Charles Faulkner, president/CEO of the $67 million Jefferson Credit Union in Birmingham, Ala., could probably write the book on how credit unions might prepare for the fallout from a municipal bankruptcy.
In fact, Faulkner and his credit union are going through such an experience now – “and fortunately we’re OK,” he says – following last Wednesday’s court filing of the nation’s largest municipal bankruptcy at $4.5 billion by Jefferson County, the state’s most populous and home to its largest city.
Jefferson CU, holding a community charter and with 9,000 members in seven counties, was formerly known as Jefferson County Employees CU before shortening the name and diversifying its membership.
The county’s financial travails, including corruption charges that have sent some of its top managers to prison, dates back to at least 2008 “and so it is something we’ve lived through,” Faulkner said.
He said his credit union has been able to keep its capital ratio in good shape at 9.48% but now is girding for a spike in delinquencies as members grapple with the prospect of huge increases in sewer bills to be ordered by the courts.
Faulkner noted that the first obvious sign “that we faced some big trouble” came in 2009 when county commissioners, as part of their dealing with bankruptcy threats, threatened to close the courthouse entirely.
“Now that happens to be where our main office is located so we knew we had a problem,” laughed Faulkner.
Since then, the CU has witnessed the highs and lows of the political battle over a federally mandated sewer project which became ensnared in delays and court battles and later hit with corruption charges.
The municipal fight climaxed with the Chapter 9 bankruptcy filing by county commissioners. That filing gave the county protection from creditors including JPMorganChase while a debt adjustment plan is being developed.
Anticipating possible future losses, the CU “delayed plans in 2011 for new branches” planned for Birmingham suburbs. The board has adopted a wait-and-see stance on such expansion for 2012, Faulkner said.
Currently the CU is engaged, he said, in loan restructuring and modifications for some of its hard-pressed members. “We have also been using services of Greenpath Debt Solutions,” he said referring to a national Detroit-based counseling agency.