STOCKTON, Calif.-The City of Stockton has been one of the faces of the financial crisis in the West, having battled Las Vegas for the dubious distinction of "Foreclosure Capital" over much of the last four years.
The city might already have declared bankruptcy if not for a new California law that requires cities in the Golden State to first undergo mediation with its creditors. Michael Duffy, president and CEO of $326-million Financial Center CU, which serves several SEGs including employees of the City of Stockton, said he is cautiously optimistic the situation can be resolved.
"There is no bankruptcy yet due to the new mediation law that allows negotiation with all involved parties," he said. "Our hope is they can negotiate their way out of it. We are the credit union for city and county employees, so we are monitoring closely."
The situation has been going on for four years, Duffy continued, as the city government has been forced by a lack of tax revenue to cut back on services and jobs, including the police and fire department.
"Those are our members. We did assistance programs, rewrote loans and offered financial counseling services," he said. "Now, there is no place else to cut. The police force has been cut back as far as it can, and the same with fire. Mediation will get the bondholders to the table. Hopefully, everyone will see they have to take a haircut and it can be resolved without bankruptcy. If everyone shares in the pain, the city will have a chance to reset, stop the hemorrhaging, and get the patient back to full health."
If Stockton does have to go through bankruptcy,, Duffy said his hope is it will not affect current employees. "We will be there for retirees if their benefits are cut," he added.
Frank Michael, president and CEO of $21.1-million Allied Trades CU, told Credit Union Journal the crisis is the "outfall" of the economy in the Central Valley.
"If there is a bankruptcy it will not have a major impact on our credit union," he said. "Some people might leave the town, but our credit union will still be strong. The issue is what happens to the community. It might discourage strong growth, but that remains to be seen."
According to Michael, Stockton's five credit unions are a "strong group" because the real estate loans they wrote were solid.
"I have only two losses on my mortgage portfolio," he reported. "We did not do 100% financing, so even with prices dropping 40%, our real estate loans are still performing and still have good loan-to-value numbers."
A Look At The Numbers
In 2011, Financial Center CU had $4.7 million in net income prior to assessments. It paid $570,000 to the Corporate Stabilization Fund, leaving it with net income of nearly $4.2 million. Its net worth ratio was 24.93% ("well capitalized").
In 2010 FCCU posted $3.5 million in net income after paying $540,000 in assessments. In 2009 it earned $4.8 million. In 2008 it lost $1.4 million.
At Allied Trades CU, its 2011 net income was $54,904 prior to assessments. It paid $44,514 to the Corporate Stabilization Fund, leaving it with net income of $10,390. Its net worth ratio was 14.14% ("well capitalized").
In 2010 Allied Trades lost $82,970, including $38,845 in assessments. In 2009 it lost $265,928. In 2008 it earned $21,098.
Stockton is the 13th largest city in California. If it does declare bankruptcy it would be the largest city in the U.S. to do so.
