Reports show that area credit unions have felt the brunt of the recession too [The Wisconsin State Journal]

May 29--Most south-central Wisconsin credit unions are taking their lumps along with the rest of the economy, according to reports from two nationwide rating services.

Other than two Madison credit unions and one in Beaver Dam that won higher scores this year, local credit unions were far more likely to see their ratings drop at least one notch from last year's levels, according to a review of the marks issued to 41 area credit unions by Bankrate.com and Bauer Financial.

"I think both banks and credit unions have been impacted, certainly, by the tough economy. Credit unions have not been immune to that stress, although from a comparative perspective, I think they've come out of it pretty well," said Brett Thompson, president and chief executive of the Wisconsin Credit Union League.

Based on Dec. 31 finances, 17 south-central Wisconsin credit unions drew a five-star "superior" grade from Bauer Financial and none received five stars from Bankrate.com. Last year, 22 were rated five stars by Bauer and two by Bankrate.com.

On the other end of the scale, 11 credit unions were rated two stars or less this year by Bankrate.com, which defines two stars as "below normal." A year ago, only three had two-star ratings.

First American Credit Union, Beloit, was the lowest-rated credit union in the Madison area, dropping to a one-star rating from Bankrate.com and zero stars from Bauer Financial.

Founded in 1933 by employees at Beloit Iron Works and later expanded to add Beloit Corp. workers, First American became a regional credit union in the 1990s and now serves residents of Rock, Green and Walworth counties in Wisconsin and Winnebago County, Ill.

A financial performance report available through the National Credit Union Administration shows First American had assets of $152.3 million as of Dec. 31 but a net loss of $5.6 million. That grew from a net loss of $2.4 million just three months earlier and from a profit of $50,439 at the end of 2008.

Funds set aside for loan losses jumped to $5 million as of Dec. 31, up from $637,000 a year earlier.

First American chief executive Tracy Blaske said the numbers look worse than they really are. "They are not actual losses at this time," she said. "We decided ... let's put out the worst-case scenario and move on."

While banks' recent loan losses are generally tied to commercial developments and home mortgages, First American's relate to small businesses, Blaske said. Although credit unions are only allowed to have 12.25 percent of their assets in small-business loans, First American got the limit waived years ago and now has 30 percent of its assets in small businesses.

"We invested in the mom-and-pop shops down the street. Every single one of our loans is a local loan," she said. The trouble is, factory cuts, such as the closing of the General Motors assembly plant in Janesville, hit the area hard. Residents just aren't buying much.

Blaske said so far in 2010, First American's net income and reserve fund are improving. "We're not seeing any great signs of a turnaround (for small businesses) at this point, but we're hopeful," she said.

Higher ratings

Members Serving Members, Beaver Dam, got a rare bump up this year, earning Bankrate.com's four stars, up from three stars last year.

Bauer Financial raised its ratings for the Madison Fire Department and the Truax credit unions to five stars this year, compared to four stars a year ago.

All three are relatively small organizations. Members Serving Members had assets of $204,000 as of Dec. 31; the Madison Fire Department credit union had $3.5 million in assets and the Truax credit union had $5.6 million.

"We had positive earnings -- that might be one of the reasons," said Madison Fire Department credit union President Steve Wright, and "one of the lowest default rates in the state."

Established in 1931, the Fire Department credit union, with 1,300 current or former firefighters and their families as members, listed $12,249 net income as of Dec. 31 and a provision for loan losses of only $7,000.

Wright said it helps that firefighters have steady jobs, even during tough economic times. "When the government needs to cut back, they don't lay off 25 percent of the firefighters. We're very fortunate, from that viewpoint," he said.

The credit union also offers limited services: mainly savings accounts and loans. No checking accounts, credit cards or first mortgages. "We're a throwback credit union," Wright said. "We don't offer a wide array of financial services. We just do a few and try to do them well."

Low-risk practices

As nonprofit institutions, many credit unions serve a smaller membership and don't get involved in the type of investments and commercial lending that banks do, said Kim Brilowski, chief examiner for the state Office of Credit Unions.

For most of the 236 credit unions operating in Wisconsin as of Dec. 31, net income and net worth decreased slightly in the past year, Brilowski said. But overall, their capitalization, or reserve fund ratios, average 10 percent or more.

Summit Credit Union, Madison, second largest in Wisconsin as of Dec. 31 with $1.4 billion in assets, received a four-star rating from Bauer Financial but only two stars from Bankrate.com.

Its merger in late 2008 with Great Wisconsin Credit Union increased the operating expense ratio temporarily last year, said Summit President Kim Sponem. Also, Summit's capitalization ratio was 8.8 percent, below Bauer's 9 percent requirement for five stars, she said.

Sponem said even after the merger, Summit's assets have grown more than 10 percent.

Nationwide, credit unions are drawing more members as part of a "flight to safety," said the Wisconsin Credit Union League's Thompson. In Wisconsin, credit unions have about an 11 percent market share, compared to banks, he said.

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