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Economy forces electric workers' credit union to merge with UI
(News-Gazette, The (Champaign-Urbana, IL) (KRT) Via Acquire Media NewsEdge) Jul. 28--CHAMPAIGN -- This year didn't get off to a good start for the Electrical Workers 601 Credit Union in Champaign.
The 54-year-old credit union, with 815 members, reported a staggering $202,000 loss for the first quarter of 2008. The credit union had a high percentage of loans classified as "nonperforming" loans where principal and interest payments weren't being met.
As of March 31, nonperforming loans accounted for more than 5 percent of the credit union's assets. Usually, less than 1 percent of credit unions' loans are categorized that way.
Those dismal figures earned the credit union a rating of "zero stars" from BauerFinancial, a financial rating service that evaluates credit unions on a five-star scale, with "five stars" being the strongest.
According to data filed with the National Credit Union Administration, Electrical Workers 601 Credit Union had a negative net worth as of March 31, 2008, and was categorized as "critically undercapitalized." Relief came in the form of a merger. On July 1, the Electrical Workers 601 Credit Union merged into the much larger, more financially sound University of Illinois Employees Credit Union, making more services available to members.
A couple of factors came into play in the circumstances leading to the merger, said Vicki Ponzo, senior vice president of member services for the Illinois Credit Union League.
In addition to dealing with delinquent loans, the Electrical Workers 601 Credit Union relied on a single "field of membership" namely, electrical workers, many of whom depend on seasonal work. With fewer houses and offices being built, several were laid off, and those layoffs sometimes resulted in delinquent loan payments, she said.
"In this particular case, you had a small shop trying to keep up with all the compliance issues... It's very difficult for a one-person shop to do that," Ponzo said. "The merger was the best thing for them to consider." The UI Employees Credit Union assumed the smaller credit union's multiyear lease at the electrical workers' union building on North Boardwalk Drive and continues to do business there, said Greg Anderson, executive vice president of the UI Employees Credit Union.
That credit union, with a net worth of $18.2 million, easily absorbed the smaller credit union's negative net worth of $35,000, Anderson said. But it also gained $3.3 million in deposits, $2.6 million in outstanding loans, 800 members, a new branch and the opportunities that go along with it.
The surviving credit unions The Electrical Workers 601 Credit Union was one of 33 credit unions based in East Central Illinois. Most of them particularly the larger ones are on sound financial footing, based on the March 31 data.
By far, the largest two credit unions in the area are: Credit Union 1 in Rantoul, with $480 million in assets and 87,961 members. It has downstate Illinois offices in Rantoul, Charleston, Normal, Springfield, Tuscola, Rockford and Hopkins Park; two offices in Indianapolis; and seven offices in Chicago as well as in the suburban communities of Evergreen Park, Libertyville, Lombard and Northlake.
Credit Union 1 had net income of $1.266 million in the first quarter of this year nearly half the $2.63 million in net income it produced during the full year of 2007.
University of Illinois Employees Credit Union in Champaign, with $170 million in assets and 33,414 members. It has offices in Champaign and Urbana as well as an office in the Illini Union.
The UI Employees Credit Union had net income of $219,000 in the first quarter a bit off last year's pace, when it had full-year income of $1,444,000.
The UI Employees Credit Union got a five-star rating from BauerFinancial, while Credit Union 1 was not rated. That's because Credit Union 1 is privately insured by American Share Insurance, and BauerFinancial rates only credit unions insured by the National Credit Union Administration.
Ten other credit unions in the area earned five-star ratings. They included: Landmark, Danville; Education Personnel, Danville; Community Plus, Rantoul; Central Illinois, Champaign; Carle Employees, Urbana; Champaign County School Employees, Champaign; Community Healthcare, Urbana; L&N and C&EI, Danville; Clifford-Jacobs Employees, Champaign; and Urbana Municipal Employees, Urbana.
Fewer than five stars To give some idea of how bad the "zero stars" rating was for the electrical workers' credit union, consider the fact that none of the other 32 credit unions in East Central Illinois had a rating lower than three stars.
Eight credit unions got a "three-star" rating from BauerFinancial. Four of those had high percentages of nonperforming loans:
--ICG Community Credit Union, Champaign (12.063 percent).
--Blaw-Knox Credit Union, Mattoon (3.086 percent).
--Route 1 Credit Union, Paris (2.905 percent).
--Champaign Municipal Employees Credit Union (2.147 percent).
Ponzo agreed the ICG Credit Union's percentage of nonperforming loans is high, but said even if the credit union had to charge off all its delinquent loans, it would have a satisfactory capital rating.
"Long term, they're going to be fine," she said.
The ICG Credit Union was established for employees of the Illinois Central Gulf Railroad, which has since become a part of Canadian National. Ponzo said the credit union recently moved from a narrow field of membership railroad workers to a community charter so it's now open to a broader range of people who live and work in the area.
Other credit unions receiving the three-star rating included the Paris Hi-Way Credit Union, Paris, and three Danville credit unions: Tee-Pak, Danville Consolidated and Lauhoff Employees.
Most ratings from BauerFinancial were unchanged from the previous quarter. But the service downgraded First Illinois Credit Union, Danville, from five stars to four stars and upgraded Clifford-Jacobs Employees Credit Union, Champaign, from four stars to five stars.
Nine credit unions weren't rated at all. In addition to not rating privately insured credit unions, BauerFinancial doesn't rate credit unions that have less than $1.5 million in assets and eight area credit unions fell in that category. They were just too small.
Five credit unions posted losses in the first quarter of 2008. Aside from the $202,000 loss at the Electrical Workers 601 Credit Union, the losses tended to be relatively small: about $2,000 at Canaan Credit Union, Urbana, and about $1,000 each at Carle Employees, Urbana; Champaign Postal, Champaign; and MEA Credit Union, Monticello.
Last year only four credit unions posted losses for the entire year: Lauhoff Employees, Danville, about $21,000; Blaw-Knox Credit Union, about $11,000; Canaan Credit Union, about $6,000; and the MEA Credit Union, about $1,000.
Canaan Credit Union is a church-based credit union that is relatively new, Ponzo said.
"It takes a long time for a new credit union to get off the ground and get moving," she said. "I'm hoping that one is going to do well in the future." Ponzo said credit unions largely have been insulated against the sub-prime mortgage crisis that affected the banking industry.
The main problem for credit unions, she said, is trying to keep up with compliance issues mandated by regulators.
About 75 percent of the credit unions in Illinois have under $30 million in assets, and many operate with only two or three employees. It's difficult for credit unions that small to keep up with the legal and regulatory mandates, she said. That's why some of the smaller ones are merging.
"The number of credit unions is shrinking, but the number of members within credit unions is growing," Ponzo said.
"The good thing about credit union mergers, when they do happen, is it's generally not an outside entity coming into the community, but another local credit union that will maintain community ties."
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Copyright (c) 2008, The News-Gazette, Champaign-Urbana, Ill.
Distributed by McClatchy-Tribune Information Services.
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