its own employ ees, reveals the ratios to be more stable, but slightly higher, in the latter period. Ratio of Salaries to Income ^Ibid. TABLE XXVI SELECTED OPERATING RATIOS, 1940 108 -1958 RATIO OF Year Total Expenses Total Salaries End to Gross Income to Gross Income 1940 671.0 — 1941 37.5 18.1 1942 35.4 21.4 1943 25.8 5.4 1944 33.4 13.0 1945 54.2 2.6 1946 1,168.0 632.0 1947 2,230.0 1,625.0 1948 68.4 41.4 1949 19.0 8.8 1950 10.3 3.0 1951 21.0 2.9 1953 38 0 2 12.4 1953 18.6 5.6 1954 30.8 18.0 1955 43.8 33.7 1956 37.0 28.2 1957 40.2 30.5 1958 45.8 34.0 Source: From the records of Hughes Aircraft Federal Credit Union. Employees 109 During the early years HAEFCU paid only its trea surer a small salary. This -was the main reason for the low ratio of salaries to income from 1940 through 1954-. The decision to pay all its own employees in 1954- is reflected in the ratio of salaries to income shown in Table XXVI. From 18.0 per cent at the end of 1954-, the ratio rose to 33*7 per cent at the close of 1955» then dropped slightly to 28.2 per cent at the end of 1956. The ratio remained close to 30 per cent at the close of 1957 and 1958. VI. SUMMARY The gross income fluctuated widely during the first ten years of HAEFCU's history. However, after 194-9» it rose rapidly, reaching a level of more than $.5 million. In the period 1954—1958, while the rate of return on average loans to members stayed close to 10 per cent, the rate of return on average investments stabilized at 3»5 per cent, slightly higher at times and lower at others. Income from interest on loans to mem bers was by far the biggest constituent of gross income. Total expenses rose from less than $1,000 at the end of 194-9 to more than $232,000 at the close of 1958. The rise in total expenses was due largely to the in crease in the number of additional employees and 1 1 0 HAEECU’s assumption of all salaries that were previously paid by the company. Salaries accounted for more than 50 per cent of the items of total expense. The net earnings record of HAEFCU showed a rapid rise from slightly less than $3»000 at the end of 1949 to more than $274,000 at the close of 1958. The ratio of dividends paid to net earnings indicates wide fluc tuation, although the rate of dividend paid stabilized at 4.5 per cent after the close of 1951* The ratio of expense to income varied between 30 and 45 per cent from 1954 to the end of 1958. The ratio of salaries to income showed fluctuations between 18 and 34 per cent for the same period. The trend in income and expense showed a continuing rise, while the operating ratios and dividend payments tended to sta bilize . CHAPTER V I BRANCH OFFICES It Has been noted that the purpose of HAEFCU is twofold! (1) to encourage and welcome the purchase of shares by its members, and (2) to invest the funds re ceived from these share purchases* While it may seem that HAEFCU exists solely to make a profit to keep the shareholders happy, such is not the case. It exists to provide a convenient place for members to save and to arrange small loans at low interest rates. When HAEFCU's membership expanded to the extent that many of the people it was seeking to serve were working and living near outlying divisions of Hughes Air craft Company, it was confronted with the problem of how to improve its service. There were disadvantages to dividing its member ship for the purpose of establishing several smaller credit unions to be independent of the original organi zation in Culver City. Thus it was that when its assets amounted to $3,378,221 and its membership numbered al most 9,000 in 1955, the decision was made to open branch offices that would operate as integral parts of the par ent credit union. 11 2 L THE OPENING OP BRANCH OFFICES In making its decision to open "branch offices, HAEFCU was not influenced by the economy of such a move, but by the need of its members for services that were due them. It sought answers to such questions as; Would a separate credit union serve these members more efficiently than a branch office? What are the advan tages and disadvantages of operating as one credit union with branches? Before answers could be found for these questions, the answer had to be found for another: What is meant by a branch credit union? Branch Credit Union Defined A branch credit union is an office removed from the location of the parent organization for the purpose of extending credit union services to members in its field of membership* The branch is an integral part of the parent credit union in that its assets and liabili ties are merged with those of the parent organization* A branch credit union is in the charge of a manager and its management closely resembles that of a bank opera tion. The shares paid in at the branch may be used as directed from the parent credit union. A branch credit union does not have a separate board of directors, credit or supervisory committee, or 1 1 3 a separate group of officers, except an assistant trea surer. It does not issue a separate statement of condi tions, nor does it have assets or liabilities that are distinguishable from those of the parent credit union. A branch credit union does not approve loans, but issues checks on loans that have been approved by the credit committee and disburses cash in the case of share with drawals, In short, a branch credit union is an office which is geographically removed from the parent credit union.1 In contradistinction to branch credit union opera tion is that of the group credit union. Group credit union operation is an arrangement whereby more than one credit union is affiliated with a central office where credit union information is gathered and disseminated to each unit credit union. A good example of group credit union operation is the Safeway Employees Federal Credit Union* There were 22 independent Safeway employees * federal credit unions in the United States and six in 1 In banking literature, this is sometimes called "multiple office banking*" While group banking is used interchangeably with multiple unit banking, these con cepts apply equally well to credit union operation. See Palmer T* Hogenson, The Economics of Group Banking (Wash' ington, D* C* ; Public' Affairs'Press1955) * P« 1® 114 p Canada at the end of 1957« Each Safeway credit union is self-governing. This means that each is controlled by its membership and is administered by its locally elected board of directors, credit and supervisory com- 3 mittees, and officers. Location of HAEFCU branches Prior to 1955 HAEFCU had only one office, located in Culver City, California. After 1955? however, it de veloped a system of branches with offices in El Segundo, Los Angeles (near International Airport and called the Airport Branch), Fullerton, and Costa Mesa. These cities represented the extent of HAEFCU's geographical decen tralization at the close of 1958• Though technically in the field of membership of HAEFCU, employees of the Hughes Aircraft Company at the Tucson, Arizona, plant established their own credit union. The great distance between Tucson, Arizona, and Culver City, California, was the chief reason for estab lishing a separate credit union. Because it is separate and independent of HAEFCU, the Tucson credit union is excluded from this study. 2 The Credit Union Bridge (Madison, Wisconsin: The Credit Union National Association, August, 1958), p. 17• ^Ibid., p. 15* 115 The locations of the branch offices- and their rela tive distances from the main office in Culver City are shown in Figure 8. Culver City branch. The Culver City Branch is the parent organization or main office of HAEFCU. The data pertaining to potential and actual membership of branches are presented in Table XXVII. This table shows that there were more than 9,000 potential members at the main branch on December 31, 1958. Of this figure, more than 6,500 were actual members, representing a ratio of actual to potential membership of 70.8 per cent at the end of 1958. This means that seven out of every 10 employees at the Culver City plant were members of the credit union at that time. The table further indicates that the Culver City branch had the largest potential and actual membership at the end of 1958. The data pertaining to shares and loans by branches are presented in Table XXVIII. This table indicates that members’ shareholdings at the Culver City branch amounted to more than S3.3 million at the close of 1958, making the average shareholding $514- per member. Table XXIX, which presents the.data relating to the percentage distribution of shares and loans, shows that while the members at the Culver City branch do more saving than the members at the other branches, they also 116 Culver City Branch El Segundo Branch Airport Branch Fullerton Branch Costa Mesa Branch LOS A N G E L E S COUNTY ORANGE COUNTY FIGURE 8 BRANCH LOCATIONS IN LOS ANGELES VICINITY DECEMBER 31, 1958 Source: From the records of Hughes Aircraft Employees Federal Credit Union. 117 TABLE XXVII MEMBERSHIP BY BRANCHES, DECEMBER 31, 1958 Membership Ratio of Actual to Branch Potential* Actual Potential Members Culver City 9,200 6,519 70.8 El Segundo 6,800 4,926 72.5 Airport 6,900 3,618 52.5 Fullerton 3,900 2,338 59.1 Costa Mesa ** * * ♦ * All branches 26,800 17,401 64.8 *Estimated ♦♦Included in Airport Branch figures Source: From the records of Hughes Federal Credit Union. Aircraft Employees TABLE XXVIII SHARES AND LOANS BI BRANCHES, DECEMBER 31, 1958 SHARES : LOANS Branch No. of Members Amount Average per Member Number Amount Average per Borrower Culver City 6,519 $3,350,737 $514 4,212 $2,212,132 S525 El Segundo 4,926 1,435,814 291 3,563 1,486,282 417 Airport 3,618 1,339,477 370 2,274 1,014,499 446 Fullerton 2,338 624,421 267 1,764 872,911 495 Costa Mesa * * ♦ * ♦ * All branches 17,401 $6,750,449** 388 11,813 5,585,824 473 *Included in Airport Branch figures. **Does not include payroll deductions of $550,409 for month of December. Source: Prom the records of Hughes Aircraft Employees Federal Credit Union. 118 TABLE XXIX PERCENTAGE DISTRIBUTION OF SHARES AND DECEMBER 21, 1958 LOANS BY BRANCHES Percentage of Total Shares Percentage of Total Loans Percentage Ratio of Loans to Shares Branch No. Amt. No. Amt. No. Amt. Culver City 27.5 49.6 35.7 39.6 64.6 66.0 El Segundo 28.2 21.3 30.2 26.6 72.3 103.5 Airport 20.8 19.8 19.2 18.2 62.8 75.7 Fullerton 13.4 9.5 14.9 15.6 75.4 139.6 Costa Mesa * * * * * * All Branches 100.0 100.0 100.0 100.0 68.8 82.7 ♦Included in Airport Branch figures. Source: From the records of Hughes Aircraft Employees Federal Credit Union. H vO 1 2 0 do more borrowing® Thirteen persons, including the manager, were em ployed on a full-time basis at the Culver City branch at the close of 1958® In common with the other branches of HAEFCU, the Culver City branch paid 4—1/2 per cent divi dend on shares held during the 12 months ending Decem ber 31, 1958® El Segundo branch® In 1955 HAEFCU opened a new branch at El Segundo. This was the first branch in a series of four to be established in a three-year period from 1955 to 1958® The El Segundo office is approxi mately four miles from the main office at Culver City® As can be seen in Table XXVII, at the end of 1958 the El Segundo branch had slightly fewer than 5,000 ac tual members. In a comparison of the ratio of actual to potential membership for all branches, the El Segundo branch showed the highest ratio, with 72.5 per cent against 64.8 per cent for all branches® The data in Table XXVIII indicate that while the average shareholdings per member at the El Segundo branch was $291 at the end of 1958, the average loan per bor rower was $417® Table XXIX shows that members' shareholdings at the El Segundo branch accounted for 28.3 per cent in number and 21.3 per cent in amount of shareholdings of 1 2 1 all branches combined. Also, the ratio of the number of branch loans to all branch loans was 30.2 per cent, and the amount of branch loans and total loans was 26.6 per cent. While the ratio of the number of loans to the number of shares was 72.3 per cent, the ratio of the amount loaned to the amount of shares was 103* 5 per cent, lending credence to the indication that the El 5egundo branch members borrowed more than they saved. Eight persons, including the assistant manager, were employed on a full-time basis at the El Segundo branch at the close of 1958* Airport branch. The second branch office to be opened was the Airport branch. Although it was estab lished in 19579 its history extended as far back as 1951® In 1951 many members were transferred to the Airport facility of the company and HAEFCU serviced these members through the company's employees' services office. Mem bership files and records were kept at the Culver City office, but in 1957 the delays encountered in share withdrawals and loan approvals finally culminated in the separate maintenance of membership records and files of Airport branch members. The Airport branch is located in Los Angeles in the vicinity of International Airport approximately three miles from the Culver City branch. Table XXVII 12 2 indicates that the Airport branch had slightly fewer than 7*000 potential members, but more than 3*600 actual members at the end of 1958o This table further indi cates that while the ratio of actual members to poten tial members exceeded 52 per cent, this branch had the lowest level of participation of all branches* The shares and loan figures for the Airport branch, as shown in Table XXVIII, reveal that at the close of 1958 the average share balance per member was $370, and the average loan balance was $446* Although the average loan per borrowing member was an amount greater than that for average shares, the ratio of loans to shares was only 75-7 per cent, as shown in Table XXIX* This means that at the end of 1958 members at the Airport branch were borrowing to the extent of 75 per cent at their pooled savings* Six persons, including the assistant manager, were employed on a full-time basis at the Airport branch at the close of 1958* Fullerton branch* The Fullerton branch was opened in 1957 following the establishment of the Airport branch* The Fullerton Tpranch is situated approximately 35 miles from the Culver City office* As shown in Table XXVII, this branch, at the end of 1958, had a po tential membership of about 3*900 and actual membership 125 of more than 2,500, representing 59 per cent participa tion. The data in Table XXVIII indicate that the Fuller ton branch average shareholdings per member were $267 and the average loan p.er borrowing member was $495 at the close of 1958. While only 75 per cent of the members at the Fullerton branch were utilizing HAEFCU’s loan service, they borrowed more than 159 per cent of the total amount of shares paid in. This means that the members at the Fullerton branch were borrowing more than their pooled savings. Four persons, including the assistant manager, were employed at the Fullerton branch on a full-time basis at the end of 1958. Costa Mesa branch. The Costa Mesa branch of HAEFCU had not yet achieved branch status at the close of 1958 when this study was concluded. Members at this branch were served by a representative of the credit union from the Culver City office. As indicated in Tables XXVII, XXVIII, and XXIX, files and records of the Costa Mesa members were kept at the Airport branch; therefore, no data were available with regard to shares and loans, their percentage distribution, and actual membership. The Costa Mesa branch is located approximately 50 124 miles from the Culver City office* This great distance will undoubtedly create a communication problem for HAEFCU* II. STRUCTURE OF ORGANIZATION While the control of HAEFCU is vested in the mem bers, certain authority and responsibilities are dele gated to the board of directors and the committees in conducting the day-to-day affairs of the credit union. Prior to 1955 Prior to 1955 HAEFCU was a typical credit union from the organizational standpoint, as can be seen in Figure 9* This figure shows that the board of directors, the committees, and the officers were responsible to the members for the proper discharge of their delegated authority. Under the typical organizational set-up, the board elected from its own members the officers who performed certain duties in connection with management. The officers elected were president, vice-president, treasurer, and clerk. Their terms of office were for one year, and only the treasurer received compensation for the performance of his duties. Officers, therefore, served as directors and performed certain functions Of management as well. Clerk Employees President Treasurer Vice-President Membership Board of Directors Supervisory Committee Credit Committee Educational Committee FIGURE 9 ORGANIZATIONAL STRUCTURE OF THE HUGHES AIRCRAFT EMPLOYEES FEDERAL CREDIT UNION 1940-1955 w 126 The president. The president -was the chief execu tive of the organization. He presided at meetings of the members as "well as of the board of directors. It was his duty to see that the various phases of credit union activity were coordinated. The president exer cised his leadership and initiative in calling special meetings of the board of directors when necessary and in appointing a nominating committee prior to the annual meeting of the members. The annual report of the board to the membership was usually presented by the president. He was required to countersign all disbursements of HAEFCU funds. The vice-president. The vice-president acted as president in the absence of the president. The vice- president, therefore, had to be familiar with the duties and responsibilities of the president. In order for the vice-president to obtain leadership experience and to take an active part as an officer of the credit union, he had the responsibility of organizing and developing an educational program. The treasurer. The treasurer was the general man ager of the credit union. His main duties and respon sibilities consisted of: 1. Controlling credit union funds. 127 2. Maintaining a complete record of all tran sactions . 3. Signing on behalf of the credit union all in struments of disbursement or obligation. 4-. Preparing a monthly financial and statistical report for members and the board of direc tors as well as preparing an annual summary of the year's business. r 5. Carrying out policies of the board of direc tors relating to outside investments or bor rowing. The clerk. The clerk was the secretary of the credit union. His duties were as follows: 1* To prepare the minutes of meetings of the board and of members. 2. To issue notices of meetings to the membership. 3* To report changes in officials to the Regional Representative of the Bureau of Federal Credit Unions* 4* ■ To perform any other duties assigned by the board of directors. The credit committee- * The credit committee had the sole and final authority to approve or disapprove loan applications of members* • This committee consisted 128 of three members who were elected at the annual meeting by the credit union membership for a two-year term. The credit committee elected from its own ranks a chairman and a secretary; both of these positions could be held by the same committeeman. Although the bylaws required the committee to meet only once a month, in actual prac tice it met once a day. The credit committee reported to the membership at the annual meeting. The supervisory committee. The supervisory com mittee had the responsibility of reviewing the management of the credit union; that is, it analyzed and audited its operation on a quarterly basis. It was made up of three members with a term of office of two years. It had the power to suspend any officer, director, or mem ber of the credit committee whenever deemed necessary. It reported to the membership at the annual meeting. The educational committee. The educational com mittee maintained a continuing program of promoting the understanding of credit union aims and methods in order to stimulate membership interest and participation. The committee did this by means of: 1. Personal contact, because many people learn through hearing. 2. The printed word, because some people learn 129 through seeing. 3* Participation by members, because some people learn best by doing• The educational committee was appointed by the board of directors and therefore made its reports to the board from time to time. After 1935 After 1955, however, HAEFCU's organizational structure was altered somewhat when it established branches to serve its scattered membership better. Figure 10 shows the organization of HAEFCU at the close of 1958. It shows the basic organizational structure remained, but with the addition of managers in the vari ous branch offices and a change in the role of the trea surer. The manager. As HAEFCU grew to the extent that the management of the organization was too much of a burden for the treasurer, a manager was employed to take charge of the employees in the main office and to super vise the assistant managers at the branches* Then, be cause a hired employee is not authorized to sign checks, the board of directors appointed him an assistant treasurer, while paradoxically the treasurer became assistant manager to him. These positions became fur- - I Employees Employees Employees Employees Clerk Membership President Educational Committee Board of Directors Credit Committee Supervisory Committee Vice-President Treasurer (Asst. Manager) Airport Branch Asst. Manager (Asst. Treas.) Fullerton Branch Asst. Manager (Asst. Treasurer) Costa Mesa Branch Representative El Segundo Branch Asst. Manager (Treasurer) Main Office, Culver City Manager (Asst. Treasurer) FIGURE 10 ORGANIZATIONAL STRUCTURE OF THE HUGHES AIRCRAFT EMPLOYEES FEDERAL CREDIT UNION h 1955-1958 £ 131 ther confused when the treasurer became manager of the El Segundo branch office. The relationship of these two offices can be readily seen in Figure 10. In his capacity as assistant treasurer, the man ager reports to the treasurer in matters concerning fi nance. In matters pertaining to management, however, he reports directly to the board of directors. On the other hand, in matters of management, the treasurer re ports to the manager, in his capacity as assistant man ager. All hired employees of HAEFCU are under the super vision of the manager, including assistant managers at the branches. The hiring of all personnel is the re sponsibility of the manager, and final decisions per taining to salaries, transfers, dismissals and related problems are his responsibility. Assistant managers. There were three assistant managers at the close of 1958. They manage the respec tive branch offices and are accountable to the managep at the main office. Assistant managers were appointed assistant treasurers by the board of directors for the purpose of authorizing them to sign checks, thus expe diting the operation of their branches. The treasurer. Since 1955 the treasurer of HAEFCU is no longer the general manager as stipulated in the by 132 laws governing his duties. Under the present organiza tion, as previously pointed out, the treasurer is an assistant manager who manages the El Segundo branch of fice. While the treasurer himself is a member of the board of directors, his treasury duties are subject to such limitations and controls as are imposed by that board. III. BRANCH OFFICE OPERATIONS All features of branch operation are not advan tages; these should be examined along with the features that offset them. Advantages The advantages of branch operation will be exam ined first. Financial strength. A credit union with total as sets of more than $7 million certainly offers more fin ancial strength and support than one with $1 million. The El Segundo and Fullerton branches of HAEFCU both had loans outstanding in excess of their shareholdings at the end of 1958. If these branches were independent credit unions, they would have had to borrow in order to accommodate the demands of their memberships for loans. Since these branches are an integral part of a credit union with other "branches which have shareholdings ex ceeding their members' requirements for loans, funds can be sent easily wherever they are needed most. More over, the failure of a branch would virtually be im possible unless accompanied by the failure of the parent credit union. This is the financial advantage of branch operation over small independent unions. Experienced management. Since most of the offi cials of HAEECU could not devote as much time as they would like to become experts in credit union operation, the hiring of skilled, full-time managers seemed to solve the problem. A manager thoroughly familiar with credit union operations can lend expert guidance which is not only an added protection to shareholders, but also an added benefit to borrowers. 4 stronger educational program. The importance of an informed membership was pointed out by Bridewell when he said, If members understand the purposes, aims, and practical operation of their credit union, they will be more than willing to share responsibility as well as benefits. This naturally results in widespread membership participation. It assures democratic control of credit union finances. 4 David A. Bridewell, Credit Uni on: Organi z at i on, Operation, Questions of Legality (second edition; New York: Matthew Bender and Company, 1933). P* 174-.______ 134 While it is important that the members know how to use the services offered by HAEFCU, it is also impor tant that they know what these services are* This is the real challenge of the educational committee. In es sence, its task is to promote an effective selling pro gram. In a large credit union like HAEFCU, this com mittee not only has large resources to tap, but also a wide range of talents that can be called into service. Disadvantages The disadvantages of credit union branch operation are just as impressive as the advantages. Loss of compactness. One of the most significant disadvantages of branch credit union operation is the loss of the closely knit unit created for the benefit of its members. Bridewell pointed out; Successful operation of a credit union is greatly influenced by its convenience as far as members are concerned. Where a widespread employee group has within it more than one center which is large enough to support a credit union, it is al most always desirable that a credit union be set up to serve each well-defined area or division. • Measured in service to members, the disadvantages faced by a credit union with a very large poten tial field of membership may outweigh any advan tage mere size might bring. , . .5 ^Ibid. 135 This loss of compactness is closely related to another disadvantage of branch operation— the loss of the do-it- yourself policy that was part of the original spirit of the credit union movement« When HAEFCU grew to such size that its board of directors had to extend its arms by employing skilled managers to take over duties once performed by its mem bers, those members lost their opportunities to learn credit union management techniques from first-hand ex perience. Personal relationships among officials, workers, and members were lost to the impersonal atti tudes that are inevitable among strangers. This is con trary to the original spirit of the credit union move ment and must be named among the disadvantages of branch operation. Increased operating expenses. Certain operating expenses not ordinarily connected with the operation of a credit union appear when branch offices are estab lished. HAEFCU employed thirty-one persons to staff its branch offices at the end of 1958* This included a man ager, three assistant managers, a 'loan counselor, three cashiers, ten bookkeeping machine operators, two account ing assistants, one loan collector, nine clerks, and one messenger. 136 The difficulty of transmitting information and de cisions that cannot he handled by telephone was overcome by the installation of a messenger service, which re quires a full-time employee and the maintenance of his vehicle, including insurance premiums. HAEFCU was re luctant to utilize the sponsor's messenger service be cause its messengers are not bonded, whereas the credit union messenger is. Every employee of HAEFCU is bonded up to $600,000, depending on the position held. Furniture, office equipment, and fixtures are other expenses entailed by the establishment of branch offices, Despite these additional expenses in connection with establishing its branches, it must be reiterated here that HAEFCU was not influenced by the economy of operating such branches, but by the need of its members for services due them. HAEFCU's existence' is for the purpose of providing a convenient place for members to save and to arrange small loans at low interest rates. Delays in loan approvals. Since branch managers are not allowed to approve loan applications under ex isting regulations, the applications must be approved by a credit committee that meets daily at the main of fice. Ideally, this committee should be composed of 137 representatives from each of the five branch offices. In practice, however, it has three members— one each from the Airport, El Segundo, and Culver City branches. The reason for a small credit committee is that it is .easier to get the required majority together for the purpose of approving loans. Moreover, members of the credit committee cannot devote as much time to credit ■union activities as they would like; therefore, the work Of approving loans falls heavily on the shoulders of this committee whose members are near the main office. Loan applications at HAEFCU averaged more than 1,000 per month since 1956* The messenger service picks up these applications when it makes two trips daily to the El Segundo and Airport branches and one trip daily to the Costa Mesa and Fullerton branches. Even though the credit committee meets daily, approximately one week is required to process a loan unless an emergency is in volved, in which case a loan can be approved in one day. The Supervisory Problem In its three years of operating branch offices, HAEFCU has established a certain routine for their super vision that has proved satisfactory, with minor excep tions.* Branch offices submit semi-monthly reports on 138 their status to the main office. The manager of the branches makes personal calls at each of the offices at least once a week for the purpose of inspection and dis cussion of problems confronting the branch managers. In this way, general policies as well as routine matters are clarified on the spot. Because the elected members of the supervisory com mittee can devote only a part of their time to credit union duties, this committee, being responsible to the members for supervision and control of HAEFCU's opera tions, hires a certified public accounting firm to audit its books once a month. IV. SUMMAEY Before 1955 HAEFCU operated as a typical credit union; but when the membership exceeded 8,000, many of whom worked in far-flung sections of Los Angeles County, a decision had to be made as to how these members could receive maximum service from their credit union. It was decided in 1955 to reject the establishment of small independent credit unions near the sites of the scattered divisions of Hughes Aircraft Company in favor of branches that would be under the supervision and direction of the parent union. As a result of this decision, four branch offices were opened between 1955 and the close of 1958, with locations at El Segundo, 139 Los Angeles (near the International Airport and called the Airport branch), Fullerton and Costa Mesa. Certain problems attended this expansion of opera tions, and some disadvantages weighed heavily against the advantages. HAEFCU accepted the challenge of these problems, however, by bearing in mind that its very existence is for the purpose of providing a convenient place for members to save and to arrange small loans at low interest rates* Such disadvantages and their attendant problems as supervision, increased expenses, and the loss of com pactness and the do-it-yourself policy were met and solved in ways described in this chapter. The one prob lem for which a good solution was not found is that of delay in the approval of loans. The Federal Credit Union Act stipulates that loan applications may be ap proved only by a credit committee. At HAEFCU such a committee meets daily at the main office at Culver City. This means that applications from branch offices must be sent daily by some means to the main office.- For this purpose, a messenger service has been added to HAEFCU's facilities. Loan applications at HAEFCU average more than 1,000 per month, and applicants must wait approxi mately a week for the average loan to be processed, un less it is of an emergency nature. 140 As was to "be expected, the opening of branches re vised the organizational structure of HAEFCU. To relieve the treasurer of some of his managerial duties, a manager was employed to supervise the employees in the main of fice and also his assistant managers who are otherwise known as branch managers. These branch managers, al though paid employees, ape also assistant treasurers by appointment. This appointment authorizes them to sign checks, thus expediting the operation of their branches; the bylaws permit only appointed officers to sign checks. While it is difficult to say with any degree of authority that a parent credit union with several branches serves its members more effectively than would small independent credit unions, it can be said that HAEFCU is serving its large membership well through its branches t CHAPTER V I I SUMMARY, CONCLUSIONS, AND RECOMMENDATION I. SUMMARY HAEECU was organized by the employees of the Hughes Aircraft Company because of the lack of banking facilities to serve them. Its purpose was to create e source of credit for these employees and to promote thrift among them. HAEFCU was chartered on October 29, 194-0, by the Bureau of Federal Credit Unions (then known as Farm Credit Administration) according to the provisions of the Federal Credit Union Act of 1934-, as amended. Al^ though sponsored by the company, HAEFCU is a corporation separate and apart from the Hughes Aircraft Company. Pattern of Growth In less than two decades, HAEFCU grew into one of the largest federal credit unions in the United States. At the end of 1958 its membership numbered 17,4-00 and its assets were slightly less than $8 million. A glance at Figure 11, which depicts the growth of HAEFCU as mea sured in terms of membership and assets, shows that the growth curves for actual membership and total assets tend to follow that for potential membership. This sug- 142 Millions of Dollars Thousands of Members 1,000 100 100 10 1 10 1 •Potential Membership Total Assets 01 \Actual Membership 001 01 O C M c t V j O 00 O - 3 " - G " 4 ? IA Ch O ' O ' (A (A (A < i I i ! — I I — I I I I I C M c t C O 00 1A l f \ LT\ UA C"' on cr> rH r— I r— I rH FIGURE 11 RELATION OF CURVES FOR TOTAL ASSETS, POTENTIAL AND ACTUAL MEMBERSHIP, 1940-1958 Source: From the records of HAEFCU. 143 gests that potential membership has a significant influ ence on the growth in actual membership and on total assets . Brief History of HAEFCU The history of HAEFCU divides easily into two distinct periods: (1) a period of experimentation which covered the years 1940 through 1949» and (2) a period of rapid growth which began in 1950 and continued at a some what decelerated rate until the end of 1958 when this study terminated. Period of experimentation. The first period was one of experimentation because the members were dealing with a project that was new to them— a credit union; it was also a testing period because HAEFCU ran headlong into rough waters at the end of World War II. Post-war adjustment affected it adversely when actual membership and total assets fell to their lowest levels in 1947. This was an understandable eventuality that could happen to any credit union whose members are engaged in defense work. It seemed for a time that HAEFCU would collapse; liquidation was contemplated. However, encouragement came from management with a forecast of an upsurge in employment and the curve in Figure 11 shows a sudden reversal of direction after 1948 that continued at a 144 steady rate until the end of 1958, which marked the end of the period analyzed in this study. Period of rapid growth. It is reasonable to pre dict that HAEFCU will continue to expand as long as the potential membership increases. The period of rapid growth indicates that HAEFCU has an enormous ability to expand without encountering overwhelming complica tions. From its eighteen years of experience, it has learned to revise policies and procedures to meet new situations. Assets and Liabilities An examination of assets and liabilities reveals that the size of the various accounts fluctuated widely during the first decade of operation, while they tended to stabilize during the second decade. This lends strength to the division of HAEFCU's history into a period of experimentation and a period of rapid growth. Emphasis was put on the 1954-1958 period in this study because these years were thought to be typical of HAEFCU's stability and expansion. The largest of the asset accounts— loans to mem bers— rose from 37.2 per cent at the close of 1954 to 72.1 per cent at the close of 1958. An examination of the remaining asset accounts shows that 19•5 per cent 14-5 of the assets were in savings and loan shares at the end of 1958 suad the "balance of 8*4- per cent were in cash and other assets. The condition of the various asset ac counts reveals that the credit union has operated under a policy of liquidity and safety* Shareholdings of members. Shareholdings of mem bers accounted for more than 94- per cent of total lia bilities from 1954- to 1958* While this account rose in actual dollar amounts, it dropped slightly in relation to other liabilities accounts, particularly to the regu lar reserve aceount which showed an annual increase. The shares-paid-in account rose steadily after 1953 5 due to an increase in membership. Share withdraw als were heaviest in January, while loan applications were most numerous in December. The size of shaye ac counts revealed that at the end of 1958 approximately 72 per cent of the credit union savers were in the $10- to-$l,000 category, but their savings amounted to only 31o0 per cent of the total shares. Loans to members. The average size of loans rose steadily from 1954- through 1958, although the average turnover of loans stabilized at about 212 days. The per centage of loan balance delinquent two months or more dropped from .92 per cent at the end of 1954- to .24- per 146 cent at the close of 1958. Loans charged off since or ganization stabilized at .12 per cent. The ratio of re serve for bad loans to total loans stayed close to 3*0 per cent from 1954 to the end of 1958. The average re turn on members' loans was over 9*0 per cent, and the return on average investment balance was slightly over 3<.65 per cent. Personal loans outranked all others in number, representing 73*6 per cent of all loans made; however, automobile loans accounted for more than 56 per cent of the dollar value of loans at the close of 1958. Reasons for borrowing were classified broadly into four categories: emergency, purchase of durables, con venience credit, and investment credit. At the end of 1958 emergency and convenience credit loans each repre sented about 35 per cent of the number of loans made, but the purchase of durables represented more than 60 per cent of the dollars loaned. Dividends. HAEFCU paid more than 60.0 per cent of net earnings in dividends from 1954 through 1958. The dividend rate was a consistent 4-1/2 per cent, with the exception of 1954 when part of the earnings for that year were transferred to the Hughes Tool Employees Fed eral Credit Union. 147 Income and Expense Figure 12 summarizes the income and expense data covering the entire eighteen-year period of HAEFCU*s history. A comparison of the curves shows a parallel trend in growth; however, the rate of growth and decline of gross income appear to he more sensitive indicators of HAEFCU*s growth than total expense. Branch Offices The study included an examination of HAEFCU*s branch operations. With the opening of four branches within three years, there were bound to be problems con nected with their operation. These problems centered around (1) loss of compactness, (2) rise in expenses, (3) supervision, and (4) delays in loan approvals. On the other hand, branch operation proved to have such advantages as (1) financial strength, (2) superior management, and (3) a-stronger educational program. II. CONCLUSIONS An analysis of HAEFCU is of necessity based on a limited range of historical experience. Therefore, con clusions drawn can be only of a tentative nature. Expansion and Costs Expansion of services to an increasing membership 148 Thousands of Dollars 1,000 100 10 1 Total Expense 1 Gross Income 01 O CM 00 00 ITS O-n r - l i H i H r H i —I r H i H r H i H r H FIGURE 12 RELATION OF CURVES FOR GROSS INCOME AND TOTAL EXPENSE 1940-1958 Source: From the records of HAEFCU. 149 has its effects on costs of operation. HAEFCU is not typical of all consumer credit agencies "because its spon sor absorbs the cost of its office space and utilities. Its costs of operation, therefore, cannot be compared ■with theirs for lack of a common denominator. However, certain conclusions can be drawn by examining the oper ating costs of HAEFCU. The heaviest expenses of HAEFCU are for salaries paid to its employees. Before 1950 HAEFCU had no fixed expenses except the salary of the treasurer, the only officer who can be compensated for his services. In 1951? however, when HAEFCU was a half-million-dollar organization with 5»000 members, clerical assistants and additional equipment became expense items. Salaries climbed from $600, the treasurer's salary in 1951* to over $172,000 at the end of 1958. During the first decade of HAEFCU*s operation, total salaries paid per year fluctuated from a low of $50 to a high of $600. This tends to support Croteau's concept that in small credit unions salaries are the residual claimants on the earnings of the credit union; they comprise the amount remaining after the statutory reserve of 20 per cent and other reserves, if any, plus 150 reasonable dividends, have been deducted from gross in- 1 come. The salaries of the clerical assistants hired and paid by the sponsor are determined by competitive market forces; thus, after 1951 when HAEFCU began to reimburse its sponsor for a portion of these salaries, it was ac tually paying competitively determined salaries. After 1954- HAEFCU's assumption of full salary re imbursement pointed up the fact that it has only limited control over its costs of operation. As pointed out in Chapter IV, any loan under $106 to be repaid in twelve equal monthly installments would not cover its costs. Croteau observed that: . . . with facilities already at hand anyone knows that an additional loan of say, $50, can be made with little or no cost, little more than the cost of the forms used in the transaction. . , This is the "marginal cost" concept; that is, a credit union with ability to handle 1,000 loans a month can, without hiring additional clerks and providing additional equipment, process 1,005 or 1,010 loans. However, if the volume rose to 1,500 per month, then clerks and equip ment would have to be added. The average cost may be ■^John T. Croteau, The Federal Credit Union: Policy and Practice (New York: Harper and Brothers" 1^56), p. 156. ^Ibid., p. 85« 151 raised as a consequence thereof, and "again marginal cost X will he small until the new capacity is fully utilized. " ^ While HAEFCU is a service-rendering organization, its services do entail some production costs, even though it has a very limited control over them. Other types of credit agencies may he operating on a rising-cost, declining-cost, or constant-cost hasis, whether they he licensed small-loan companies, industrial hanks, commer cial hank small-loan departments, or life insurance pol icy loans. HAEFCU, however, has demonstrated that it is ahle to expand only on a rising-cost hasis. During the first decade, for example, when actual membership reached its peak of more than 800 in 194-4-, operating expenses were approximately 25 per cent of gross income; hut after the membership grew to more than 17,000 by the end of 1958, the ratio rose to approximately 4-6 per cent. How ever, since HAEFCU has been in existence less than two decades, this conclusion can be made only on a tentative basis, because its costs of operation might conceivably level off or even drop at some later time after expan sion has lost its momentum. In the long run, therefore, additional loans can be made only with an increase in costs or total expense ^Ibid. 152 of operation* In the short run, the expansion of HAEFCU services over a certain range can he made at constant costs. Success Versus Indebtedness HAEFCU came into existence because of the need of the employees of Hughes Aircraft Company for a convenient place to save and to arrange for credit. It will flour ish only so long as it continues to serve the needs of its membership effectively. This means that in order to continue to serve its membership, its funds must be in vested. Loans to members rather than investments in United States Government obligations, savings and loan shares, or loans to other credit unions would be the preferred investment because loans to members provide the highest rate of return. If HAEFCU funds lie idle, it may have two alternatives. It may have to lower the limit on the number of shares each member may hold. The purchase of shares may even be curtailed completely for a period of time. The other alternative might be to lower dividend payments, or even discontinue them be cause of the lack of earnings. Thus, HAEFCU funds, like the funds of all financial institutions, must be working at all times in order to cover expenses and to provide an adequate rate of dividend to encourage shareholding. 153 HAEFCU's success, then, would, seem to depend, on encouraging indebtedness on the part of the membership, which in the long run may jeopardize or compromise the standards of safety and soundness relative to loads. III. RECOMMENDATION While the function of a credit committee is to approve loans, the volume of loan applications has long exceeded the ability of the committee to handle them. Loans averaged more than 1,000 per month in 1958. The members of the Committee who donate their time and ef fort to the approval of loans cannot process this volume without jeopardizing their jobs and leisure time. Delay in approval of loans is probably HAEFCU*s chief problem. Ordinarily, four days are required to process a loan. The credit Committee needs a meads of expediting this service; yet, according to the Federal Credit Union Act, the credit committee has sole authority to approve loans. If assistant managers at the branches were authorised to make these approvals, especially on loads up to $400, the members' interests would be served much more speedily* The proposal endorsed by Credit Union National Association (CUNA) id 1953 tO amend Sec tion 11(d) of the Federal1Credit Union Act would pOrmit the appointment of the loan officers to act under the 1^4 supervision of the credit committee * . . . the hoard of directors may appoint and provide ■ for the compensation of a loan officer to act under the supervision of the credit committee and such loan officer, when so appointed, may make loans with out necessity for a meeting of or approval by any members of the credit committee This proposed legislation was introduced in bill form on March 15, 1956, by Congressman Wright Patman and to date repeated introduction of the bill has not re sulted in congressional approval. The passage of such legislation would improve the services of Credit unions like HAEFCU. ^Ibid., p. 156. 156 A. BOOKS Bergengren, Roy F. Cooperative Banking: A Credit Union Book. New York: The Macmillan Company, 1923c _______. Credit Union: A Cooperative Banking Book. New York: The Beekman Hill Press, 1931• , Credit Union North America: A Fifth Credit Union Book. New York: The Southern Publishing Com- pany, 194-0. _____, in collaboration with Agnes C. Gartland and James W. Brown. Crusade: The Fight for Economic Democracy in North America. 1921-1945. New York: The Exposition Press, 1952. ____. CUNA Emerges : A Third Credit Union Book. Nashville, Tenn.: The Kingsport Press, 1935» . Soul: A Fourth Credit Union Book. Madison, Wisconsin: The Cantwell Press, 1938. ^ ____, and T. W. Doig. The War and After: A Sixth Credit Union Book. Madison, Wisconsin: The Straus Printing Company, 1942. Boyle, George. The Poor Man * s Prayer. New York: Harper and Brothers, l951« Bridewell, David A. Credit Unions: Organization. Oper ation, Questions of Legality. Second edition. New York: Matthew Bender and Company, 1955* Clark, Evans. Financing the Consumer. New York: Harper and Brothers, 1930. Consumer Credit Institute of America. Consumer Credit and Its Uses. New York: Prentice-Hall, Inc., 1938. Croteau, John T. The Federal Credit Union, Polipy and Practice. New York: Harper and Brothers^ 1956. Crow, William H. and Samuel Checkver. Federal Credit Union. New York: The Orion Press, 1935• Dowrie, George W. and Douglas R. Fuller, Investments. Second edition. New York: John Wiley and Sons, Inc., 1950 * 157 Ebersole, J. Franklin. Bank Management: A Case Book, New York: McGraw-Hill Book Company, Inc., 1940. Giles, R. Y. Credit for the Millions. New York: Harper and Brothers, 1951® Haines, H. W. The Limitations of Credit Unions. Cambridge, Massachusetts: The Bankers Publishing Company, 1956. Ham, A. H. and L. G. Robinson. A Credit Union Primer. New York: Russell Sage Foundation, 1925» Hogenson, Palmer T. The Economics of Group Banking. Washington, D. C„: Public Affairs"“Press, 1955 ® McLane, Clarke J. Credit Union Bibliography. Washington, D. C.: The River ford Publishing Company, 1936. Neifeld, M. R. Cooperative Consumer Credit, with Special Reference to Credit Unions. New York: Harper and ferothers, 193^ ___. Personal Finance Comes of Age. New York: Harper and Brothers, 1939® Nugent, Rolf. Consumer Credit and Economic Stability. New York: The Russell Sage foundation, l939» Ostrolenk, Bernhard. The Economics of Branch Banking. New York: Harper and Brothers, 1930® Phelps, Clyde William. The Role of the Sales Finance Companies in the American Economy. Baltimore: Schneidereith and Sons, 1952, Randall, Harlan J. and Clay J. Daggett, Consumers * Co operative Adventures: Case Studies. Madison, Wis consin: The Whitewater Press, 1936. Schroeder, Gertrude G. The Growth of the Major Steel Companies. Baltimore: Johns Hopkins Press, 1953® Turner, H. Haines. Case Studies of Consumers1 Coopera tives . New York: Columbia University Press, 1941. Wilcox, Francis E. A Statistical Study of Credit Unions in New York: Studies, in Business Administration, Vol. X, No. 2. Chicago: University of Chicago Press, 1940. ______ 158 B. PUBLICATIONS OP THE GOVERNMENT, LEARNED SOCIETIES, AND OTHER ORGANIZATIONS Committee on Credit Unions. Credit Unions: The Co operative Finance Movement. Washington, D. C.: The National Education Association of the United States, 1943. Credit Union National Association. Credit Union Year book, 1958. Madison, Wisconsin: Credit Union National Association, 1958. The Credit Union Bridge. Madison, V/isconsin: Credit Union National Association, January, 1958; December, 1958. United States Bureau of Federal Credit Unions. Credit Committee Handbook for Federal Credit Unions. Washington, D. C.: Government Printing Office, 1956. ______. The Federal Credit Union Act. as Amended to 1956. Washington, D. C.l Government Printing Office, 1956. _______. Supervisory Committee Manual for Federal Credit Unions. Washington, D. C.: Government Printing Office, 1956. _______. Federal Credit Union Bylaws: Specimen Copy. Washington, D. C.: Government Printing Office. _______. Federal Credit Union Handbook. Washington, D. C.l Government Printing Office, 1956. . Report of Operations. Issued Annually. Washington, D. C.: Government Printing Office. United States Farm Credit Administration. Annual Report. 1955 to 1941. Washington, D. C.: Government Print ing Office. C. PERIODICALS French, Walter B. "The Rapid Growth of Credit Unions," Banking. July, 1954, p. 45. 159 "More and More Troubles for the Treasury," United States News and World Report, February 20, 1959> Vol. XLVI, NoT~ 18*1 D. HOUSE ORGAN The Californian Hughesnews. Vol. 17, No. 24, November 21, 1958; Vol. 15, No. 5, March 2, 1956. E. UNPUBLISHED MATERIAL Strain, Roy Q. "The Status of Credit Union Education." Unpublished Doctor's Dissertation, the University of Southern California, Los Angeles, June, 1948. '’'University of Southern California t h i ^

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Creator Gee, Paul (author)

Core Title Federal credit union operation: A case study

Degree Master of Arts

Degree Program Economics

Publisher University of Southern California (original), University of Southern California. Libraries (digital)

Tag Economics, General,OAI-PMH Harvest

Language English

Contributor Digitized by ProQuest (provenance)

Advisor Phillips, E. Bryant (committee chair), Garis, Roy L. (committee member), Pontney, Jack A. (committee member)

Permanent Link (DOI) https://doi.org/10.25549/usctheses-c20-455449

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Identifier EP44771.pdf (filename),usctheses-c20-455449 (legacy record id)

Legacy Identifier EP44771.pdf

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Rights Gee, Paul

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Access Conditions The author retains rights to his/her dissertation, thesis or other graduate work according to U.S. copyright law. Electronic access is being provided by the USC Libraries in agreement with the au...

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