Month: September 2021

Posted on

Tongass FCU: Microsites and Relevance

A long-time financial consultant wrote me last week:

I will share what I know for a fact: market relevance trumps scale every day of the week. I will concede that part of maintaining market relevance requires continuous investment in your business and scale can help pay for that investment. But scale is not economy of scale. You can be big, inefficient, and fail spectacularly. You can be small, focused, and efficient and blunt competitors all day long.

I have multi-generational clients that are not massive in terms of scale, but they serve their communities better than anyone else. It’s a relationship business. People tend to forget that. Banking is not a transactional business, although people try to make it that way. If you are going to be in the transactional business, then you better have scale and be efficient.

An example of this observation is Tongass FCU ($131 million in assets) founded in 1963 by teachers unable to receive loans from banks because of their seasonal income. Today the credit union headquartered in Ketchikan establishes “microsites” partnering with local sponsors to bring financial services to Southeast Alaska’s coastal villages and towns.

Its motto is offering a credit union where no bank will go. The following are stories by the CEO, Helen Mickel carrying out this financial services mission.

Our First Microsite, then Branch at Metlakatla

Metlakatla is the only Native Indian Reserve in Alaska. It is located on Annette Island, a 12 minute float plane ride from Ketchikan.

Metlakatla was suffering from an economic downturn back in the early 2000’s which caused the only bank, Wells Fargo to shut their Metlakatla “store” in May of 2005. Wells Fargo Regional President, Richard Strutz, explained that, “With the economic decline in the area since 2000, it was difficult to maintain and staff a store.” Wells Fargo has a minimum asset requirement for their stores and the $4 million branch was well below that minimum.

Because Metlakatla is on an island, accessible only by boat or float plane, cash was received only once or twice a week. Following Well Fargo’s closure, the community employees struggled to cash payroll checks through their tribal government office typically running out of cash well before the last person was served. This was in a town that primarily used cash for their purchases. One enterprising resident tried to run an ATM machine, but had difficulties keeping cash in the machine which ran out within hours of being reloaded.

The transportation of cash to the community was a constant problem. The community struggled and asked various financial institutions to come in, but found no takers. Then some community leaders visited Tongass’ then CEO, Susan Fisher, to ask about the possibility of a branch in Metlakatla.

The Credit Union’s officers and staff met with Metlakatla residents in June of 2005. Susan explained the difference between banks and credit unions and described the importance of their involvement for a credit union to be viable in their community. We needed affordable space for the credit union and residents willing to become members who would borrow and save at the credit union.

The credit union began offering services once a week at the Metlakatla Indian Community council chambers in the summer of 2005. Staff members flew to the island, opened accounts and transacted business with new members.

The residents gave us a warm welcome. One member waited for over an hour so he could show us his artwork and his small gift store at the artist’s village. Another member took staff to his house so we could take pictures for a home equity loan. We met his wife who was baking pies that day. She sold them once or twice a week as a small in-home business. Their daughter ran a take-out pizza restaurant out of their converted lower level.

Another member gave a tour showing us Purple Mountain – which brought new meaning to “purple mountain’s majesty, above the fruited plain” from “America the Beautiful.” We saw Yellow Hill – which would look more at home in the Arizona desert.

I fell in love with Metlakatla that day. It reminded me a little of Ketchikan when I was a kid and working at Steamboat Bay on southeast Alaska’s west coast. I felt welcomed and honored.

A New Office

Within months we opened a small office in the old Wells Fargo building doing all our transactions without the aid of computers. A staff of three part-time employees worked just two hours a day during the week. The ATM at the office was re-fitted and fired up right away. Two more ATMs were purchased over time and placed in the mini-mart and bingo hall. In the fall of 2006 computers were installed in the tiny office and our staff began doing real time posting.

In 2010 TFCU was approved for a secondary capital loan that allowed us to invest in a new building in Metlakatla. The new branch was completed in 2012.

Early in our outreach to Metlakatla we established a local advisory board. This board helped TFCU work toward providing services in their unique community. Listening to the community members has been a foundation for our progress on Annette Island.

A sign was requested by the local advisory board for the branch’s exterior. They wanted something that would reflect their culture and their “house of money” which is the Smalgyax translation for bank. In 2017 TFCU was able to connect that request with reality in the form of David R. Boxley’s “Spirit of the Tongass” logo, shown below in Smalgyax .

As of 8/31/21 Metlakatla Office’s numbers:
Members: 1,272
Shares:       $8,037,007
Loans:         $9,574,664

THORNE BAY – THE BLUEPRINT

In 2006, we began offering financial services in Thorne Bay.

Our first space was located inside a sporting goods store that was in the lower level of the store owner’s home. The cash was kept in a gun safe and transactions were noted on paper.

Since that time, we have created a more sustainable model, hiring employees, using computers and eventually finding a home in the City of Thorne Bay building.

Thorne Bay became the blueprint for future sites.

NEW COMMUNITY MICROSITES

In September 2019 TFCU opened our Hydaburg site in their local school with an offer to use an office in the common area. Then in December of 2019 we opened in Kake, sponsored by the Kake Tribal Corporation and located in their office building.

Our most recent community microsite is in Hoonah, opened during the pandemic in June 2020! Our TFCU promise and Hoonah’s commitment made it happen. Before, these communities were “banking deserts” with no available financial services.

We brought financial services to Hoonah in partnership with the Hoonah Indian Association – serving the community from their beautiful canoe shed.

Posted on

Can Elections Indicate an Organization’s Relevance for its Members?

What is your impression of a non-profit that has five open board seats out of 15 total directors, and received 33 nominations for the positions?

That is the status of the board election now underway at Inclusiv.  The incredible interest from credit union members certainly suggests a dynamic, responsive and relevant organization with which people want to engage.  All the nominees are shown on the website with candidates for open seats from states in Region I and for at-large seats, from across the country.

Here is how Inclusive described this moment when announcing the board election openings:

This is a historic moment for community development credit unions. As a result, Inclusiv is experiencing a time of unprecedented growth, with over 400 member credit unions. This is the largest membership in the history of our organization! Much of this growth has been fueled by the increasing number of credit unions committed to financial inclusion and racial equity. 

Inclusiv is seeking passionate, committed and thoughtful candidates for its Board of Directors. This is a truly unique opportunity to join the industry’s leading voice for Low Income designated, CDFI certified and MDI designated credit unions.

New Name and Expanding the Mission and Role

Inclusive is renamed from the former National Federation of Community Development Credit Unions. Its mission is the same: helping low- and moderate-income people and communities achieve financial independence through credit unions.

I would also suggest that Inclusiv’s example is more than supporting this segment of the credit union system.   When leadership roles in any organization are so attractive that 33 nominees vie for five open seats, it is a demonstration of members’ excitement and interest in the firm’s purpose.

In your credit union’s last election, how many members were nominated for open seats?  Was an election even held?   If you could somehow ignite this enthusiasm with your members clamoring to volunteer as directors, what would that say about your credit union’s standing with its owners?

Inclusiv’s election contest may be more intense than their leadership anticipated. However it is also testimony to the courage and foresight of the CEO and board that are facilitating this participation in democratic governance.

 

 

 

Posted on

Doing Our Job in a Time of Tragedy-Credit Union’s Role after September 11th

In September 2001 Ed Callahan was entering his 14th year as CEO at Patelco Credit Union.  He continued to write a monthly column for the Callahan Report.  In the issue right after the 9/11 attacks he assessed their impact and the role  credit unions were now called to play.

He opens by acknowledging the pervasive feelings of fear and vulnerability.  He follows with the need to stay open to keep the economy functioning and provide assurance and forestall panic.

And finally he urges cooperatives to be “out in front”with expanded efforts for service.  A leader’s thought  about Doing Our Job, meaningful then, 20 years later, and in any future crises.

Here is the full article:

September 11 was a profound shock, and caused a deep wound from which we as a nation can never completely recover. In some respects it was the darkest day in our history. When the two towers fell, so did the illusion that the United States of America was protected by its two oceans.

We never thought something like this could happen, and yet it did. And I am sure on that awful morning everyone thought: “If this can happen, what else — and worse — could follow?”

When you have that sort of question on the minds of millions, panic can be just around the corner. Panic arises from fear of the future, and that kind of fear can likely be far more destructive than what kindled it. Franklin Roosevelt was right in 1933when he said: “Fear is the greatest enemy of all, because it destroys everything it touches.”

Staying Open

This is why it was so important for credit unions — indeed all financial institutions — to remain open on September 11 . . . and the 12th and 13th and subsequent days.

This is not meant to be a macho statement. I firmly believe it.

Firefighters and other emergency workers were on the front lines. That was their job. But financial service workers had their job too. They had to demonstrate that the financial system of the country was still functioning, that people’s money was safe and available. This was not the life-threatening work of the emergency workers, but it was absolutely essential nonetheless. It kept the lid on fear; it quashed panic. Just imagine those days if all financial institutions had shut their doors and turned out their lights.

Service: We have to mean it

When President Bush addressed the nation on the night of September 11, the first thing he said after stating that the country’s government was operational was that its financial system was functioning. These were not idle thoughts on his part — they were carefully included to dispel any notion that people’s money was not safe or accessible.

People at my credit union and undoubtedly thousands more wanted to be with their families on that terrible and unsettling day — who knew what else might be in store for us, or where? I sympathized. I felt a keen need to be with my family also. We allowed anyone to go home who felt strongly they should do so.

But others remained and kept the doors open that day, and the days following. This was important on two levels. One was symbolic, of course — we would show a face of continuity, and we would not take an action that might lead others to succumb to fears about their savings.

The other was functional — we really were there to carry out transactions, provide cash or whatever else people wanted. Credit union employees are service workers, not isolated business units, and they have to provide a service in good times and disturbing times. They often have to provide that service to settle the waters, because if they do not the waters will roil. Thus, we need to be grateful to everyone who worked that day and that week and to express our gratitude in both words and acts.

Cooperatives to the Front

All this said, we can be more helpful. People everywhere have been asking, “What can we do?” Credit unions can step up to the plate. They can be the conduits to relief efforts. They can encourage their employees to contribute to the United Way and other worthy relief organizations that are sending food, medicine, supplies and financial resources to emergency workers and victims’ families. They can research and post for their members those relief agencies most effective in delivering aid to the greatest needs.

People faced with this horrible attack want to help heal and rebuild — it is the essence of cooperation. Let America’s cooperatives show what they are made of. Together we can bind the wounds, relieve the widow, raise the orphan, and reconstruct both our confidence and our damaged buildings. We owe that to our forebearers who built this country and to our children who will inherit it.

One month later in Doing Our Job in a Time of Tragedy-Part II, Ed described Patelco’s  enhanced efforts to serve members.  The plan used Internet delivery and was called eAccess Freedom Trail.   His second column and the project summary  can can be accessed here.

Posted on

September 11th at Callahans and the Marriott WTC Hotel, New York

We are all heirs of September 11, 2001.  Some from experiences close up and personal.  Others as horrified observers, unable to look away from the TV coverage.  And for more, it is an event in history known primarily  through broadcasts like those aired this past weekend.

That September day is now part of America’s story.  The heroic parts about fully loaded firemen walking up 80 stories to open jammed doors to let occupants walk down while they, duty-bound, rose to ever higher floors and  their destiny.

We recall the shared emotions-fear, vulnerability, anger, confusion and the desire for retribution.

And we follow still the unfolding domestic and international political decisions that continue to be analyzed and interpreted two decades later.

The posts today and tomorrow are about that day. First two personal accounts and tomorrow a response at that time by a credit union leader.

Everyone has a story.   They connect and sustain us.  They help to make us who we are. That is why we remember.

A Personal Story

On Tuesday 9/11, I was in our office overlooking Farragut Park in the center of DC, three blocks from the White House.  September would normally be a peak month for planning sessions out of the office. However our daughter Alix was getting married on 9/15 and  Joan and I had planned a week long singing vacation in Salzburg, Austria for later in the month.  I was not paying attention to the business trip Joan began the prior Thursday to New York City for NABE’s Annual convention at the Marriott World Trade Center Hotel.

Upon first report of the plane hitting a trade center tower, I assumed an accident had happened.  Here is how one employee remembers the following cascade of events.

“I was at the  Callahan office that morning which happened to be 5 days before my wedding.

I got a call from Alix  who was home after her morning coaching session on the Potomac .   She told me that a plane had hit the WTC while she was watching the Today Show (NBC). I remember thinking of a documentary I saw where it described how a plane had accidentally hit the Empire State Building in fog several decades earlier causing some damage but obviously not destroying the building or causing mass loss of life.  So, I wasn’t very concerned. 

When it became clear that this was a passenger jetliner and that another plane had struck the other tower it was obvious this wasn’t an accident.  By this point, everyone the Callahan office was very aware and all were concerned.  We rolled out the large CRT TV on its cart so people could watch the live news coverage. 

News of the Pentagon being struck became part of the news too but very limited live footage of that was available.  Most of the TV focus stayed on NYC.  At Callahan we could see the smoke coming up from the Pentagon from our 10th floor Farragut Park overlook which had a line of sight directly to the National Airport Control tower — next to the Pentagon.  

Cell phones and office phones rang throughout the morning — mainly family members of employees calling to check in and share info.  Rumors swirled in the office from the calls– other planes possibly headed to the White House, just blocks away. One employee said there were “fires burning on the mall.” From our windows we saw employees walking/running from  all White House area buildings

Of course, this increased the  concerns of everyone in our office.  

It wasn’t long before the scene at Farragut Park totally changed  from a normal calm mid-morning, post-rush hour commute.  The park was absolutely flooded with people…all trying to go home it seemed but the metro wasn’t capable of handling that many people at non-peak times.  Large crowds blocked all streets, barely moving and no cars or buses could escape.  Cell phones were also no longer working — the networks were far too congested.  

The big question was whether we should close the office and tell people to go home.  I recall the conversation centered around what would be safest for staff — staying put was probably safest and least frustrating given the chaos on the streets outside and likelihood of many hours to get home (many had to walk given the transit freeze).  However, we knew that many staff wanted to go so we gave everyone the choice to decide for themselves. Most left within an hour. “ 

During the cascading events of that morning, Scott Patterson came to my office to tell me that my daughter Alix thought Joan was in NYC for a conference.  She wanted to make sure I was aware.  I had not remembered nor put 2 and 2 together that Joan was not only in NYC but also at the WTC complex. Lara, my other daughter, six months pregnant, was in nearby New Jersey, having arrived in Newark from California the night before to attend a conference.

Of course, Joan was unreachable, without phone, on her own until  that afternoon when a third party called on her behalf as described below.

By midday, everyone had left the office.  People needed to be with their families and away from any potential targets in downtown DC.    I remained  at Callahans till late that afternoon, answering phones and watching.  By then the metro was running, the crowds had left and I got back to Bethesda that evening.

Joan’s Story at the World Trade Center Marriott

 

 

 

 

 

The National Association for Business Economics 43rd annual meeting was at the New York Marriott World Trade Center Hotel from September 9-11, 2001.  The event’s tagline was “In a New York minute in the midst of economic uncertainty.”  I was the press officer.

Visiting Windows on the World

The night before the attack, Monday, Sept. 10, Diana Gregg, a reporter for BNA, and I decided to make a late night visit to Windows on the World, the famed restaurant on the 106th floor of the North Tower. We wanted to see the view and there wouldn’t be time Tuesday morning because of the conference and press events.  It was a short walk to the elevator on the ground floor of the North Tower; midway up, we changed to another lift, creaky, but with an elevator operator. We were tempted to stop for a drink, but it was late, so we went to the viewing platform to see the twinkly city below. There had been rain.  We felt we were on top of the world ….and believe we may have been among the last to leave Windows on the World.

Seventy-nine people who worked at Windows died on Tuesday morning, September 11, when the plane crashed into the building, as did 91 restaurant guests, many attending a conference that morning.  NABE had considered having its Sept. 11 CEO breakfast at Windows, but opted instead for the grand ballroom on the ground level of the Marriott WTC hotel. The hotel adjoined the North Tower.

On Tuesday, the morning session was in the 1st floor Grand Ballroom. Robert Scott, Morgan Stanley President and CEO, was speaking to the group.  Then came a jolt.  The lights flickered.   Chandeliers began to shake.  A rumble, like an earthquake.

Everyone headed for the exits.

My NABE colleagues and others helped people get out of the hotel…we were directed away from the front entrance because of falling debris and went thru the “Tall Ships” side entrance-which had been locked, but was knocked open… police on busy West Street highway  stopped traffic so that we could cross …I made my way to the Hudson River, stopping along the way to stand with groups of NABE evacuees gawking at the Towers. . . watching what looked like lumber falling from the windows, but then realized they were jumpers. . . some thought the fire in the North Tower was  being contained. . . NABE would be in touch with the hotel to see if we could resume our meetings in the afternoon. . .  saw a second plane smash into the South Tower. . .  gasps that went up from the crowd. . . ‘”This is terrorism.”

We didn’t know what was going on. There were no iPhones and cellphones didn’t work. But there was radio! . . . A group gathered around a man  who had a battery operated radio…desperate for news….people at home watching TV knew about the Twin Towers and the Pentagon…and Shanksville. . .We didn’t. . . We knew something terrible had happened in New York.. . We were on our own.

Tramping south along the river with thousands of evacuees. . .stopped at a vendor to buy 10 bottles to water because ‘this was going to be a long day’. . . do you know how heavy bottles of water are? . . .passed them out to anyone who would take them. . .ran into NABE Past President Diane Swonk, in a suit and high heels, surrounded by other NABE members and visiting international students . . . their passports and belongings were now dust, as were ours. . . Diane, chief economist at Bank One, possessed, miraculously, a cellphone that worked. . .  She offered to have her office call people’s families to let them know we were OK. . . we scribbled a dozen phone numbers on a piece of paper, she passed them on to her office.

Chip, who led Callahan & Associates in downtown DC, got a call later that afternoon from the administrative office of Bank One CEO Jamie Dimon with the message that I was OK…. Diane then led her group uptown to safety at Bank One’s midtown office…I decided to head south, along the river, thinking it was safer. . .  I reached the tip of the island –there was no place to go—it was either uptown or jump into the Hudson River and swim to New Jersey. . .seriously considered the idea! . . I was part of a huge crowd of anxious people…I needed to speak to someone, to ask how they were doing, but no one was interested in chit-chat…one man nearby said he was going back to get his dog…A cloud of black smoke was coming in our direction. . someone shouted “a stampede is coming”…panic was imminent. . .but it didn’t happen…suddenly, the smoke cleared, and as if by magic, a NY Waterways ferry appeared. . .I was never so glad to see anything in my life. . . I wouldn’t have to jump into the river!

People boarded carefully, no pushing or shoving… we donned life vests at the captain’s request. . .we looked to the sky….would we be attacked in the open water?…once in New Jersey, with no place to go, I approached  a young woman who was looking at Twin Towers. . .she was a temp, but had not gone in that day. . .an aspiring opera singer, she took me to her subsidized artists’ housing unit . . we would surely be friends for life…She went with me to a nearby car rental, where I hitched a ride with a group going south on I-95. . .I insisted we stop for gas, we didn’t know what was ahead….but it was OK and my ride went as far as Philadelphia…  they dropped me at the deserted airport. . . Sarah McLaughlin, the daughter of old friends from Chicago Tribune days, picked me up, drove to their house, put me up for the night. . . next day we went to the Amtrak station . . .wasn’t afraid to ride the train to Union Station, or the subway home to Bethesda. . . It was another world outside of lower Manhattan. . . I had made it home in time for Alix and Scott’s wedding three days later.

PS: This dramatic exodus enabled by an armada of boats  which evacuated hundreds of thousands off Manhattan in just nine hours is narrated by Tom Hanks in this 11 minute video.

The story is also told in this article Escape From New York.  Following is an excerpt:

Day and his maritime colleagues at the Sandy Hook Pilots Association — the specially licensed seamen who help larger vessels get in and out of the harbor safely — would help orchestrate the largest maritime evacuation in world history, larger even than the famous British rescue at Dunkirk.

With no plan and little direction, they would cobble together a makeshift civilian armada of fishing vessels, pleasure yachts, tugboats, and passenger ferries that evacuated somewhere between 300,000 and 500,000 people from the tip of lower Manhattan — desperate, worried, dust-enveloped people trapped by the closure of the island’s bridges and tunnels. . .

The flotilla that day included upwards of 130 boats: harbor launches, fishing vessels, sightseeing ships, and dinner-cruise boats, as well as 33 ferries and 50 tugboats, plus numerous FDNY, NYPD, and Coast Guard rescue boats. . .

 

 

Posted on

What Can $1,000 Buy in Credit Union Intelligence?

On September 2, 2021, I received an invoice for 40 hours of work at $25 per, for a total of $1,000.

The service included consultation, designing, programing, testing and updating an Excel spreadsheet that allows any user to project the NCUSIF’s year-end equity using the latest data and forecasts.

It was not a simple task.  There are four variables each using different math concepts:

  1. The % rate of insured share growth.
  2. Operating expenses in $ charged via the OTR.
  3. Anticipated loss in basis points of year end insured shares.
  4. Yield on NCUSIF investments expressed as an APR.

With beginning numbers from the NCUSIF 2020 audit, these four variables must be programmed in a dynamic way so that the outcomes in dollars and basis points versus a year-end NOL target (1.3%) can be instantly updated.

Later numbers can be inserted as the year goes forward.  This is the only management model needed for the NCUSIF. The fund’s basic 1% underwriting design, its unique loss reserve accounting practice, and the almost 40 years of experience have validated its long-term resilience no matter the event or economic circumstances.

Completed in 40 Hours

The student who did this work is a college senior majoring in “leadership.”  I explained the goal, and the input parameters.   We talked by Zoom, sharing our screens  using Google Docs, and working together to test the functioning.

Here is a link to the finished spreadsheet.  It uses a year-end NOL “target” of 1.3%, share growth of 10%, and the latest data on operating expense and loss experience: https://docs.google.com/spreadsheets/d/1eAZN2CjyNkgu9bfuUXIF1xmFPBwLvAio/edit#gid=2118513014

The spreadsheet can be copied for use by anyone.  The user can fill in more recent data or other assumptions believed to be more accurate.   With the current input, the year-end equity NOL outcome would be 1.2876 or just shy of the 1.3% goal.

Is This Modeling Tool Sufficient?

The spreadsheet includes all the major variables.   The NCUSIF sometimes has accounting entries that are not related to current events creating deus ex machina  financial interventions as in a theatrical performance.

One example is recovery from prior year’s AME loss estimates which turned out to be too high.  For the past 7 years these have totaled $313 million added back to NCUSIF equity.  A second is the expense for additions to the loss allowance reserve, which often have no relation to actual experience.

Even with these minor exceptions, the tool used in conjunction with NCUSIF’s historical performance, is about as close to perfect as one could hope.  Take a look, give it a spin.

The Student  Programmer

The designer of this spreadsheet is a college liberal arts senior who also works full time for NVIDIA to help market their new Omniverse platform.

At the moment, NCUA has spent close to $40 million and over five years trying to install the MERIT data management program.   I wonder how much a bunch of smart, college kids might accomplish outside the beltway contracting environment at a fraction of this sunk expense.

The invoice ended with these words: Thanks for the opportunity to serve you (the student’s name) and the programmer’s tagline:   When you can’t, she can. 

Now that’s the coop spirit.

 

 

 

 

 

 

Posted on

When a Bank Owner is Better Off than a Credit Union Owner

On September 3rd, South Division Credit Union’s merger with Scott Credit Union was completed.  In this time of political and ethical disorder, this combination raises a critical issue for the future of the cooperative system.

I described the unusual circumstances of South Division’s merger in an August 13 post, Can’t We Do Better Than this?

The credit union’s commitment  to its members was clear on the website:

Once a Member, Always a Member

Membership with SDCU is on your terms. No matter where you move or how your life changes, you can maintain Membership with us. And when those life-altering moments do occur, SDCU assures you that we will be there to offer support and personalized financial services to suit all of your needs.

Our commitment to you is the driving force behind our credit union, because your life is our priority.

But the July 14, 2021 Special Meeting Notice from the CEO and seven directors recommending merger, paint a very different picture as follows:

South Division Credit Union has not grown in size or membership participation for several years and has been faced with increasing operational, regulatory and compliance expenses; lack of managerial expertise, aging Board of Directors and no effective succession plans. 

Multiple facts support this self-confessed failure.  Membership has fallen from 6,724 at December 2016 to 5,287 at June 2021.  Net worth has almost been cut in half, from 14% at yearend 2019, to 7.47 at this midyear.

This capital decline was due to operating losses of $1.995 million in 2020 and another $252,211 for the first six months of 2021.

Full time equivalent employees have been reduced from 26 to 17.  Total member loan balances have fallen by $2.5 million or 15% over the past twelve months. Top line total revenue has decreased year over year since 2016, and by 14% in the first six months of 2021 versus comparable period of 2020.

An Abandoned Ship?

Members and employees both appear to be fleeing a leaking if not sinking ship. However, during these years of declines, the CEO was garnering significant recognition from the credit union system.

At the merger date, the CEO had been in place since 1987, or 35 years.  A July 2013  Illinois Business Journal profile listed her many career involvements including :

  • Director of the ICUL board since 2003
  • Chairman of ICUL in 2014
  • President of two credit union chapters
  • 30 Year Member of CUES and Illinois CUES Council Chair
  • 30 Year Member of the IL Political Action Council and past chair
  • Service on Cuna’s Governmental Affairs Committee
  • Three years on CUNA’s state government subcommittee
  • Internationally, a member of the World Council of Credit Unions for 25 years and a founding member of the Women’s Global Leadership network.

The article also enumerated more than a dozen local charities, school and educational involvements plus multiple civic engagements by the CEO.

The awards granted to the CEO in just the past decade include:

  • The Evergreen Park Chamber of Commerce “Business Person” of the Year for 2011
  • Induction into the Illinois credit Union Hall of Fame-April 2017
  • The Credit Union House Hall of Leaders Recognition at Capitol Hill-March 2018: “a distinguished group of individuals whose leadership serves as a model for credit union leaders throughout the country.”
  • The Perpetual Tribute Award from the Illinois Credit Union Foundation at the ICUL’s 89th Annual meeting-April 2019

The Final Tally

One of the reasons for South Division’s loss in 2020 was the increase of over $1.0 million (74%) in salaries and benefits from the prior year. Was this a bonus or other benefit paid prior to announcing the merger where a disclosure would be required?

State chartered credit unions must file 990 IRS forms by May 15 after each yearend which would disclose the compensation for senior management and to the board, if any. There was no IRS 990 on file for South Division for 2020 as of the merger date.

Prior year’s filings report total CEO compensation rising annually  from $206,643 in 2016 to $290,474 for 2019. In addition, the 990’s show a split dollar life insurance plan as an asset for $3.8 million and a pension plan balance of $2.8 million.

The Merger and the Members

At June 30, 2021 the credit union reported net worth of $3.9 million less an “other comprehensive income” account of negative $2.5 million, not otherwise explained.  If this is a pension plan or other unfunded benefit, it is not clear what the obligation at the merger would be or who is responsible-Scott or South Division-if anyone.

Whatever the case, if this shortfall must be funded, certainly that requirement would seem to qualify as a merger related benefit requiring disclosure to members.  If not, then should the members have received some of the almost $4.0 million of net worth as a result of their patronage since 1935?

Enter Scott Credit Union

South Division has been in decline for years, even as the CEO garnered multiple awards and participated in numerous outside activities.

The credit union is a mess, according to its own leaders’ statement above.  Who cleans it up? How can the members be given what the cooperative promised to deliver?

Scott Credit Union would seem to be a very handsome and strong white knight riding to the rescue.  Its adherence to the cooperative model is presented on its website:

Our Cooperative Structure

Founded in 1943, Scott Credit Union is a full-service financial institution providing financial services for individuals and businesses, including free checking accounts with interest, ATMs, credit and debit cards.  .  .

Scott Credit Union, like all credit unions, is a not-for-profit financial cooperative that offers banking services. When someone opens an account with a credit union, they become a member and an owner.

Your experience with Scott Credit Union is about more than money, it’s about you getting the most value for your money and reaching your financial goals.

Our products and services and pricing are driven by our members, not by stock holders looking to increase their net worth.

So far so good; just two nagging questions.  Why was no Chicago area credit union approached to help where there would be local knowledge and an immediate network delivery expansion for members?

Scott is 240 miles and a four-to-five hour drive from South Division, so what is their game plan? So how will members benefit from a leadership team whose focus and experience is in a very different market and far away?

Was there any due diligence by Scott? How will Scott make things right for South Division members who have been “short-changed” for years?

The Other Shoe Drops

My earlier view was that Scott had drawn the “short straw” in its willingness to resuscitate South Division members’ credit union experience.  This was especially so since it is far removed from its own network and market reputation.

But then came the stunning announcement.  On August 20, 2021 Scott announced it had agreed to buy Sugar Creek Financial Corp and its Tempo Bank subsidiary with $93 million in assets. That was just ten days prior to the South Division members’ vote on merger-a done deal given Illinois’ use of proxies in mergers.

The stunning part was not the bank purchase.  Tempo Bank was in Scott’s home market and would “increase its total footprint to 22 locations across the Metro East and St. Louis area.”

No, the stunner was the juxtaposition of how Scott treated the bank’s owners versus the credit union owners of South Division.

Start with the bank’s CEO, Robert Stroh, who will retire after 45 years of service but will be “offered a consulting agreement with Scott for a period of time following consolidation.” No such agreement for South Division leaders.

The bank’s CEO observed: “We know our customers will benefit from all the additional resources that Scott Credit Union has to offer while knowing that their money is staying right here in the community.” Hmm, not the Chicago market?

But Scott’s true colors show in how they are treating the bank’s shareholders versus the credit union’s member-owners.

Scott is offering $14.2 million or a premium of approximately  $4.0 million, or 38%, over the bank’s book value at June 30, 2021.

The day before the purchase announcement, the bank’s stock closed at $11.41.  The Sugar Creek shareholders are projected to receive between $14.50-$16.50 in cash, subject to valuation adjustments when closing the P&A.  South Division members get $0.

South Division members were given words, the general promise of a better future, but no cash or even plans. Better to be a bank shareholder than a credit union owner!

But the situation is worse. Scott gets a lot more from South Division than four branches, 5,287 “underserved” members and $51 million in assets.   It receives approximately $4.0 million in South Division equity to be able to pay the premium to the owners of Sugar Creek Financial!

Scott appears to be no white knight for South Division members.  Rather, the combination seems to be birds of a feather finding each other.  Scott’s real heart is in Southern Illinois, where it is investing the $4.0 million, not suburban Chicago.

Of the three CEO’s, it is the bank executive who showed the greatest attention to their owners’ welfare.

“It Happens Every Day”

Credit union CEO’s  using mergers for self-advantage with members receiving only promises  has become  more common. The precedent of a retiring CEO  leaving with multiple industry honors, rather than honor, is not new.

Examples of CEO’s selling out the institution that provided them the platform on which they stood for much of their professional careers is an increasing pattern.

One of my former colleagues would counsel me, “it happens every day.”  I don’t accept that as a reason for “leaders” betraying their member-owner’s loyalty.

As the movement stays silent, we become complicit.  The lesson of South Division and Scott is that indifference is toxic, and it seeps into the soil upon which we all stand.

Credit unions have always asserted they have a higher role than profits and institutional growth.  Acting in the members’ best interest may be an open-ended standard, but this kind of member exploitation is a specific harm.

When some credit union leaders demonstrate they respect bank owners more than their own member-owners, the cooperative model is in trouble. They are doing things for which there is no excuse and if unchallenged, this behavior will metastasize.

The issue isn’t only the members’ welfare at South Division, Xceed, Post Office Employees, Sperry Associates or dozens of others abandoned by their “leadership.” Rather it is about the next generation of members who will not have a credit union option that seems to be anything other than just a banking choice.

That loss of uniqueness will end the valuable cooperative experiment unless current leaders have the courage to say enough is enough.

But the greater squandering is of an American economy, with deepening inequalities,  urgently in need of organizations willing to put consumers’ best interests first.

Posted on

A Credit Union Team’s Office Reunion

Michael F. Abernathy, Jr. became CEO of Buckeye State Credit union in 2018 following several years of losses and decline.  The credit turned a profit in 2017 and has not had a losing month since. Before COVID hit, capital peaked above 11%.  Even after the pandemic shutdown, capital remained at 10% and is building every month.

His report below is an example of a CEO’s leadership efforts after months of shut down and remote administration.  His account follows.

The First In-Person All-Staff Meeting Since Shutdown

“We felt it was important for everyone to get back together in person, but with the blessing of the staff. The previous year, we held a hybrid model meeting where branches and back office met at their individual locations while members of senior leadership were divided up and led the meeting from different locations. The meeting last year was pre-recorded, but each senior leader had the ability to bring a “live” perspective from where he or she was located.

For last year, the response was good for the event, but there was a craving to get back together. During the 2021 planning process, we anonymously polled the entire  staff to determine if the team was ready to come back in-person, or preferred another hybrid model. The polling was unanimous…they wanted to come back together for an in-person event.

It was important because we have several new employees who had never attended an in-person  with the Credit Union. We wanted to deliver an experience that felt big and bold. We wanted our team to feel like they were part of something important. Our 70 attendees were able to interact and learn from incredible guest speakers:

    1. John-Mark Young: Whitaker Myers Wealth Management.  He talked about the “Never Again” moments in people’s lives when a person makes the decision to start the journey toward financial freedom by creating a plan to save and grow their money
    2. Jamie Strayer: Credit Union Strategic Planning. She talked about how our CDFI grant affected not only Buckeye State Credit Union, but also changed lives (thru credit unions) across the country by providing resources to create innovative programs that improve low/moderate income communities.
    3. Carol Middaugh: Frost Financial Services.    She talked about how Buckeye State has saved its members over $265,000 over the last four years through gap claims. She also spoke to the hundreds of thousands we have saved members in extended warranty claims for mechanical breakdowns that were covered. Gap and warranties often have bad reputation, but we are proof that these services have consistently saved our members money and protected their credit scores.
    4. David Kettlehake: American Share Insurance. David made insurance talk fun. He talked about ASI’s history and how they stack up against NCUA and FDIC. Because ASI is owned by its member credit unions, the credit unions have a voice and a seat at the table. ASI knows what the day to day activity of a credit union is like, where federal insurance funds overlap as both regulator and insurer. This bureaucratic perspective removes them from the normal operations of a credit union. He demonstrated how ASI’s coverage stacks up against the federal insurance and how ASI actually provides broader coverage than NCUA.
  1. I wrapped up the meeting with a town hall format where I shared stories from my life and career that shape me into the leader I am today helping to guide the credit union.

The CEO’s Message

The message I wanted to relay is that our credit union is different from many others out there. We are developing products that meet the needs of everyone in the community. While banks focus on people with wealth and strong credit scores and the predatory lenders focus on the poor and weaker credit, we are creating an atmosphere where everyone is welcome. We will lend and do business with all income and credit levels. While the banks and predators are content to run down the sidelines of the football field, we seek to utilize the entire playing field and work with everyone.

With that, the messaging to our members and the community at large is that we want to empower them regardless of income or credit level. We have already rolled out our First Time Auto Buyer Loan (no co-signer needed), Youth Empowerment Account (designed for children starting at 8 years old) and our Empowerment Account (Second Chance Checking Alternative).  Moreover, we intend to roll out the following by Mid-October (Around International Credit Union Day):

    1. Credit Builder Loan- Build or Rebuild credit
    2. Advance Line- Payday loan alternative…lower rate, lower payment, longer repayment cycle
    3. Empowerment Loan- Consolidate your debt and take back control of your finances
    4. Furnish or Fix Loan- Own or Rent a Home? Does not matter, this loan will provide funding for smaller needs and projects around the home
    5. Anything Loan- Self Described, use it as you want!
    6. Youth Empowerment Card- First credit card with no co-signer needed
    7. Empowerment Card- A secured card used to build or rebuild credit

The Partnership with ASI

ASI spoke at the meeting so everyone could learn first-hand about their relationship with credit unions.

ASI covers $250,000 per account, so the member can have more coverage than provided by the NCUSIF.  The firm is cooperatively owned and governed by its member credit unions.  It understands what credit unions are doing right at ground level.  They are not government acting in the dual role of insurer and regulator.

Reversing losses of $3MM going back years was due to the approach of ASI.  The insurer worked with us to correct adverse trends by giving latitude not harsh restrictions or deadlines.

ASI does monitor capital ratios and financial performance. But because they understand what is happening at the local level, this gives them a close-in perspective to be patient and an ability to work together with struggling credit unions.”

 

 

Posted on

Heroes and the Fear of God: Words at the Start of the School Year

Glenn Arbery is President of Wyoming Catholic College.   He shared some thoughts with the incoming freshman class last week.   

While his hero references are from academic literature, all organizations tell stories about leaders who have played critical roles in their history.  These stories  are reminders of extraordinary success or sometimes tragic failure.

They are intended to help us be more aware of the choices we make in our “lived” roles.  His last words about the “Fear of God” are interesting.  It is not a religious statement he is making.

Rather he is stating  that most of us know what are better angels require.  But as one CEO wrote me in a request for counsel, sometimes right gets a little blurry.  Here is an excerpt from his talk.

When you enter the classroom this week, you will encounter in a new way those figures that the tradition of the West has always honored and whose names you have known since childhood: in Genesis, the patriarchs specially called by God; in the Iliad and the Odyssey, the heroes who explore the boundaries between the mortal and the immortal.

These are men and women who step outside the common order into a uniquely charged sphere of unfolding meaning. They extend the expectations of mankind.

Heroes and saints are not necessarily easy to get along with, since they answer a higher call that puts them at odds with the world around them, even those closest by. It is not easy to fit the hero into ordinary life, but without these primordial figures, we would not hope for more in human life than good internet service and enough coffee. 

We are not engaged in tearing down or demeaning what is great, but in honoring whatever is noble and good, wherever it might be found. . .

Fear of God, in the sense that I mean it, is awareness of another choice when there is a temptation to belittle others or indulge yourself. Moment to moment, there is a better way, a best way.

Fear of God means a dread of choosing what you know to be wrong or of letting something harmful happen through weakness, indifference, or inattention. It is wholesome and cleansing, like cold mountain air. It is the kind of fear that makes you alert and urges you to pay attention and watch where you are going.

Good advice to start the school year for everyone. The full speech and essay can be found here.

Posted on

Work or Play on Labor Day

I asked a friend who used to work 12-16 hours straight on projects what he did for play.

His response: “My work is my play.”

Why I blog?

One response is from Flannery O’Conner: “I write because I don’t know what I think until I read what I say.”

The intent is that my words will bring perspective, interpretation and debate to the ever-evolving credit union movement.

I would hope to ensure credit unions are making some meaningful progress towards a more sustainable, healthier, democratic, and economically fair American experience.

This hope is not about individual achievement, but to inspire collective effort by analyzing and reframing credit union events from the context of their unique purpose.

Writing as a Moral Act

David Hein, a Senior Fellow at the George C. Marshall Foundation has written an insightful essay called Writing as a Moral Act.   Some of his thoughts follow:

Writing is a moral act, I often tell my undergraduate students. At first, naturally enough, they are puzzled by this claim. Not only are they prone to compartmentalizing—discuss ethics in a philosophy class, learn writing in an English class; they are unused to thinking ethically about ordinary, apparently nonmoral, activities. For them, morality is limited to (1) rules, such as the honor code’s prohibitions against lying, cheating, and stealing; (2) social-justice issues, such as the sins of the patriarchy and the faults of free enterprise; and (3) their informal sense of peer norms, such as having a friend’s back during a crisis.

To expand their horizons, I prompt them to think about moral aspects of everyday life and to consider the first steps of forming an ethical position and of acting morally. Sound ethical judgment begins not with prescription but with description: characterizing the situation accurately and fairly. Not “what ought we to do?” but “what is going on here?”

Limning the essential elements of a case requires vision sharp and sensitive and comprehensive; and we won’t see clearly if we do not, so far as possible, accomplish a temporary “unselfing of the self,” in Evelyn Underhill’s phrase, attempting to perceive with others’ eyes, according to perspectives different from our own. This entire effort lies at the heart of the ethical life; it is a work of the moral imagination.

Expectations

This approach is also fundamental to the task of essay writing, a practice with which students in higher education are largely familiar. . .

Your paper, I advise them, should be the most intellectually alert and stylistically engaging commentary on your assigned section of the reading which you can produce. . .incorporate evidence from the text in support of the main event, which is the unfolding of your thesis. In other words, maintain command of your paper as a rider keeps control of his or her horse: subordinate summary and quotations to the development of your position.

And some opinion, yes—opinion in the sense of your carefully considered view: argue for the best construal of the material you can manage. When you present your paper, your listeners will be interested not in your isolated, undefended opinion but in your rational analysis and informed judgment; and, along the way, your fellow students will be grateful for whatever elements of wit and elegance you can deploy in your phrasing.

Most of all, keep in mind your audience, which consists of the other students in this course. Anticipate objections to your case. In your paper, respond to this imagined challenger. As you dig into your subject as deeply as you can, have your readers’ likely understanding and potential appreciation in mind.

Indeed, writers cannot achieve their objectives without taking into account their readers’ backgrounds. As Steven Pinker has pointed out in the Wall Street Journal (September 27, 2014), “The form in which thoughts occur to a writer is rarely the same as the form in which they can be absorbed by the reader.”

The writer’s test

Learning to explain complex matters well is one of writing’s supreme challenges. But writing for the reader rather than for himself alone is good for an author’s character; it can relax his relentless self-regard.

So ends my work, or was it play, this Labor Day.

 

 

 

Posted on

Another Banana Story

After yesterday’s post about NCUA’s banana- like strategy to impose  rbcapitalus fungus on credit unions, I was reminded of Jim Blaine’s blog from April 2015.

It is the story of a banana, a swimming pool, a librarian and “uncommon organizations serving uncommon people.”

Future Leaders Should Go Bananas!

The sun was simply sweltering and I was sitting poolside at one of those golf-prison hotels, trapped between lost and found and nowhere.

That’s when the question first came to mind. It wasn’t the result of any great thinking to be sure. And, the thought probably had no source other than the impatient infection of boredom, which arises from waiting on a “next-a.m.” flight to someplace you’d rather be now. Comprendez? Done there, been that?

The cosmic question was “Does a banana float?” Not just any banana either. One of those large 16-ouncers which usually only come three to a bunch and end up being much more than your appetite. Well, let’s stop right here for the quiz. What do you think? Does it or doesn’t it?

“Does a banana float?”
Check the appropriate box:

☐ Yes  ☐No  ☐Maybe
☐ This is insane.
☐ None of the above.
☐ All of the above.
☐ Only in ice cream.

I will give you three bits of information which may help you with your answer: 1) you have no clue to the correct answer to that question, because this bizarre thought has never crossed your mind; 2) this is not a trick question; so don’t over-analyze it; and 3) there are two important, related questions you must also consider in addition to the first one. 

Those two questions are:
1). “If you peel the banana does the peel float?”

☐ Yes ☐ No ☐ Maybe
☐ This is really weird.
☐ Need NCUA ruling.
☐ A and B.
☐ Only in salt water.

2). “Does the fruit core float?”

☐ Yes ☐No ☐ Maybe.
☐  I’m telling!
☐ Yes, then no.
☐ No, then yes.
☐ Only in California.

Give those questions some serious thought. Mark your answers. Don’t give up on me just yet; we are heading somewhere with all this! But first, let me finish telling you about that poolside experience….

To finish this story with Jim’s moral  click here.