Month: June 2025

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Transforming the Unicorn-Members Fight for a Say in the Future of SECU-NC

For four decades (1979-2017) the State Employees Credit Union was led )by Jim Blaine. He believed in the power of cooperative design, principles and purpose to provide members a better financial option.

His approach was so successful that SECU soared in his tenure to become the second largest credit union in America.  At March 30, 2025 the credit union reported assets of $55.3 billion, members of 2.8 million with 275 branches (one in every county) employing 8,100 FTE positions.

Growing a Unicorn

Blaine’s studied belief in the power of cooperatives infused dozens of operational and strategic decisions.  He eschewed mergers preferring to partner with other credit unions such as Latino Community and Local Government FCU to support a strong state eco-system of credit unions.

His focus was strictly within North Carolina, not seeking to invest outside the members’ home state.  Within the FOM the focus was on those who were unlikely through economic circumstance or financial understanding to get a fair deal from traditional for-profit consumer financial options.

Creative Product Designs

His implementation of these beliefs resulted in some unusual product decisions.  The lending focus  was on home loans as the best way to build long term member wealth.  Products such as credit cards and checking were simple, low cost and without flair.  He created the only 529 on balance sheet college savings option by a credit union in America.

He provided  off balance sheet investment options in a partnership with the Vanguard Mutual Fund family of low-cost index funds. The credit union founded its own life insurance company for inexpensive term life insurance.  Through a $1 a month checking account debit he funded the largest credit union directed 501 C 3 foundation.  Annually it donates tens of millions to organizations serving the needs of citizens and communities throughout the state.  These grants were the credit union’s primary marketing effort-an example of earned versus bought media.

As the credit union system adopted risk-based lending, where a member’s loan rate was determined by their  credit score, Jim fiercely resisted this almost universal pricing practice.  He believed the model was discriminatory and perpetuated some of the consumer lending practices coops were meant to counter such as, those who have the least, pay the most for their loans.

Likewise, he did not believe in indirect auto lending in which the dealer set the member’s loan price based on the credit union’s buydown rate of the loan paper.

Internally the credit union grew large by staying small.  The 275 branches were given authority to make and collect loans for their communities.  They were aided with local advisory councils of members for decisions on scholarships, grants and even denied loan appeals. Vacancies were first filled from promotions within.  No commissions or bonuses were paid to staff-just follow the principle of doing the right thing for the member.

Most importantly the credit union’s capital investments were always on behalf of  members or the local community.  From a surcharge free ATM network for all users, not just SECU members,  to housing a museum in its main office building, to the Foundation’s investments in low cost teacher housing options, the money was to benefit owners and their communities, not for the institutional prestige of SECU.

Many organizations including  large credit unions use their home market as a resource to open up into areas outside their core.  Members’ resources do not go back into the local economy that funded their initial success, but into new markets.

Jim’s “old-fashioned” approach was not one emulated by others. He battled NCUA time and again over capital adequacy.  “Anything over 7% is stealing from the members” was one of his truisms.  At March 30, 2025 the net worth ratio was 10%.  In short, while reporting superior market impact and financial performance, his approach was seen by most peers as archaic, impractical and not with the times.

The Two CEO Succession Rule

One observer has asserted every successful credit union coop is only two CEO successions from losing their strategic heritage and advantage.   When he retired in 2017 Jim’s successor was his CFO Mike Lord.  A good description of Jim’s ten operational priorities and the succession evet is in this creditunion.com report.  The torch was passed to a believer who had worked at SECU for 41 years, or as one headline read, “Only the Lord could succeed Blaine.”

But when Mike Lord retired the board went outside the credit union apparently seeking a change agent with a different vision for the future.  Jim Hayes took charge in September 2021 leaving the $2.2 billion Andrews FCU as CEO.  He had previous positions at  WesCorp and NCUA.

Members Challenge the New Direction

The October 2022 SEU Annual meeting was going according to the agenda until the other business item.  At that point former CEO Blaine, now just a member, rose with a prepared statement.

He asked how recent credit union actions  were in the best interests of SECU members.  The event and issues are described in this blog, SECU Members’  Spirits Awaken.  The members approved Blaine’s two motions. one asking for a response to the six areas of concern.  The second read:  The Board update, publish, and make available to all member-owners its’ Strategic Plan for SECU no later than 90 days prior to the 2023 Annual Meeting.  

Six months after credit union fireside chats and other communications responding to the motions, Jim launched a public blog SECU-Just Asking! He re-presented the issues that energized members and employees had asked him raise at the Annual Meeting.The blog became the platform for members nominating their own candidates for board openings at the 2023 Annual Meeting.

Members Electing Directors

In 2023 the concerned members nominated three candidates who supported their views for the open board seats.  Around 14,000 members voted in the contested election in which all three board nominated incumbents were ousted.  The members had succeeded in challenging the changes via the election process.

In 2024 the election was again contested and almost 100,000 members voted. This time the  incumbents were  reelected, but the top alternative candidates received almost 30,000 votes. SECU spent substantially to promote incumbent s in this second  contested election.

The 2024 meeting was broadcast live on YouTube.  My closing blog observation was:  One cannot help but come away with the feeling that this year’s event was a reaction to the two prior meetings where the board must have felt things moved out of their control.  This time the outcome which had some excellent content, especially the member questions, was an exercise in the power of incumbency.

The Public Debate Continues

Since the launch in March 2023, the Just Asking blog has cumulative views of 2.53 million  and 14k posted comments, according to Blaine.  He says interest peaks as the board election cycle gets under way in July/August. Currently views average around 2,500 per day.

By any measure it is a blog followed by a significant number of SECU members and one presumes employees.  The blog is a unique member-owner effort in its longevity and substance trying to influence the credit union’s direction .

Jim Hayes, the new CEO implementing the changes challenged in the October 2022 Annual Meeting, left in June of 2023.   The board promoted the long- time COO Leigh Brady who has continued most of the internal and member-facing changes.

The controversy has somewhat slowed  the credit union’s momentum. When Mike Lord left in August  2021, the credit union was $50 billion in assets versus today’s $55 billion (a 2.5% cagr)

A New Unicorn for Coop Believers

Today as SECU evolves into a traditional credit union provider, it remains a Unicorn  for another reason.  It is the only large credit union to have contested board elections for the past two years.  This member-owner involvement is unique and yet what the coop design was intended to ensure.  The members’ role using the democratic principle of one person, one vote, is the critical governance function.

Member choice in contested elections is essential to active owner accountability versus the habit of internal succession controlled by sitting board members.

Democratic organizations (or countries) rarely fail because of external market competition.  Rather most failures come from within.  They are leadership and commitment shortcomings.

The two CEO successions from failure observation is a critical issue for credit unions.  Financial failure is very rare, but failure to grasp and enhance the unique business design and principles that are the foundation of every credit union can be quickly lost.  New visions and corporate aspirations can take credit unions away from their special strenths.

Credit unions were founded with no capital, just human passion, When that initial belief is not sustained, the accumulated net worth can just become the CEO and board’s treasure chest, not a member-enhancing resource.

Controlling Member Involvement

SECU’s policy and financial performance continue debated in daily posts,  The credit union’s  primary response has been to limit or eliminate  the members’ role in the annual meeting activity.

In the last two years SECU’s board has changed its bylaws to better control  the annual meeting and election processes.  The agenda has been closed to open member discussion.  The timing and procedure for member nominated candidates in elections have been shortened making it more difficult for non-incumbents to get on the ballot.

In short, the board has tried to shut down the effort that raised the original concerns in 2022.   The unique coop member governance check and balance on credit union priorities is being stifled to the point of elimination.   And following recent blogs, the NC state regulator is trying to avoid any oversight of the board ‘s  efforts to eliminate all member governance rights.

Why this Members’  Unicorn Effort Matters

This issues profiled by Blaine are not an isolated concern.  Other credit union members are facing similar challenges in being heard. Rarely does a merger go by without some members asking why?  Bank purchases using members’ accumulated capital rewards bank owners, not the credit union’s owners.

The  future of the country’s second largest credit union has implications for the cooperative system as member-centric financial alternatives. Members are seeing investments  disconnected from their well being or traditional purpose.

When owner involvement is silenced at required annual  meetings, a credit union’s future is in the control of self-selected, perpetual unelected volunteers.  That is a dangerous separation of responsibility from accountability when owners are left out.

There is now over $250 billion in collective reserves under credit union boards’  control.  Keeping the 100 million  coop member-owners from  influencing how these funds are used will bring temptations from all corners of the capital markets, brokers and hedge fund investors.

Boards will feel free to do whatever they choose, initiatives unhindered by either principle or purpose.  Dramatic visions of power and influence financed with billions  of members’ collective wealth willl be in play.

With members seen as only customers, just a means to greater ends, the cooperative alternative will have lost its way.

Speaking Truth to Power

From Socrates and throughout Old  Testament stories, the prophet’s voice has been a source of wisdom and discomfort for those in authority.

The idiom “a prophet is without honor” comes from the New Testament.  It refers to someone whose message is not appreciated by their own community.

It takes unusual courage to make a public stand against those in authority.  When done by someone with expertise and experience, they will be accused of failing to give others their turn at the wheel.

Blaine is blunt even caustic at times in his writing. He does not believe in nuance.  When others are not direct, he will call out lies.

He believes coops were designed and have the responsibility to correct a fundamental flaw in consumer financial services.  In his words, “those that have the least or know the least, pay the most for financial services in America.”  The problem has only gotten worse as income inequality continues to grow.

Credit, that is consumer borrowing, is the most important way  for almost all to succeed in a free market economy.  There are no scholarships for life’s essential purchases.

Yet when CEO’s and Boards’ tenures grow to oversee hundreds of millions or billions in assets, it is tempting to gravitate towards those well-off in life.  Making Tesla or Lexis auto loans is a better opportunity than members needing to buy a car at an Enterprise used car sale.

Events will influence how Blaine’s initial six concerns will resolve.  Local Government FCU, now Civic, has ended their partnership with SECU at great cost to both sides.  Risk-based pricing may or may not increase SECU’s consumer loan share.  The question is whether real estate lending continues to be a priority or whether it will convert to just another “conforming” service.

Blaine’s most recent effort to request the North Carolina regulator to preserve the rights of members in overseeing their coop may seem ironical given his history of battling NCUA when CEO.

But that issue is the bottom line now, not differing judgments about products or services. SECU is at a turning point, already taken by most. Will the rights of member-owners to be heard with their elected leadership be upheld?  Without that check and balance, there will be billions of dollars of members’ collective resources without any accountability.

I  will give Blaine the last word from this brief statement on the role of regulation in 2010.

(https://www.youtube.com/watch?v=E1tnDcE6Xjo)

 

 

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46 Credit Unions Close their Doors in Q 1 2025

Forty-six credit unions managing over $3.7 billion in assets cancelled their charters in the first quarter.   The credit union’s data is from December 2024 call reports.  Because they closed their doors, the credit unions filed no data for March 2025.

This total of closings is much higher than the 35 mergers NCUA reported in the first quarter.

The 256,000 members with with $2.4 billion in loans, have now lost their own institution some with  histories serving generations.  List with loan totals.

These credit unions ranged in size from the $560 million LA Financial to as small as $3,000  Asbury FCU in DC. This pdf with ROA and net worth is shown from largest to smallest by assets.

Not Financial Failures

On this listing, the weighted average net worth of the group was 10.7% at December.  Many had equity ratios much higher than this.  Two had net worth exceeding 30% including Gibbs Aluminum (KY) at 33% and Telco Roswell New Mexico at 34%.

Only 7 had a net worth ration below the 7% well- capitalized benchmark with the lowest two at 4.9% and 4.2% of assets. Six of these had negative ROA’s in 2024 but all were still solvent.

If these are not financial failures, why were the charters ended, largely by not entirely, via mergers?

Some would explaine that this is just the “creative destruction” that economists describe as an essential outcome from competition in a capitalist market system.  Underperformers are forced out of business and replaced with better options.  This is a necessary and healthy culling that makes capitalism strong, innovative  and prosperous for the greater community.

While there is an element of truth in this dynamic, cooperatives are supposed to be an alternative to the winner takes all mentality of market competition.  These coops are long standing with charters that go back over 100 years in some cases.

Two Internal System Weaknesses

I would suggest that these charter failures, and they are just that, of financially sound firms results more from cooperatives’ internal shortcomings, not external competition.

One critical deficiency is the lack of system support for some of these smaller credit unions who have decided to give up.  Surrendering charters versus adapting to new opportunities costs the industry between $100,000 to $500,000 each time a charter is lost.

Those amounts are the range of donated capital NCUA now requires for chartering a new credit union.  These 46 charters have a total “market” value as much as $23 million at the higher required capital level.  For example, Arise Community CU opened its doors on Juneteenth 2025 with over $1.0 million in capital donations.

New charters are extremely difficult to achieve with NCUA approving only 2-4 per year.  It would seem in everyone’s best interest, but especially leagues, CUSO’s, vendors and others supporting coop options  to find ways to preserve or transform existing charters to those willing to take the reins of leadership.  Press reports have said NCUA has over 90 new charter requests in various stages at this time. This suggests public interest in coops is still widespread.

Benign Neglect?

A tiny example of this system weakness, or neglect, is the smallest credit union on the list, Asbury at $3k and 100% capital.   The 100% net worth suggests that the credit union  has been self-liquidating for some time.  The credit union still has a web presence via a third party.  It was not invisible.

More tragically when one looks up Asbury’s history, the credit union was chartered in 1945–it is over 110 years old and insured by NCUA in 1972.  Virtually invisible and surviving, but  ignored by the system that created it.

The More Common Deficiency: Leadership Failings

The second largest credit union failure is NextMark FCU (VA) with $550 million in assets and 16.3% net worth.  The CEO and board requested members approve a merger with Apple FCU, which took place in the first quarter.

The failure of this long-time, financially well-off and large institution illustrates a second aspect of the industry’s self-inflicted errors.  There was no compelling financial, business or other shortcoming motivating this charter closure.  The CEO Joseph Thomas had served as President/CEO since October 1994 a period of 30years and 4 months before becoming Executive Vice President at Apple via the merger he orchestrated.

During his thirty years as CEO Thomas also served on many industry organizations. These positions include: a CUNA board member for 8 years; a board member of CUMA a DC mortgage CUSO for 22 years; Board member and immediate past chairman of the Virginia Credit Union League for 12 years; board member Worldwide Foundation for Credit Unions 7 years to the present; and board member for the World Council of Credit Unions, 5 years. also continuing.

NextMark gave Thomas a platform and standing to aspire to these positions  of wide spread credit union national and worldwide  responsibility. But now this opportunity and potential service paths are closed.  There is no successor CEO asThomas pulled up the ladder he climbed to participate in these other opportunities.  The independent charter ceased operations.

Mergers such as this destroy cooperative professional and volunteer leadership roles in communities, within the credit union system, across the country and, in this case, worldwide.  Fewer coop leader positions mean fewer voices and examples of professional excellence representing credit unions.

It is at best ironic that those who seemed to have benefited significantly from their CEO leadership role, would close this path that was opened for them.  What kind of leadership perspective did he bring to these other system responsibilities?

But this tragedy goes further than the  opportunities for credit union volunteers and professionals in their communities and beyond.  The following public comment is one member’s response to the merger proposal. It clearly shows that members know this kind of ending is not why credit unions were founded.

Her description is one of betrayal, not just of the cooperative principles, but moral failings by those with fiduciary responsibility to the member-owners.  Here is her perceptive  description of why this merger is so tragic and wrong not only for these members, but also for America’s coop system (subheads added).

I recognize that the merger is likely a foregone conclusion, and the number of votes cast by members will be minimal.

My experience with the NextMark Federal Credit Union dates back to 1977 when it was known as the “Fairfax County Employees Credit Union.” Over the following 20 years of membership in the Credit Union and employment with the Fairfax County Government, I served several years as a member of the Credit Committee and the Supervisory Committee.

The general concept of a credit union, combined with a defined field of membership, the value of working toward the common good of the members, and loans based on character, were central to the success and satisfaction of the credit union members. The credit union grew, as did the Fairfax County employee base.

A Change of Focus

At some point in the late 90’s or early 2000’s, the field of membership expanded in scope, the name changed to the commercial generic “NextMark” and our credit union began to resemble a commercial bank, with limited on-line offerings and variable customer service. Nothing terrible, just a move far from the underlying values of the credit union movement.

The specific observations that I believe should merit regulatory review, are the substantial financial incentives offered to several key staff members, contingent on completion of the merger. The amounts seem very high, but of greater significance is that these payments are contingent on the merger, which these key staff members are urging members to approve. I am aware of nothing that casts any doubt on these key staff members’ sound character or integrity.

Gross Conflicts

The issue is a gross conflict of interest created through this incentive process. These senior staff and volunteer members have a fiduciary responsibility to the credit union members, including advising on significant business decisions and implementing structural changes, such as mergers. The existence of contingent incentive payments for completion of the merger would seem to conflict with the fiduciary responsibility to the members. It would seem that a more sound approach might be to delay the negotiation of pay and benefit incentives until after the membership vote.  

Old Fashioned Thinking

Maybe everything is fine just as it is, and such incentives are likely commonly accepted in the commercial banking and business arena. Credit Unions are supposed to be a little different – although that may just be old-fashioned thinking.  

End comment.

A final note on this merger:  Senior staff and the CEO received according to the Member Notice “pay adjustment distributions to meet the continuing credit union’s salary bands, long term retention bonus, incentives already established, deferred compensation benefits, or severance opportunities” totaling almost $900,000.

The members received a $12 million bonus dividend for approving this combination and free transfer of their $409 million in loans and remaining equity to another firm.  How might these resources been re-invested in the credit union for members’ future or even seeding a dozen or more new coops?

The credit union cancelled its future and distributed a token portion of its value that members created  to be paid forward to benefit future generations.

Can a coop system with such behaviors routinely approved at all levels, ever hope to survive in the future?  Should it?

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The Loss of Member-Owner Coop Rights

This latest SECU Just-Asking! blog illustrates a growing tactic  by credit union boards to limit or end member-owner involvement in governance.  As explained below, the method is to unilaterally change the credit union’s bylaws to effectively stifle any member initiated election or annual meeting involvement.

Tomorrow I will show how this effort now in its third year has evolved at SECU.

The Full Blog (shading added)

Ms. Katrina Ray, N.C. Administrator of Credit Unions

June 20, 2025
Re:  NC Credit Union Division Failure To Protect Credit Union Member Governance Rights
Dear Administrator Ray,
North Carolinians, who are member-owners of state-chartered credit unions under your supervision, are at risk of losing their legal and statutory governance rights. This has become a safety and soundness issue for the 3+ million credit union members who hold over $60 billion in North Carolina credit unions.
As Administrator, you are not unaware of this situation given the extended controversy within our State. I would like, however, to give you a summary of what has occurred, using State Employees’ Credit Union, of which I am a member, as the example.
Lets focus on the SECU Annual Meeting: 1) In 2022 (and in all prior years back to 1937) SECU members could speak, offer resolutions and make motions at this business meeting, 2) in 2023 speaking rights by SECU members were restricted and the meeting agenda was altered to eliminate member participation in “new business/old business” discussions, 3) in 2024 the ability of members to speak was eliminated, only non-substantive resolutions were permitted, and the standard business meeting agenda was again curtailed.
In looking to the 2025 SECU Annual Meeting, a written request was submitted for a copy of procedures for SECU members to submit substantive governance resolutions in advance of the meeting for publication and consideration by the SECU membership. No procedures exist. SECU noted that advance resolutions would not be accepted at the Annual Meeting and that such resolutions could be submitted only via a separately called “special meeting” of the membership. This further restriction on SECU member governance rights was a novel invention and of course no policies or procedures for such a “special meeting” exist.
As Administrator, you are given credit for authorizing these eliminations of SECU member governance rights via the bylaw amendments approved by NCCUD on 6/30/2023. The specific amendment you approved was: “… (iii) authorize the Board to establish upon notice to the membership policies and procedures governing the order of business, format and conduct of the annual meeting.” 
 
It would appear that the SECU Board has used your general amendment authority as cover to purposefully curtail the legal, statutory governance and ownership rights of SECU members in their credit union. This has created an explicit safety and soundness risk for the future of all North Carolina credit union members.
 
If as Administrator, you did intend to authorize this abridgement and curtailment of credit union member governance rights; you have created a business entity unique among all insured financial institutions in the U.S. and have authorized governance practices which would be illegal among most public U.S. businesses.
This unparalleled and growing impairment of basic shareholder-rights is being followed carefully by the credit union and banking communities in North Carolina and on the national level.
Would hope you would use your statutory authority to address these issues on behalf of all 3+ million North Carolina credit union members.
Sincerely,
Jim Blaine, SECU
cc: SECU Board of Directors
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A Member’s Letter to the Board Chair

In the next week I will present three active situations where members are deeply unhappy with their Board leadership.  In every case the board has tried to ignore, at best, or at worst, silence, these efforts at  member engagment.

These cases are unusual but not in the board’s hunkering down and ignoring the owners. Rather it is in the members’ efforts to share publicly their frustration trying to engage as owners.

There are similar member attempts that have yet to rise to public visibility.  These cases are just a few of the concerns that members and even employees have shared with me.

Today’s example is from a member-owner and long time credit union professional who started his career with this credit union.  He then moved to manage a national CUSO of leading credit unions and became a consultant for several more credit union organizations.  In other words, he is a true believer.

This is his letter to the Board Chair.  I have added the subheads and deleted specific names or identifiers in the letter.

April, 2025

Mr. Chairman:

Since I first began to discuss the matter of board governance almost 10 years ago with (names omitted) and in my further discussions with you, I have stood on the position that it is one of the primary responsibilities of the Board to continuously improve, enhance and encourage member/owner participation.

Our credit union should represent the best principles of the co-operative business model, and my board should be acting in a manner that builds on those principles that make us different from for-profit financial institutions.  As we have discussed in the past, the continuation of the current practices surrounding the board nomination and election process and the annual meeting fly in the face of such principles and practices.

The Annual Meeting

Let’s address the issue of the Annual meeting first.  How exactly can you defend having a 9:00 am meeting on a Wednesday as having anything but a negative impact on encouraging member participation?  How can you defend the restrictive rules that control and limit the agenda and discourage any member interaction with the board at the meeting?  How can you defend the minimalist attempt to notify and promote the meeting to the owner members?  Where is the big banner proclaiming the date, time and location of the meeting on the credit union’s website? How about some signs or interactive messages in the branches? How about a social media campaign to your members using email and text messaging to encourage their participation?

I dare you to ask a teller or even a branch manager about when the annual meeting is being held, I have, and I was embarrassed for them.  How about the search function on the website?  Try entering, “Annual Meeting” and see what you get.

What are you afraid of?

What are you afraid of?  Give me one good reason why any member- owner should not be able to come to your meeting next week and ask you or XXX a question about anything they want concerning credit union governance, operations or products and services.  Why shouldn’t one of your owners be able to ask you what a board member actually does to earn around $40,000 per year, why the 2023 Form 990 reflects a Split dollar benefit loan to the former fired CEO in excess of$10 M, or what a subsidiary LLC does to earn $8.5 M per year?

Solutions Rejected

What really upsets me is that we have talked about actual solutions to these issues more than once.  I have even written and submitted sample by-laws which would require the nomination of at least two qualified members for every open board position so that there is an actual election that could be easily accommodated using electronic voting.

We have also talked about the need for term limits to make for a healthier board turnover and broader owner participation.  I have no complaint about the qualifications of the current board, but with several hundred thousand owners you can certainly identify enough other highly qualified options to have a real election for board positions.

Incumbents should be required to supply some modicum of justification for their re-election to a very important, difficult and highly compensated position.

An Oligarchy

The word “oligarchy” gets tossed around a lot today.  I would suggest that the current nomination process and pursuant “Non” election process along with the seemingly secretive and hidden nature of the Annual meeting is signal to any half-way informed owner that the credit union  is in fact a practicing oligarchy.  A governance model in which power rests in a small group.

The second of the Rochdale 7 Cooperative Principles is democratic control and the third is member economic control.  I ask that you and your fellow board members make an effort to make sure my credit union is the best representation of those principles.  I am hopeful that my suggestions will finally get the attention and action they deserve

S. A Lifelong Member

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A Conversation About the Times

Had a two-hour conversation with a retired CEO yesterday.  His observations about the state of the industry are almost like parables, sometimes dense but pointing in the right direction.   I paraphrase his thoughts.

An Era of Untruths

Today we are living in an era of irresponsible lies.  For example the law is not what common sense says it is; rather it is just a continuous nuance of interpretations for self-interest.

Coops were designed to be an alternative to banking based on intense motivation-a passion to change things.  The goal was not to become a tax-exempt back door entry to banking.

We assumed credit unions would be focused on the member, the man in the street, rather than  just another financial institution.  Today we have credit unions whose business is brokering and buying other credit union and/or financial institution assets.  It is a corporate strategy, not a retail, member-centric one.

Corporate Vs Member Focus

These corporate business variations are not based on citizens as owners.  It is not the traditional credit union model.  Rather these are financial variants built on the tax-exemption, versus cooperative principles.

It is like someone saying they are farmers because they own land.  Farming is both owning the land and working on it, not merely buying  an asset. These corporate driven business models want to use the coop model, but not the responsibility of member-ownership.

One or Two CEO Transitions from Failure

The outcome is that many very successful credit unions are only one or two CEO transitions away from losing their earned market success from building on core principles.

When the new leader arrives whether from a credit union or other professional background, it is almost inevitable that the unique coop legacy (and member focus) will be set aside reaching for some new business initiative.

This will not be motivated by member-owners’ needs but rather corporate ambitions for growth or an entirely different strategic focus or even personal ambition.

If one looks at the growth of mergers of sound, long serving credit unions, the motivation seems either a retirement windfall or, a growth strategy by the new CEO to enhance their personal goals.

Building Vs Running a Business

These efforts confuse the distinction that makes the coop model so promising.  Coops offer a unique way to build a business.  However newcomers often believe they have been chosen to run a business versus building on a legacy of passion and purpose.

The key to sustaining the unique credit union model is twofold.  First citizens as owners will need to be at the center of efforts to build on coop principles.  This requires leaders who are committed to a mission that others may not see as attractive.  It may even require cultures that we see in NGO’s, entrepreneurial and driven by purpose.   That’s how cooperatives  become leaders in serving their members as their reason for being.

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The Cost of War

Kyiv has declared a day of mourning after Russian missle and drone strikes have killed 24 residents and injured 134. The attacks lasting over 8 hours have left people trapped in the rubble of large residential buildings..  Photo from Kyiv on June 17th.

There has been no White House comment after the most intense. continuing  attacks on Kyiv since the initial invasion in 2022.

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A Failure to Cooperate and a Turning Point in Credit Union Events

In the March 1985 issue of Credit Union Magazine, the writer of the monthly Capital Events column raised a critical industry issue following the successful recapitalization of the NCUSIF in January.

The concern was whether a stronger, more efficient, cost-effective NCUSIFcould put the private share insurance options out of business.

One CEO of of a private insurer said No.  The changes at the NCUSIF will just lead to healthy competition, and that will be good for everyone.

A Vital Industry Resource

NCUA  believed a strong group of private insurers was a vital industry resource.  They saw it as a check and a spur for Agency oversight.  “The NCUSIF is where it is today because the private insurers showed what could be done. Without them, the NCUSIF could stagnate and credit unions would be left without a viable alternative,” said Chip Filson, Director of the Office of Programs.

At March 1985 there were 15 state chartered guaranty corporations insuring $15.5 billion or about 17% of total credit union savings.  Several pre-date the NCUSIF, but most were chartered in the early 1970’s. They covered about 40% of state charters.

The writer lists events raising the issue of federal deposit insurance sufficiency.  These included large bank failures such as Penn Square and Continental Illinois banks, the scrutiny from the Bush Task Force on Financial Regulation and the FHLB’s request for a special $10 billion assessment for the S&L industry’s fund, FSLIC.

An Option to Backstop the Funds

Because of the NCUSIF legislation, the credit union insurance options were not the primary concern in DC.  However, the NCUA had reached out to the private insurers with an option should there be a public crisis of confidence in deposit insurance.  Specifically, the CLF offered a low-cost liquidity line of credit to the 15 insurers collectively.  Draws supporting a credit unon  which would be collateralized by the credit union’s assets and a joint and several guarantee by all the funds.  It would give the private funds the same liquidity options that the CLF had for the NCUSIF.

The article closes with the note that the private fund’s trade group (ISD&GA) was considering the proposal.  The writer concludes: How the group responds may prove to be pivotal for credit unions and their insurers in the years ahead.

The insurance group did not take up the CLF’s offer primarily due to the joint and several support commitment for draws by an individual credit union or its insurance fund. The result was that political pressure at the state and federal level forced all but two of the funds to close their doors in subsequent years.  These were not financial failures per se, but rather the lack of political support at the state level.

This article some 40 years ago is a  case study of an inability to change or in the writer’s words, confident in the management and marketing skills to hold their own in the marketplace without altering the status quo.

Source:  Credit Union Magazine, March 1985, oages 17-18, by Brooke Shearer)

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A CEO on Leadership and Legacy

I received the following from a credit union CEO  reacting to recent examples of mega-mergers.  The credit union’s market approach is clear:

From the Credit Union’s Website 

Why eat at a local restaurant? Why support your local non-profit? Why help out a neighbor? Simple: you care about your community, get better service from people you know, and want to feel good about the way you spend money. At our credit union, you’re a member, an owner, and a participant in a local, not-for-profit financial cooperative. Our cards look pretty awesome, too.

His Comments On Mergers

While I’m saddened by the loss of credit unions in number, I also believe each CU must do what’s right for them.  However, because the reasons given for these recent mega-mergers are fairly boilerplate no matter the size, I suspect that $20b won’t be “enough.”

As a CEO of a smaller shop, the thing I find scratchy is the tendency of some larger shops to take an imperialist posture combined with hubris. As they say in parts of the south: You ain’t all that.

During a multi credit union event hosted locally,  a rep from a larger shop told one of my star employees, “you know, credit unions your size are going away.”

Size Is Not What Members Seek

The thing is, a credit union at $20b is still a smallish bank. In my market, I have BOA, Wells, Chase, etc… Who cares what size you are – just don’t be a jerk.

I think the big shops need to get over themselves and, quite frankly, some little guys need to quit complaining about how hard things are.

My immigrant grandfather opened a restaurant 75 years ago and it’s still going strong. Business has always been tough! When people use that excuse, I always think that the real problem is a leader who can’t rise to the challenge rather than the challenge is too great. Ego won’t allow a leader to admit they might be the problem.

A Legacy, Not a Payday

Obviously, merger has also become a retirement plan for many…and that stinks. My goal: when I retire, pass the baton to the next gen…I’d rather have a legacy than a fat payday.

 

 

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A System Built on Hope

Yesterday I received the picture below from  a new Boston resident walking around town exploring the Commons.  The plaque was placed in 1959.

It reads in part, Edward Filene (1860-1937): author, scholar, outstanding citizen of Boston and public benefactor. Acknowledged as the founder of the credit union movement in the United States.

Great leaders require two defining characteristics: vision and optimism.  Together they produce hope.

Two Expressions of Hope

From Emily Dickenson:

“Hope is the thing with feathers –

That perches in the soul –

And sings the tune without words –

And never stops – at all …

Carl Sandburg in the midst of the Great Depression wrote of hope in the commonplace scenes of life-1936:

Hope Is a Tattered Flag

Hope is a tattered flag and a dream of time.

Hope is a heartspun word, the rainbow, the shadblow in white

The evening star inviolable over the coal mines,

The shimmer of northern lights across a bitter winter night,

The blue hills beyond the smoke of the steel works,

The birds who go on singing to their mates in peace, war, peace,

The ten-cent crocus bulb blooming in a used-car salesroom,

The horseshoe over the door, the luckpiece in the pocket,

The kiss and the comforting laugh and resolve—

Hope is an echo, hope ties itself yonder, yonder.

The spring grass showing itself where least expected,

The rolling fluff of white clouds on a changeable sky. 

Have a hope-filled weeken

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Withdrawing from the Game

While the administration’s trade policy may have only an indirect impact on credit union fortunes, it is an example of how public policy can become sideways with America’s long term interests.  And our standing with the rest of the world.

What follows is a brief critique of the underlying assumptions about tariffs and how the rest of the world will react.  The analyst’s point is that poor policy assumptions lead to poor policy outcomes.

Policy is one aspect of the NCUA board’s role. The board no longer exists.  Future meetings have been cancelled and/or called tentative.

The board’s statutory role is to manage the agency.  That also is on hold.

The consequences of these absences of regulatory oversight will not be known for a while.  Meantime some credit unions will take the opportunity to push the envelope on corporate interests.

There will be fallout from this regulatory abdication on policy and agency leadership.  Like the trade example below, the market won’t wait to fill the current vacuum in supervision.

The Challenge of False Policy Assumptions

The following summary of US trade strategy is by William Reinsch at the Center for Strategic and International Studies *CSIS).
Even while uncertainty persists, not only about Trump’s intentions, but also about the half-life of his policies, his actions are being treated as the death knell for the global economy. Trump’s message to the world is that the United States is no longer a reliable partner. The obvious corollary is to find other partners, and that is just what others are doing—with the United States on the sidelines.

 

What is noteworthy is that it appears we are still making progress—in the same way and in the same direction as always. The difference is that the United States is not there; not under Biden and not under Trump. It is typical of Americans to think that we are leading —whatever we are doing is heading down the right path, with other countries running behind to catch up. In this case, however, it appears no one is following.
The new negotiations tell me that the announcement of the old order’s death was greatly exaggerated, and that the case for trade liberalization remains a strong one. Since the current administration is not going to change its worldview, the challenge for U.S. companies is to find ways to stay in the game even as our government has withdrawn from it.