Author: Chip Filson

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Next City’s Take on Credit Unions

Often outsiders offer fresh insight about what makes credit unions special then found in the industry’s own internal coverage.

Next City is a digital journalism site that provides innovative examples of individuals and organizations confronting the challenges of urban life.   Its focus is on solutions that improve the conditions of those  most disadvantaged in large cities.

Credit unions are frequent go-to examples.  The following are two recent reports that highlight their special roles.

Juntos Avanzamos: “together we advance”

The first story is: This is what a Credit Union Designed for the Hispanic Community Looks Like.

The article describes the efforts of Granite Credit Union in Salt Lake County, Utah to receive the Juntos Avanzamos designation.This designation certifies that the credit union is committed to serving Hispanic and immigrant communities by being accessible to Spanish speakers, conducting research on the local Hispanic community, offering accessible and relevant affordable housing programs, and more.

The story reports that the Hispanic/Latino population continues to rise in pockets across the U.S.  including by 37.6% in Utah from 2010 to 2020.

The article presents the history and process for the Juntos Avanzamos designation which now spans over 27 states.   The credit union model is an ideal fit for many of these new Americans because: “When you give someone an opportunity and take a chance with them when all other doors are closed, it builds incredible loyalty, sometimes for life.”

“The Fabric that Makes America”

A November 21, 2023 article, The Outsized Impact of Small Credit Unions, interviews Sue Cuevas, the CEO of the $4.8 Nueva Esperanza Community Credit Union in Toledo, Ohio.  The second credit union leader is Sheilah Montgomery CEO of the $24 million Florida A&M University Federal Credit Union in Tallahassee, Florida.

The CEO’s comments are candid and illustrate the realities of small credit unions with a deep commitment to serving their communities.  Here are short excerpts from the Q&A portion of the story:

Our overhead is much lower than some of your billion-dollar financial institutions. We have one branch, an ATM and eight staff team members. But we have a full-service financial institution. Because of our lower overhead, we’re keeping our interest rates lower than our competitors. . .For instance, we did loans with no credit checks.

On the Latino community in Ohio:  The pandemic really hit hard. A lot of (our members) lost their jobs. They were in restaurants, housekeeping, places that shut down. . . Where I’m located people don’t even know what a 401K is. Right now, we don’t offer checking accounts. Most of our credit union members speak Spanish. They don’t know how to write in English. So, checking accounts to them are very foreign. . .

Currently we’re located in the basement of a health clinic. You have to come down some very big steps. It’s not an advantage to my members. The parking area is also very limited. So, our initiative is to get into a much larger location above ground, which allows our members the ability to come in safely and park safely.

FAMU: Since we are a full-service financial organization, we offer a plethora of products and services and most recently we’ve expanded our business loan services to help small businesses, who we like to call the fabric that makes up America. We processed approximately $2 million in small business loans over the last 18 months.

These stories show credit union relevance is not based on asset size, but the power of serving others.  Their example should make us all proud of a system that attracts leaders living these commitments for their communities.

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Should the Past Matter? Mission and Co-ops

How important is the knowledge of an organization’s past for a new leader?  Isn’t the responsibility of any CEO to take a firm forward from the present to the future?  Moreover, can’t one rely on existing staff and members to affirm what is important to know from history-if needed?

This is not a hypothetical situation.  Credit unions will sometimes choose new leaders with no connection to the organization or even to credit unions.  An example is BECU’s new CEO. One current NCUA board member and the newly nominated member waiting Senate confirmation have no prior association with credit unions.

How History Informs the Present

Recently I attended the 300th anniversary of the “founding” of the Bethesda Presbyterian Church.  The date of 1723 is somewhat arbitrary as there are no specific records except the journeys of itinerate ministers who came from Philadelphia to Cabin John and Bethesda to hold services.

According to the cornerstone, a new church building was constructed in 1850 on the tallest hill in the area after the original 1829 structure was destroyed by fire.  The church was called Bethesda.  It was named after the pool of Bethesda in the biblical story of the lame man waiting to be lifted into healing waters.  That eventually became the name of the town that grew up in the area.

The 1850 church and Victorian era manse occupy four acres which includes a cemetery.  The Presbyterian church founded there, moved to a new location in 1925. Various other congregations have used the buildings since.  In 2019, the entire site was abandoned.  The buildings and surrounding grounds have had no maintenance.

Nevertheless the buildings have received an Historic Site designation which prohibits it from being developed as a commercial or residential project today.

The church has seen some historic moments.  During the Civil War confederate cavalry occupied the site before union soldiers drove them away.  Abraham Lincoln is said to have visited the church.

The building contains the original beautiful sandwich glass windows.  There is a slave quarters in the rear back balcony of the church.  The original bell was stolen from its moorings in October of this year.

Besides its long historical role, why should this past matter to modern day Bethesda?  When we moved here in 1982, the town was still small, marked by single and double story buildings surrounded by  family homes and apartments.  The metro had not opened.  One could drive in and park on the lot at the Hot Shop in the town’s center.

Today Bethesda is a developer’s dream with twenty story multi-use condos and offices multiplying like rabbits.  No small parcel is exempt from this vertical expansion, except for the Tastee diner that sits at the foot of Marriott’s World Headquarters.

Reason for Resurrecting the Site

What does an abandoned, overrun hill with two deteriorating buildings mean to this new mecca of upscale commerce and residences?

In a talk during the 300th anniversary celebration of the Church, a local volunteer historian presented his thoughts on why preserving a community’s history matters.

The church is old and freighted with history.  Which begs the question of why we are here, celebrating it.  To me, the answer is that shared history is an important part of what defines a community. We can only understand and celebrate what we are when we understand and appreciate how we came to be. And we look to the past to prepare for the future because, as James Burke wisely observed, “there is nowhere else to look.”

In the end, it doesn’t matter that we can’t pinpoint the founding date of this congregation.  What matters is that the history of Bethesda Presbyterian Church and its (original) Meeting House is literally the history of Bethesda—its rise, its growth, its weaknesses, its redemption.

No other building or institution comes close.  How did we begin?  Look here. How did we cope with slavery and its legacy?  Look here.  How did we evolve from a farm hamlet to a suburb to an urban center with all the strengths and challenges that brings.  Look here.

Credit Unions, History and Mission

Credit unions have played an integral role in their members’ lives and what it means to be part of a “community” initially called a “field of membership.”

It is not the buildings and products that define a coop, but rather belonging to a group whose mission is to take care of each other, even today.  Members bring their history, sometimes their entire lives, contributing to keeping it going.

That continuity of mission is why credit unions exist.  When that history is forgotten, ignored or seems irrelevant to the present, that is when we begin to lose our future.

A credit union can be much more than a financial institution; it is a means of creating and sustaining a “community” that cares about each other.  And whose history will have “its rise, its growth, its weaknesses, its redemption” just as this Bethesda spiritual congregation has experienced in its 300 years.

 

 

 

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Speaking Truth to Power

In a recent conversation with a newly chosen CEO on creditunions.com, the following was a comment on what she believed was necessary for her effectiveness:

JV: In a leadership role, it’s crucial to surround yourself with individuals who are comfortable telling you the truth. People naturally want to please the boss and tell them how great they are and might hesitate to disagree or deliver unpleasant information. It’s important to create a safe space where people feel comfortable voicing their opinions and assisting in decision-making.

Everyone has a little bit of an ego. It’s nice to hear that praise, but that can make it too easy to believe everything is going well, so you must actively seek out different perspectives.

Now that I’m in this role, I realize the importance of this kind of transparency. I knew it before, I’ve supervised hundreds of employees and billions of dollars in business, but now that I’m in the CEO role, I can see it even more clearly.

NCUA’s budget and Operating Decisions

Credit unions have both formal and informal ways to present their views to the NCUA board.  One process was the recent 2024-25 budget hearing and subsequent comments submitted.

But will this process make a difference?  Or is it just political theater in which suggestions are requested, but then the Agency proceeds to do what it intended in the first place.

Eleven comment letters were sent to NCUA and posted on its website.  These five short excerpts reflect aspects of “truth” that these commentators believe should be considered at December’s budget approval meeting.

From VCUL:

We urge the agency to provide a more comprehensive and detailed explanation of the growing expenditures for the agency’s Modern Examination & Risk Identification Tool (MERIT). While we appreciate that a platform like MERIT is ever evolving and that its core building blocks will require ongoing maintenance and upgrades, we believe credit unions are rightly justified in demanding greater transparency regarding costs. The agency spent more than $54 million on MERIT’s development, with an additional $3 million budgeted in 2024 and 2025. It is fair to question the return on investment for both credit unions and the agency absent a more detailed explanation of program costs.

The second largest expense in the agency’s proposed 2024-2025 budget is Contracted Services.. . the actual cost for contracted services in 2024 is much higher and is estimated to be $70.1 million, but that cost is offset by the prior year’s unspent funds. If these unspent funds were not available, the total cost of these services would increase by $28.7 million, a 70% increase compared to 2023, an amount which is reflected in the proposed 2025 budget.

From OCUL:

The NCUA’s operating budget in 2010 was $201 million as compared to $382.1 million in this proposed operating budget. While the proposed 2024 operating budget is an 11% increase compared to 2023, it adds up to an overall 90% budget increase within the last fourteen years, far exceeding inflation rates over the same period. These year-over-year increases reveal an alarming pattern; a large and ongoing increase in credit union funding for ever-expanding NCUA spending.   

OCUL is concerned with the NCUA’s strategic choice to invest credit union funds for further staff expansion. . . the NCUA Board reported a mid-year surplus of $3.5 million that was subsequently used to hire additional staff; specifically, the NCUA sought to hire two (2) new Credit Union Resource Expansion (CURE) positions and four (4) new cybersecurity positions, with a projected cost of $1.6 million. Not only is the NCUA Board requesting to hire 28 positions, including 11 entirely new positions, and 13 additional consumer compliance specialists, which is an increase in examination time for consumer financial protection reviews equivalent to 11 examiners, this Budget now has to account for positions in 2023 that were hired with a budget surplus.

From ICUL:

Illinois state-chartered credit unions are subject to the Illinois Community Reinvestment Act (IL CRA) which will add a significant compliance burden and associated costs, in addition to significant examination fees. Credit unions are the original consumer advocates and already do the work to ensure its members, regardless of financial condition, have access to financial products and services at a fair price. The NCUA’s desire to add complexity to its existing consumer compliance examination is unnecessary, especially considering Illinois credit unions and many across the country are already facing additional scrutiny by its primary state regulator.

From CUNA:

The value credit unions deliver is disproportionately obvious among those who really need help. . . Today, the nation’s credit unions remain mission-focused: promoting financial wellbeing, delivering outstanding value, and providing helpful advice, especially to those of modest means.

The just-released Federal Reserve Survey of Consumer Finances, for example, shows that net worth in the consumer sector rose by a record 34 percent in the three years ending 2022. As a group, bank customer households now reflect mean net worth of $1.3 million and median net worth of $220,000; totals that are respectively 140 percent and 23 percent higher than the comparable measures within credit union member households.

From NAFCU:

The credit union industry is strong and well-capitalized. As of June 30, 2023, the industry’s net worth ratio was closing in on 11 percent and had risen over 40 basis points from a year prior. CAMELS rated 4 and 5 credit unions represented just 0.3 percent of total industry assets, a figure that is roughly half its pre-pandemic level. Thanks to strong loan growth in 2022 and rising investment yields, credit union net interest margins are up 40 basis points versus a year ago.

Will NCUA Listen and Align?

These are critical issues for Agency review. There were also two important points of context: the member mission of credit unions and the sound state of the industry.

Another observer made these comments about the underlying condition for a more responsive budget:

To change the budget, you must CHANGE the game – change the targets, the challenges must be new and raise the bar for the work.

If a group has no intentions to change the world, restart a fire, or set vision for something new, then there will not be anything new.

To change the budget, you need to inspire–put the spirit of “need better”, “deserve better” and “expect better” to ensure all segments of our industry do better.

To craft a better budget – the key is a willingness to rally the industry to want one, as the foundation for a better future and execution from top to bottom.

Only when NCUA is properly aligned with their audience,  mission and futures will all the players be working for a shared mission.

Is there leadership that will pick up the torch for others to follow-within NCUA or credit unions- on this ever-expanding use of credit union funds?

 

 

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Fall Colors

 

Burning Bush

Bethesda Tree

Last taste of summer sunflower

Logan berry

Autumn camellia

Pansies should winter over

Chrysanthemum

Leaves everywhere

European Hornbeam-last to shed

Fall’s endgame

 

 

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The Thanks in Giving

We give for many reasons and are better for it.

Poet Alberto Ross provides an understanding.

When Giving Is All We Have 

We give because someone gave to us.
We give because nobody gave to us.

We give because giving has changed us.
We give because giving could have changed us.

We have been better for it,
We have been wounded by it—

Giving has many faces: It is loud and quiet,
Big, though small, diamond in wood-nails.

Its story is old, the plot worn and the pages too,
But we read this book, anyway, over and again:

Giving is, first and every time, hand to hand,
Mine to yours, yours to mine.

You gave me blue and I gave you yellow.
Together we are simple green. You gave me

What you did not have, and I gave you
What I had to give—together, we made

Something greater from the difference.
 

One river gives its journey to the next.

A Teacher’s Story

 

 

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Abundance and Gratitude

The initial Thanksgiving story celebrates abundance.  The timing still coincides with the regular rhythms of bountiful harvests which have filled farmer’s storage elevators to capacity.

Times are good. The American economy grew the fastest of any major country in the third quarter.  Unemployment remains at historical lows and inflation is sinking.  Job openings still exceed available workers.

This harvest holiday combines services of Thanksgiving with opportunities to share  with those in need in our communities.  Locally, families who may participate in an early morning turkey trot race can then go to a food kitchen to serve others  in the afternoon.

It is important for our future together as Americans to see our society from a perspective of abundance, rather than an economy of scarcity.  Even when our consumer driven culture constantly tells  us we need more.

Perspective Matters

Abundance does not mean prosperity is equally or equitably shared.  But without a sense of our own well being, serving others easily becomes secondary.

Recently Callahans Trend Watch presented a 60+ set of data slides with commentary on the state of credit unions as of the third quarter.

The message repeated throughout was that the industry is sound and that trends are normalizing from the exaggerated levels due to COVID.

However not all listeners had the same interpretation.  The headline in one credit union report about the call was Callahan Shows Sharp Drop in Q3 Earnings for Credit Unions.   This news story of the one hour briefing included multiple use of the words down, fell or fell sharply, far below and lower.  The overall tone was one of angst:

Credit union’s loan balances grew. . . but the growth rate was down. . . One way credit unions have coped with tighter liquidity is through borrowing, which has tripled in the past two years. It still accounts for a small portion of assets, but that portion is growing.

This was  the opposite interpretation the presenters gave.  Here are some of the headlines from the data slides:

The loan to share ratio is returning to prepandemic highs

Credit union market share is growing in key areas

Share draft account penetration climbs steadily

Quarterly loan originations are on a par with previous levels

Repricing drives record increasing total revenue

Capital ratios improve from slower asset growth

Operational efficiency improves. . . etc.

“Never Enough”

There is a belief created by America’s market driven, consumer led economy that one can never have enough.  Consumerism in its extreme forms becomes an addiction where spending becomes a way to cope with all of life’s shortcomings.

It unfortunately  appears to be the logic of NCUA as it prepares its budgets for its role with credit unions.  In the NCUSIF board  update dialogue last week, the fact that the actual losses are less than $1.0 million, fund reserves at a level of four to five times the last five years actual total losses, made no difference.   Board members observed the CAMELS trends are negative and Black Swan events could be just around the corner.

The NCUA’s budget for the next two years shows increases of double digit spending.  It is driven by the belief that there are never enough resources even with a declining number of charters.  Spending, like consumerism, becomes an addiction not a response to reality.

A Story of Gratitude

How does one respond in a society whose marketplace messages are constant efforts to make one dissatisfied with their current situation, whether personal or with an organization’s future outcomes?

In February 1982 my family and I moved to Bethesda, MD from Illinois to serve at NCUA alongside Bucky Sebastian and Ed Callahan.

At that time one of Bethesda’s local residents was called the “bag lady.”  She walked pushing her shopping cart filled with plastic grocery bags, cardboard and  personal possessions throughout the downtown area.

When the weather was cold, raining or she just need to stay indoors for a night, she would somehow find a way into a church, right next to her downtown journeys.

Our family could walk to this local Bethesda Presbyterian church, where I sang in the choir on Sundays.  The bag lady’s frequent overnight visits were a topic of conversation about the church’s security.  The questions was, how did she always find another way to get in?  Weren’t we locking all the doors?

One Sunday morning as I came early for choir rehearsal, the minister was in the sanctuary placing the offering plates on the alter for the service.  I noticed as he put the top plate to one side of the cross he took something out and put it in his suit coat pocket.  I asked. “Oh did somebody forget to take the offering?”

I will never forget his response:  “No, that’s just the bag lady.  Every time she stays here she puts something in the offering plate. She has left hairpins, political campaign pins and even clothing buttons.”

This lady had little to none of the world’s possessions. However she still had one of the greatest gifts anyone can ever receive: gratitude.

When we celebrate the varied and numerous  blessings which we all enjoy, may we experience the gratefulness this person knew and shared.

 

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Belief and Understanding: A Lesson on Cooperatives

This past weekend I learned about leadership at a rehearsal for the Messiah.  No, this not a blog about harmony.

In Washington D.C. the National Presbyterian Church organizes an annual community choir to sing the Messiah’s Christmas story during the holiday.

The chorus has no auditions, entails five three-hour rehearsals and a full weekend of dress rehearsals and the public performance.   This ambitious, one time assembly is led by the Church’s  long time musical director  Michael Denham.

This year’s chorus will number about 120.  It includes people of all backgrounds, from different faith traditions and no church connection.  They join together for the joy of singing Handel’s oratorio in this season.

In addition to the disciplines of the music, stresses on notes, cut offs for phrases, tempi and dynamic level Denham will explain the importance of the text.   This past Saturday his description of what he was seeking musically has relevance to all of life.

The tenor soloist opens the Messiah with two arias.  The words are from Isiah:  Comfort Ye My People and Every Valley Shall be Exalted.  The chorus then enters to affirm the prophet’s message singing: And the Glory of the Lord.

The chorus’s words, from Isiah, assert the truth of the Isiah’s prophecy:   The glory of the Lord shall be revealed, and all flesh shall see it together.

Denham focused on the words we were singing.  They are affirming the message of the tenor’s arias.  The words say why this prophecy is true.     The chorus sings because, The mouth of the Lord hath spoken it.

Denham acknowledges the many spiritual and secular backgrounds of chorus members.  In singing these words his expectation was clear: “ I’m not asking you to believe the message, but I am asking you to understand what is being said.  The words have meaning.”

Belief and Understanding In Cooperative Leadership

The most important competency for a cooperative leader is their understanding of cooperative design and its advantages.   Without this “grasp” one will rely on habits learned in other professional roles:   banking, government service,  lobbying or perhaps non-profit experiences.

Ideally one hopes that understanding brings, in due course, belief in the purpose and roles enabled by cooperatives.

If a leader has only a superficial understanding based on generalities such as “people helping people” or “protecting the insurance fund,” then other management priorities, learned elsewhere, will dominate one’s goals:  power,  personal ambition, institutional growth.  Effectiveness is measured by criteria other than how members’ and community well-being is  advanced.

For example in NCUA’s public board meetings last week I listened for reference to cooperative differences when discussing the budget, the NCUSIF’s financials and the state of the industry.

I recall no comments referencing the advantages of cooperative differences and design.

The Cooperative Journey

Credit unions were meant to be apart from the  market driven, capitalist culture which dominates American society.  And many individual’s personal goals.

Coops are about a community or group’s collective efforts working together.

The results are intended to be paid forward for the benefit of future generations, not cashed out for  momentary personal profit.  This inherited legacy is often taken for granted.  New leaders forget how their institutional roots were planted.    They honor themselves for what they have accomplished rather than acknowledging the inheritance of others’ labors.

Understanding cooperative operations is about much more than the mechanics of a financial institution.  It takes time and experience to learn  the history and how an institution’s success is intimately intertwined with the relationships with the people who own it.

The primary goal of a credit union is not institutional achievement or market dominance but a place  where people can thrive and fulfill their dreams. That is not the ethos of capitalism where competition is about winning and losing, taking over one’s competitors, maximizing profit and outperforming the market.

Credit unions are about life lived in community.   The design facilitates self-help and awareness of shared purpose.

They are also institutions that facilitate gratitude and at special moments, celebrate the joys of life together.  Especially in this season.

This understanding is a journey.   It is not learned from books  or from courses and certainly not gained when one achieves a  leadership responsibility.   Familiarity with the credit union story is certainly helpful.  Skills with the mechanics of management are essential.

But belief in the power of cooperatives, like other beliefs, is an awareness that occurs over time.   It is sharing experiences with others and seeing their stewardship and in some cases, the impact of their life’s work.

When cooperative belief joins with understanding, the result can change the world.  For that capability we should be grateful. For in much of the world purpose is equated with individual success.  Whereas for cooperative credit unions meaning arises in community.  That is something for which we should all be thankful.

 

 

 

 

 

 

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Timeless Wisdom: Reverting Back and a State Contrast

After listening to yesterday’s NCUA board meeting, I recall this observation from a credit union leader who was a keen observer and co-op philosopher:

“The relationship between credit unions and the regulatory agency is one founded on mutual self-respect and the realization that both sides share equally in the responsibility for the survival and future development  of credit unions.

“It seemed as though we would never escape the attitude that the regulator knows best.  But a dramatic change has taken place in the last few years.  We now have a federal regulatory agency which openly concedes that credit union people know more about running credit unions than the agency does.

“The nature of the federal bureaucracy, being what it is, there will be a great amount of inertia to cause it to revert to a less creative and less cooperative approach to regulating credit unions.  I would not like to see this happen.”

Source: Frank Wielga, CEO Pennsylvania State Employees Credit Union, NCUA 1984 Annual Report, page 14.

An Alternative to NCUA

A state charter option is  an alternative to the ever increasing federal burden.

This is the description and public leadership of the Texas Credit Union Commission (CUD).  It supervises 160 state charters and $57 billion of assets:

The Credit Union Department (CUD) is the state agency that regulates and supervises credit unions chartered by the State of Texas. The Department is professionally accredited by the National Association of State Credit Union Supervisors (NASCUS) certifying that CUD maintains the highest standards and practices in state credit union supervision.

Our Mission is to safeguard the public interest, protect the interests of credit union members and promote public confidence in credit unions.

Credit Union Commission

The Commission is the policy making body for CUD. The Commission is a board of private citizens appointed by and responsible to the Governor of Texas. Members: Jim Minge, Chair Elizabeth L. “Liz” Bayless David Bleazard Karyn C. Brownlee Beckie Stockstill Cobb David F. Shurtz Kay Rankin-Swan.

Following is the Commission’s November 2023 guidance on consumer compliance.  It is a very different tone and approach from the debate of this topic at NCUA’s budget hearing yesterday.

Cultivating a Culture of Compliance and Service

As consumer-focused financial institutions, compliance with consumer protection laws sets minimum standards for member service. Developing a culture of compliance means paying attention to compliance and member service at all levels, from the front-line teller to the C-suites of your credit union.

At the Credit Union Department, one of our functions is to process member complaints related to their credit unions. Many of these complaints could have been avoided with a culture of compliance and member service.

Last year we processed 515 complaints, and of those, 156 (over 25%), involved disputes related to fraud or billing errors, by far our largest segment. A robust, member focused, dispute resolution process as required by Regulation E (debit cards, ACH) and Z (credit cards) would have prevented many of these complaints.

Another area of common member complaints surrounds vehicle loans. Many disputes involve the member being pressured by the car dealer to purchase a more expensive vehicle or add-ons such as warranties and insurance without adequate time to consider the costs and need for the products.

Credit Unions should be aware of implications of consumer protection holder rules, where loans originated by a dealer, subsequently assigned to credit unions, are subject to being offset by claims of the borrower against the dealer. See Holder in Due Course Rule | Federal Trade Commission (ftc.gov).

Understanding the requirements of consumer protection rules related to serving credit union members goes a long way, not only in preventing complaints, but limiting losses.

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A Reader Writes on Mergers and Group Think

I  have written several  posts critical of merger rhetoric and the lack of any shared or concrete member value.

A senior executive who  participated in one of these events sent his reaction, which he asked remain anonymous:

My current belief (call it a strong opinion, loosely held ala Jeff Bezos) is that credit unions need to progress while returning to basics. Progress with less traditional banking/teller line activity, prioritize financial wellness and remote banking experiences. Return to basics with more transparency, increased collaboration and innovation.

It seems to me that in the pursuit of progress, the trend is to become tight-lipped. The other undeniable trend is the belief that scale is absolutely necessary and that the only viable method to scale is to merge/acquire. I don’t agree with the trends, but I don’t have anyone around me who seems capable of an open debate on the matters. 

Our greatest threat today, IMO, is group think.  Well…At least I hope you don’t mind me keeping the conversation going with you.  Currently, I have to stay off the record here.  I want you to know that I’m reading…and learning.  

Group Think & Credit Union’s Future

When internal staff are uncomfortable with the direction of their credit union, this is a sign those closest to the action see  problems.  But it is hard to speak up against a leaders who do not encourage dialogue, let alone dissent.

CUToday publishes periodic updates on proposed mergers with the details sent NCUA. Most are well-capitalized, many are small, but focused. Below is one data point that especially stuck out from each merger summary:

Name                                                Charter Date

Freedom Community CU, Fargo, ND:    1954

Mt. Carmel Church FCU, Houston, TX:   1954

Virginia Trailways FCU, Charlottesville, VA: 1949

Airco FCU, Pasadena, CA:      1957

Mt. Lebanon FCU, Pittsburgh, PA:  1936

Parkside CU, Westland, MI:   1953

United Methodist of MS FCU, Booneville, MS 1961

Elevator FCU, Olive Branch, MS:  1967

G.P.M. FCU, San Antonio, TX:  1970

Our Sunday Visitor Employees FCU, Huntington, IN: 1968

Lubbock Telco FCU, Lubbock, TX:  1940

The list goes on.  These credit unions have navigated  multiple economic crisis, technology evolutions, deregulation and regulatory backlash.

Yet their leaders have given up, even with strong balance sheets and decades of member participation.

These are not financial failures.  They are failures of morale.  The greatest threat to the coop system is not external, but internal.  The belief that the legacy of multiple generations of human investment they inherited, no longer matters.

Like any behavior, the more the pattern of giving up occurs,  the more acceptable the option appears.   Ed Callahan described this challenge as the danger of self-fulfilling prophecies.  If you think your team can’t win, you will probably lose.

The concern above was from a career professional about his credit union and group think.  To address his worry, he is looking for leaders who believe in the advantages of cooperative design.  And who realize it every day to further the legacy their predecessors handed to them.

FDR observed,  “Humans are not prisoners of fate, but only prisoners of their own minds.”  What better time for leadership that believes in creating the future, rather than surrendering to  “tight-lipped group think.”

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NCUA’s 2024/5 Budget and the Impulse to Spend

Recently I visited Bentonville, AR the home of Walmart.  There is a Walmart Museum that provides a history of the company.  Included is a hologram figure of founder Sam Walton who will answer questions, using an AI program, that  visitors may ask.

One  posed this query to Sam’s artificial reincarnation, “Are you cheap?” referring to the Walmart’s tagline,  “Always low Prices.”

Sam response started with his operating habits as the founding CEO. When he started the company they did everything possible to control costs, including sleeping two to a hotel room when traveling and always eating at low cost restaurants.

His reasoning was “Every dollar we save, stays in the customer’s pocket.”

Corporate America and Expense Control After the COVID Bounty

Both consumers and business benefitted from the government’s largess funding COVID programs to ensure the economy did not stop as people stayed home and commerce shut down.  That era is over. Inflation resulting from stimulus spending became the economic priority in the fall of 2022.  The political fight in Congress is now how to control or even reduce, government spending.

Company’s are seeing that consumers are once again aware of higher prices, and cutting back.

Layoffs of staff, even at some credit unions, are part of quarterly earnings updates and future projections.

One example is the turnaround by Spotify which returned to profitability for the first time since 2021 in this year’s third quarter.   Their monthly active users increased 26% (2 million more ) and income hit $34 million in the latest quarter.  The reason?

The company kept costs tight.  The CEO Daniel Ek said they had laid off 6% of their employees and raised prices.  His rationale: “We are still focusing on efficiencies, but efficiencies for us doesn’t mean just cost cutting, it means getting more out of each dollar.”

The Federal Government ‘s Institutional Spending Predisposition

 

The forces that drive CEO’s such as Walton and Ek to “get more out of each dollar” come from  competitive market forces.  These forces do not exist for government agencies.  In some state and municipal governments, legal constraints require a balanced budget.  But there is no such limit on deficit spending by the federal government or its separately funded agencies.

One result is that success in federal performance is measured by a department or agency’s spending authority and staff size.  The larger the spend, the more that good works that can be done.  Effectiveness is equated with resources deployed.  Government’s response to challenges and/ or service issues is based on the belief that more money is necessary to resolve all goals.

This institutional belief in ever more spending is part of NCUA’s culture as well.  There is no Congressional appropriation. The board can approve whatever increases two of the three political appointees agree upon.  The board is all powerful in setting the operating fees and internal transfers needed to fund the increases they approve.  No check and balance exists.

However this administrative habit of open-ended spending was not always the case.

In December 1984, the headline in the NCUA News read, FCU Operating Fee slashed 24% with the sub title announcing:  “Brings Cuts to 64% Over Three Years.”   This outcome was because the agency reduced its operating budget for three consecutive years.

Two examples of savings for credit unions were given in the article.  For a small Ft. Shafter  FCU the fee was reduced from $8,765 in 1982 to $4,587 three years later.  For the largest credit union, Navy FCU, the fee fell from $403, 503 to $295,481.

The result was to keep credit union money for members’ benefit.

How the Cost Savings Were Achieved

Under President Carter the administration had tried to implement zero based budgeting in an attempt to control ever increasing government spending.  It didn’t work.

At NCUA the expense reduction  was a result of how the agency was administered.  This is Chairman Callahan’s explanation in the NCUA’s 1982 Annual Report.

I want to report to you on decentralization because I think that ties in with regulation.  We had a very strong Central office, a very talented Central office and one that developed over time for very good reasons, I’m sure.  But as I viewed it, it had become so talented and so strong that the very mundane operational things that our field people tried to do got caught up in this pipeline—this pipeline of talent and centralization in Washington.  Seldom did things come out the other end in a very efficient manner.

Everyone was overdoing their job; so we found that decentralization was the answer. We found it necessary to cut the size of the Washington office by a third an to rechannel these resources to the field and to delegate to the Regional Directors the responsibility for using these resources in a timely way to get the exam cycle down to an annual one. . . to give back up information to the field examiners . . . and to make those decisions right on-site that involve safety and soundness, chartering and supervision.  (page 45)

The Washington office was reduced from eight Departments to two offices. The head count went from 207 in fiscal 1981 to 135 in 1982, a reduction of 72 positions.   Overall headcount was reduced by 97 but field examiners were at the highest level of staffing in five years representing 57% of the workforce, a total examiner force of 400 positions.

1982 was the first year operating expenses declined in the agency’s history.  At yearend the agency had examined all 11,120 FCU’s plus 18 Federal corporates.   From 1982 through 1985, the credit union system reported double digit growth in shares and loans.    As summed up in the 1984 Annual Report, NCUAs administrative approach was “More Service for Fewer Dollars.”

The agency’s culture was based on management performance and outcomes, not bureaucratic resource accumulation.  The dominance and slow response described by Chairman Callahan of the NCUA’s Washington office in 1982, feels similar to anyone trying to get an answer today.

NCUA’s 2024/5 Budget Hearing on Thursday

At a public meeting on Thursday afternoon, the credit union system can present comments on NCUA’s staff drafted 2024-25budget.    The 64 page staff draft shows an 11% operating increase from the current year to $382 million in 2024.

The third quarter results presented in Callahan’s Trend Watch update showed the credit union system returning to a normal level of performance outcomes following the extreme growth and historically low market interest rates (near zero) due to government’s COVID response.   This is a return to the long term traditional cyclical range of credit union balance sheet growth, moderate earnings and asset quality.

The NCUSIF as an example is well resourced. At September 2023 it reports a net recovery in reserve for losses of $6.5 million.  The loss reserve of $214 million is the highest level in ten years (since 2013).   The ratio to insured shares represents a level of loss that is almost five times the actual net cash losses reported in the last five years.

And yet the agency wants more.  The current proposal for double digit budget increases is a function of agency ego, not industry circumstance.