HeartlandCU

Heartland Credit Union is one of the area credit unions that earned the highest marks from the Bauer Financial rating service this year, up a notch from December 2012. Shown above is Heartland's branch at 944 Williamson St.

M.P. KING — State Journal

Parker Community Credit Union isn’t one of the biggest credit unions in the state.

In fact, with assets of about $95 million, the Janesville credit union is No. 44, in asset size, of 166 state-chartered credit unions in Wisconsin.

But the financial state of the nonprofit organization — started in 1934 by employees of Parker Pen, then one of Janesville’s most important employers and now part of Newell Rubbermaid and gone from Janesville — is most improved in the Madison area, if an assessment by two industry ratings services is accurate.

Parker Community Credit Union scored four stars, or “sound,” from Bankrate.com and four stars, or “excellent,” from Bauer Financial in the most recent ratings, based on June 30, 2014, figures submitted to the National Credit Union Administration.

That’s up from two stars, or “below peer group,” from Bankrate and three stars, or “adequate,” from Bauer as of Dec. 31, 2012.

It’s taken a lot of hard work, said Stephen Petrillo, president and chief executive. But now: “We are reinventing the credit union,” he said.

Low interest rates hamper growth

Seven area credit unions — nearly one-third of the 23 considered big enough to earn a grade from the two services — saw their ratings slip while four drew higher marks than at the end of 2012.

But they all got scores high enough to show they are operating well. On a scale of 0 to 5, none drew fewer than three stars, marking them “performing” by Bankrate and “adequate” by Bauer.

“A lot of the ratings are based on long-term management decisions,” said Russ Kashian, UW-Whitewater economics professor. “If you’re having trouble with asset/liability management, which means you’re making longer-term loans based on short-term deposits, you run an imbalance ... With the low-interest-rate environment, it’s probably hard to attract long-term deposits. That might be one of the problems.”

That’s what happened with Madison Credit Union, rated three stars from Bankrate, down from four, or “sound,” and four stars, or “excellent,” from Bauer, down from five, or “superior.”

President David Petit said the organization is well capitalized but is not earning as much as in the past. Madison Credit Union had total assets of $35.8 million as of Sept. 30, 2014, with net income of $20,775.

“Interest rates are low, so income on loans and investments are not what they were. We’ve always done better when rates are higher,” said Petit.

Madison Credit Union is open to anyone who lives or works in Dane County, but most of its members are city employees or teachers, and Petit said most of them have had to pay more for health insurance and pensions as a result of Act 10, the 2011 bill passed by the Legislature that eliminated most collective bargaining rights for public employees and required higher benefit payments from them.

“It’s really all about jobs. And they’re still saving more and they’re only borrowing when they have to,” Petit said.

Loans up nationwide

Nationwide, during the second quarter, federally insured credit unions recorded their biggest one-year jump in loans since 2006, according to the National Credit Union Administration (NCUA).

Outstanding loans totaled $673.9 billion, a 9.8 percent increase over the previous year. The stronger economy fueled the rise, the NCUA said.

In Wisconsin, total assets for all of the state-chartered credit unions were $25.7 billion, as of June 30, up from $24.3 billion at June 30, 2013. Loans amounted to $18.8 billion, up from $17.1 billion, a year ago, while the delinquency ratio fell to 0.98 percent from 1.26 percent at mid-year in 2013, according to figures from the Wisconsin Department of Financial Institutions.

Wisconsin’s delinquency ratios remain higher than nationwide levels. Across the U.S., credit unions had a combined 0.85 percent of their loans unpaid as of June 30, compared with 1.04 percent, a year ago.

Parker Community CU bounces back

Delinquencies were a serious problem for Parker Community Credit Union, but they weren’t the only reason the organization — serving people who live or work in Rock County — had problems a few years ago.

Lending practices were not tight enough, CEO Petrillo said. He said managers did not require higher interest rates for loans to customers who didn’t have the best credit.

“They were doing loans that otherwise should not have been done,” Petrillo said. “And then when the General Motors plant closed and the Great Recession hit, it made a bad situation that much worse.”

On top of that, a longtime employee, loan officer Laura Powers, was accused of embezzling more than $600,000 from the credit union. The criminal case, in 2011, said Powers took out loans using other people’s names over a 10-year period and spent the money to fuel a lavish lifestyle.

Rock County Circuit Court Judge Kenneth Forbeck sentenced Powers in 2012 to five years in prison and five years extended supervision and ordered her to pay nearly $693,000 in restitution. The NCUA also barred her from involvement in any federally insured financial institution.

Petrillo was hired in January 2012 to get Parker Community Credit Union back on track. A Boston area native, he had led the turnaround of a Boston area credit union with bad loans.

Petrillo said he hired a new management team; rewrote the credit union’s policies and procedures; trained staff; imposed strict internal controls; and closed one of Parker’s two branches. He also installed a new computer system, so the credit union could offer more services.

In December 2011, Parker Community Credit Union had total assets of $92.5 million, including $62.1 million in loans and leases, with a net loss of $1.8 million. Of those loans, $3.7 million worth — or 6 percent worth — were at least two months late in payments, and $1.1 million already had been written off the books, not expected to be paid.

As of Sept. 30, 2014, with $94.9 million in total assets, including $61.9 million in loans and leases, the credit union had net income of $407,000. One percent of loans, or $670,000 worth, were at least two months delinquent, and $280,000 worth had been charged off.

“We’re profitable again,” and thinking about expanding in the next year, Petrillo, 57, said.

Credit unions gain ground nationwide

Four credit unions merged into larger organizations during the first half of this year — none in the Madison area — and one, Badger Meter, in Milwaukee, simply closed.

The NCUA says membership in federally insured credit unions rose nearly 910,000 nationwide, during the second quarter of 2014 alone, to hit a new peak of 98 million members.

The UW-Whitewater’s Kashian said that may be a reflection of bank consolidation.

“Smaller community banks are being gobbled up, merged, and people want to work with local institutions. Credit unions step into that void,” he said.

Five Madison area credit unions earned four stars from Bankrate and five stars from Bauer, including three in Madison and two in Beloit. (Bankrate did not issue any five-star ratings to local credit unions based on June 30, 2014, data.)

They are: Members First Credit Union; Summit Credit Union; and University of Wisconsin Credit Union, in Madison; and in Beloit, First Community Credit Union of Beloit and Teachers Credit Union.

Kashian, who was chief operating officer of a Cleveland, Ohio, credit union in the 1990s and now is director of the UW-Whitewater’s Fiscal and Economic Research Center, said ratings services are part of “an ongoing experience.”

“As an institution, you should take a look at these reviews,” Kashian said. “Sometimes you sit back and say, maybe the reviewer is missing the point.

“But you still reflect upon them and say, if possible, how can I make this better?”

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Credit union rankings

Ratings by Bankrate.com and Bauer Financial for Madison area credit unions based on data from March 31, 2014.

Bankrate.com Safe & Sound rating system:

  • ***** Superior
  • **** Sound
  • *** Performing
  • ** Below peer group
  • * Lowest rated

Bauer Financial star ratings:

  • ***** Superior
  • **** Excellent
  • *** Adequate
  • ** Problematic
  • * Troubled

Bankrate.com Safe & Sound bank/credit union rankings

Bauer Financial star ratings

Credit unions with less than $5 million in assets are considered too small to get a rating from Bankrate or Bauer.

Credit union City Bankrate.com Bauer Financial
Avestar Credit Union Waterloo *** ***
Baraboo Municipal Employees Credit Union Baraboo NR ****
Blackhawk Community Credit Union Janesville *** ***
County-City Credit Union Jefferson *** ****
Dane County Credit Union Madison *** *****
Educational Employees Credit Union Janesville *** *****
First Community Credit Union of Beloit Beloit **** *****
Fort Community Credit Union Fort Atkinson **** ****
Heartland Credit Union Madison *** *****
Heritage Credit Union Madison *** *****
MG&E Credit Union Madison NR *****
Madison Credit Union Madison *** ****
Madison Fire Department Credit Union Madison NR *****
Members First Credit Union Madison **** *****
Municipal Credit Union Beloit *** *****
Parker Community Credit Union Janesville **** ****
Post Office Credit Union Madison *** *****
St. Mary's & Affiliates Credit Union Madison *** *****
Stoppenbach Credit Union Jefferson NR NR
Stoughton U.S. Rubber Employees Credit Union Stoughton NR NR
Summit Credit Union Madison **** *****
Teachers Credit Union Beloit **** *****
Tomah Area Credit Union Tomah *** *****
University of Wisconsin Credit Union Madison **** *****
WEA Credit Union Madison *** ****
Webcrafters Employees Credit Union Madison NR NR

Judy Newman is a business reporter for the Wisconsin State Journal.