Credit unions are thriving in south-central Wisconsin despite the struggling national economy.

The Federal Deposit Insurance Corp. has taken over about a dozen failed banks this year while one credit union has failed, but none were in Wisconsin.

Second-quarter financial stability ratings by Bankrate.com, of North Palm Beach, Fla., and Bauer Financial, of Coral Gables, Fla., show south-central Wisconsin's top credit unions are MATC Credit Union, of Madison, which hasn't had a delinquent loan in several years, and Teachers Credit Union, of Beloit, which ranks among the top 1 percent of credit unions in the nation.

While some Wisconsin banks have struggled with quarterly losses, the state's credit unions showed overall increases in assets and net income during the first half of 2008.

Assets of the state's 259 credit unions were up 9.2 percent to $17.8 billion on June 30 and net income was up 17.2 percent to $62.1 million from last year. The loan delinquency rate of 1.14 percent was up 1 percent from the first six months of 2007.

"The first half of the year was fairly good for credit unions," said Suzanne Cowan, director of the state Office of Credit Unions.

Credit unions benefit from their nonprofit status, which means they pay no income taxes and don't have to focus on profit. Compared to banks, they're also less engaged in commercial lending.

Three possible mergers ahead

Three area credit union mergers are scheduled this fall and more may be on the way.

Merger can be a solution for smaller credit unions that face challenges based on economies of scale, said Russ Kashian, associate economics professor at UW-Whitewater. He said merging with a larger credit union can help diversify the membership base and attract better employees.

"I would expect the merger trend to continue," he said. "It is a challenge (for smaller credit unions) to diversify their loan portfolio in such a way that they can avoid major hits from individual loans."

Facing lower risk from dealing with a stable base of members and focusing on consumer lending means most credit unions haven't suffered the real estate loan losses that have cut into net income at some banks.

"Our loans are in very good shape, so we don't need to take big hits on our income," said Andrew Faust, president and chief executive of Summit Credit Union, of Madison, which will merge next month with Great Wisconsin Credit Union, of Madison. "Because we're not profit-driven, we only do loans that are good for the customers and good for the credit union.

UW Credit Union, of Madison, one of the state's largest with assets of more than $1 billion, has been opening at least one new branch a year.

The credit union added a Sun Prairie branch this year and plans to open a Fitchburg branch in 2009. A new branch also will open on the Madison Area Technical College campus on Madison's East Side after a merger next month with MATC Credit Union.

Highest-rated credit unions

The highest-rated credit unions in south-central Wisconsin had the lowest non-performing loan rates.

MATC Credit Union has not had a delinquent loan in several years, said president Rhonda Mork, who added she works personally with troubled borrowers to avoid delinquency.

"Most borrowers are MATC employees, so we don't have a lot of risk," she said. "Our lending focus is pretty narrow. We do consumer loans, car loans and second-mortgage loans."

Besides a non-performing asset ratio of zero, MATC Credit Union also has strong liquidity and earnings that were substantially better than normal, according to Bankrate.com.

At Teachers Credit Union, of Beloit, membership is limited to teachers and their families in Rock, Walworth and Winnebago (Ill.) counties and that contributes to the credit union's success, said president Suzanne Kralick.

"The members that we do have are extremely loyal to us because they've been with us for a long time," she said. "My board takes a lot of pride in making sure they're hearing what members say."

Ranked by Bankrate.com among the top 1 percent of credit unions nationally for financial stability, Teachers Credit Union had a low non-performing asset ratio of 0.06 percent, strong liquidity and earnings that were substantially better than normal.

Lowest-rated credit unions

The lowest-rated area credit unions are F.P.L. Credit Union, of Madison, and Janesville Municipal Employees Credit Union. Both had higher-than-normal nonperforming asset ratios, below-average earnings and were ranked in the bottom 5 percent of credit unions nationally, according to Bankrate.com.

F.P.L. Credit Union, which serves employees of Forest Products Laboratory, had a 21.23 percent non-performing asset ratio and return on average assets of negative 3.64 percent, according to Bankrate.com.

Blake Berton, the credit union's office manager, said he wasn't qualified to talk about the ratings. Board chairwoman Jane Kohlman, who also would not comment on the ratings, said the small credit union offers limited services.

Janesville Municipal Employees Credit Union had a non-performing asset ratio of 32.85 percent and return on average assets of negative 2.52 percent, according to Bankrate.com.

The credit union is merging with First Community Credit Union, of Beloit, which had a four-star rating from Bankrate.com and five stars from Bauer Financial.

"They've had some delinquency issues," said Jack Gill, First Community president and chief executive. "Some of it is the nature of Janesville right now."

He said the General Motors layoffs and closure of related businesses have put financial pressure on many people in Janesville.

The Janesville credit union also doesn't have staff members devoted to collections, Gill said, and First Community has assigned its collections staff to assist.

"Credit unions are doing quite well," said Brett Thompson, president and chief executive of the Wisconsin Credit Union League. "They got their start in the Depression and came out of tough times. That's what they came from and what they're all about."