With vastly smaller deposit reserves, few credit unions invested heavily in higher-risk mortgages or mortgage-backed securities. But that doesn’t mean the economic blowout that has shaken the banking community to its core is not hurting the nonprofit credit union industry. Bad debt is rising for the vast majority of credit unions.

With vastly smaller deposit reserves, few credit unions invested heavily in higher-risk mortgages or mortgage-backed securities.

But that doesn’t mean the economic blowout that has shaken the banking community to its core is not hurting the nonprofit credit union industry.

“We’re all in the same boat,” said John Hansen, president and CEO of Rockford Bell Credit Union. “Everyone is worried about their jobs. When money is tight, the biggest thing they decide to keep is the house. They’ll let the payments go on the cars, the boats, the personal loans. That’s affecting all of us.”

Bad debt is rising for the vast majority of credit unions. As a whole, credit unions in the United States have nearly $870 billion in assets; banks have more than $13 trillion. At the end of March, credit unions posted $9.47 billion in loan money that was more than 60 days past due and foreclosed property; at the end of March 2008, they had $5.34 billion.

In the first quarter of 2009, the Investigative Reporting Workshop at American University School of Communication in Washington launched BankTracker, which compares a bank’s bad loans to its available capital and loan-loss reserve. The group dubbed the calculation the “troubled-asset ratio.”

Gauging the trouble
The creator of the index, Wendell Cochran, a longtime business reporter, said a bank that is losing money and has a troubled-asset ratio of 100 percent — meaning the amount of a bank’s bad loans is equal to or greater than its cash reserves — could be in trouble.

For the second quarter, Cochran updated numbers for the 8,300 banks in the United States and added the country’s 7,900 credit unions.

As a whole, credit unions have a stronger bottom line than the banking industry, according to IRW data. The national median troubled-asset ratio for credit unions was 5.6 percent after the first quarter of 2009, while the median for banks was 11.7 percent.

At least 18 community or employer-sponsored credit unions are either based in Boone, Winnebago and Ogle counties or have an office here. Eleven had troubled-asset ratios above the national median. Four were above 20 percent, headed by Beloit, Wis.-based First American, which, with more than $163 million in assets, had moved into the mortgage and even business lending.

Only four of the credit unions, including Rockford Newspapers Credit Union at the Register Star, reduced their ratios from last year.

“The health of credit unions is strongly tied to its area,” said Hansen, whose credit union has more than $30 million in assets. “First American is based in Beloit and has a branch in Janesville. What happened to Janesville? General Motors closed the plant there. Look at Belvidere. If Chrysler doesn’t reopen the plant, this area would be in a world of hurt.”

The unemployment rate in the Rock River Valley was at 13.5 percent in May, the sixth straight month it has been above 12 percent.

Still, since credit unions are required by the National Credit Union Association to have twice as much available capital as banks, only two credit unions have been closed by federal regulators this year, and four others were forced to merge with stronger entities.

Federal regulators have closed 40 banks this year, including six in Illinois.

Bank results
Rock River Valley banks are struggling even more with bad-debt levels. Thirty-three banks have at least one branch in Boone, Ogle or Winnebago counties, and only four were under the national median troubled-asset ratio of 11.7 percent. Rock River Bank of Oregon and AMCORE Bank in Rockford were above the 100 percent level Cochran warned about.

Rock River President Doug Campbell said this month that he is talking to investors to lift Rock River’s capital reserves back to adequate levels.

AMCORE is the largest public company based in Winnebago County, and struggles have been well-documented. The company announced Friday that federal banking regulators have ordered it to raise more money, and revise and maintain a liquidity risk-management program.

Thirteen other local banking companies had troubled-asset ratios above 20. In comparison, at the end of March 2008, six had ratios above 20.

Alex Gary can be reached at agary@rrstar.com or (815) 987-1339.