Author: Chip Filson

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2025: The  Most Important Annual Meeting Your Credit May Ever Hold

Bylaws require every credit union to hold an annual meeting.  The agenda includes reports by the Chair, CEO, other timely updates and the election of directors for open seats on the board.

In many credit unions this event is purely administrative and perfunctory. It is merely a compliance task, carefully managed to end quickly, and to avoid any real member dialogue.

Such an approach this year could be the most costly political mistake a credit union could make with its members. Here’s why:

The future of the federal regulatory system is being overhauled for greater efficiency,  simpler design and more direct White House control.  No more  independent agency policy making.  One example of a question being raised is whether the  government should have two separate deposit insurance funds.

Influencing Political Outcomes

Credit unions, like most industries, have deployed traditional lobbying capabilities to counter political risks to their operations. These common tactics include raising more PAC dollars, hiring lobbyists with ties to those in office, funding PR campaigns, etc.

Credit unions will never outspend or out-hire their opponents.  Money is not the source of their political influence in DC or in their respective states.

Consultant and former OCC examiner Ancin Cooley offers this assessment:

In reflecting on the history of the credit union movement, one fact stands out: our strength has always been rooted in our members and communities. . .While political wins and advocacy play a role, we must never lose sight of our true source of standing. . .our focus should be on empowering our members and meeting their needs.

Activating Member-Owners

People’s voices and votes are the ultimate power in a democracy.  The first call to action with members should be in the upcoming annual meetings. To make this event a rallying cry, the traditional approach must be rethought. However,  this is not a new challenge.

In March 2023 Silicon Valley and two other banks failed in quick succession as the  Federal Reserve increased interest rates.  Many credit unions instantly changed their meeting’s  scripts.  In one I attended, the CEO after summarizing the prior year’s performance, pivoted to explain why her credit union and the industry generally did not have similar problems.

The message was to assure members their funds were safe.  Do nothing and trust your credit union.

This time the message is quite different. The  challenge is to educate members about changes being considered and ask them to act, not just stay the course.  Member-owners contacting their congressional representatives, en masse, is the most powerful influence on political behavior.

1998-The Year of Member Action

In 1998 the Supreme Court ruled in favor of a banking challenge to changes NCUA made in its field of membership regulations in the early 1980’s.  If implemented, the decision would have limited credit unions to their original, or a single, field of membership.  The law the Court interpreted had to be changed and fast.

One of the means to both engage and empower members was a newly created website called The Committee of 70 Million. The name was an echo of Revolutionary War grass roots organizations.

It was created by Scott Patterson, a recently hired techie at Callahan & Associates.  Although the country and credit unions were in an early phase of the Internet era, with social media still unknown, this platform could be linked to every credit union on the Internet.

The site explained the what was at stake and suggested multiple ways members could reach out to their congressional representatives.  Here are six slides from a much longer review in 2001 of the site’s options, information and impact.

The site was then adapted for voting in the Presidential election year 2000.

The Status Quo Is No Longer

Trump promised total disruption of the federal government bureaucracy.  He is on course. Now is the time for mobilizing member-owners.

The annual meeting should be converted to a town hall format. This is an opportunity to connect and  inform about the political changes.  The members’ questions and reactions can be used to plan next steps. After all, it is likely 50% or more voted for Trump’s message.

Credit unions must gain members’ respect and trust for the steps you will propose.  The most important message however,  is that this is not just another political fire drill.

Note: To receive the full slide deck, contact Scott Patterson at spatterson@gmail.com.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Tomorrow’s Critical NCUA Board Meeting:  An Opportunity to Demonstrate the Strength of an Independent Cooperative System

The prime agenda item for Thursday’s NCUA board is the NCUSIF’s year end audit and setting the NOL cap for December 2025.  The political context in Washington at this moment makes this  meeting critically important.

Will the public discussion reinforce the understanding of the Fund’s  extraordinary performance and its unique  cooperative design?   Will its decade long performance of insured losses below a basis point, confirm its critical role in credit union’s unique purpose in America’s financial system?

The Political Context

The 2024 external CPA  audit was released last week.   It continues to show the financial stability of the cooperative system and the strength of its unique deposit insurance model.

This track record  is especially vital in this time of an administration challenging all aspects of federal agency performance.  This includes the federal regulatory structures, including FDIC’s oversight. For some the NCUSIF’s functions appear quite similar.  Could its future also hang in the balance?

It will be vital that the Fund’s uniqueness be affirmed during this update.  Especially these three characteristics:

  • A unique funding model; Every credit union member contributes directly 1 cent of their insured savings dollars to the NCUSIF’s 1% deposit base.  This member-centric capitalization is a direct copy of cooperative business design.
  • Explicit statutory guardrails on fund performance: There is complete and timely transparent reporting marked by the annual  independent CPA audit and monthly public financial postings.   Statutory limits are provided on total balances and a dividend paid to the owners, when this CAP is exceeded. Premium assessments in the event of catastrophic events, are clearly defined.  Premiums have been used only three times in the fund’s 40 year history.
  • The right to withdraw. If a credit union changes its charter or insurer their accumulated 1% deposit is returned. All 1%  deposits are returned if NCUA ceases to manage the fund.

How Board members present the NCUSIF’s demonstrated financial success may be crucial to its continued independence, not to mention NCUA’s.  If credit unions lose their fund in a regulatory realignment, would the singular credit union system be far behind?

Key Performance Issues

We knew yearend 2024 financial outcomes would be superb based on the November 21, 2024 NCUSIF board update as of September 30.  The yearend equity ratio is above .302%  showing the importance of the NOL cap. If it had been at its longtime cap of 1.3%, credit unions could have received a small dividend for 2024.

Will the Board’s discussion of this and other topics be anchored by full transparency, supported by real facts and the historical record versus hypothetical conjecturing?

The fund’s effectiveness is not based on its total assets, but rather, as in all insurance underwriting,  its size to relative to insured risk.  For example, the allowance account at $237 million is set aside from retained earnings.  It equals 1.3 basis points of insured savings at yearend.  Only once in the past ten years have total cash insured expense losses exceeded reserve level.

Specific areas of importance for board oversight include:

  1. How will the NOL cap for December 2025 be set? This limit triggers a dividend when earnings raise the yearend ratio above this number. There was no data provided when the Board set the NOL for 2024.  It simply extended the prior year’s limit,  no analysis provided. Even the detailed assumptions used by staff in the prior two years did not support their 1.33% recommendation. Will  real numbers be provided with full details of any hypothetical assumptions? Or, might the board simply endorse the historical 1.3% cap used in the first 33 years following its redesign?
  2. The greatest internal risk to the Fund’s effectiveness is the management of its $23 billion investment portfolio. Since December 2022, the portfolio’s maket value  has been less than its book, that is underwater.   The portfolio’s 2024 full year return is 2.5%. The overnight cash portion yields  approximately 4.5%.  The below book term portfolio earned just 1.92%.

Yet the fund continues to invest long in November, extending its duration risk, at a time of a reset in what a normal yield environemnt may be.  To sustain the Fund’s equity ratio a yield between 2.5-3.0% is necessary based on 40 years of actual operating results. The critical topic is what will the board require to improve the Fund’s interest rate risk management and turn around this continuing portfolio underperformance?

  1. The fund’s transparency is critical to its public credibility and trust. The allowance account is determined using an “internal econometric model.”   The model’s details and assumptions should be included in the staff’s presentation.

The continued use of Federal, not private GAP accounting misleads, mischaracterizes and  distorts the fund’s actual financial standing.  The terminology and schedules used with the Fund’s accounts are totally irrelevant since the NCUSIF is not an appropriated entity.

Federal GAAP removes specific information accounts from the NCUSIF’s financial statements.  For example is the portfolio’s actual value $22 or $23 billion?  Where is the net income total?  Or  retained earnings?  These traditional GAP terms do not appear.

The federal terms and schedules used are not relevant for the NCUSIF and convey an incorrect impression that the NCUSIF is somehow a federally appropriated fund. Or red meat for an uninformed DOGE analyst.

At a minimum private GAP financial statements presentation should be presented alongside the Federal GAP.  For private GAP is how all three of NCUA’s other managed funds are presented.

I am looking forward to the meeting.   Every credit union should as well.

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The Challenge from Within-the Exploitation of Mergers by Credit Union CEO’s

Often events for good or otherwise are quickly forgotten.  Deeds are overwhelmed by subsequent activity.  We want to live in the present, project hope into the future, and allow the past to stay there.

The following is a situation of self-dealing where all the principals are doing their best to help us forget.

The circumstances of the $634 million Finance Center (FCCU) merger with Valley Strong was analyzed in A theft of $10 million or Just Spreading Goodwill, You be the Judge.  (January 26, 2022)

The two credit unions’ main offices were 240 miles apart.  Prior to the merger, FCCU had reported member capital of over $100 million (17% net worth), a falling loan to asset ratio which at points were below its net worth ratio.  The two primary executives, the CEO Michael Duffy and the COO Nora Stroh were brother and sister.  They had been in these leadership role since the early 1990’s, They had paid themselves over $1.0 million in compensation in several years prior to the merger. CEO Duffy also served on FCCU’s five-person board.

The member’s Merger Notice contained all the rhetorical promises (consolidation of energy and resources) for a future of better products and expanded services. Bonuses for FCCU’s five senior executives and future employment prospects were presented.

A complicated formula for a member dividend from the credit union’s $100 million net worth was outlined.  And, the diversion of $10 million to a non-profit newly organized by CEO Michael Duffy and FCCU’s board Chair Morales, with a ten-year Valley Strong funding commitment of $2.5 million, was presented as a merger benefit.

Post Merger Events

Two years later in January 2024 I wrote a follow up story: The  Pied Piper of Area Code 209 or What Happened to the FCCU Members $10 Million?

Part II of the analysis detailed the immediate fall in  Valley Strong’s financial performance, the $800,000 in merger bonus payments to four FCCU’s  senior executives with their continued “employment” at Valley strong.  Their salaries ranged from $353,000 to $1.088 million.

The blog also  presented the financial filng of the newly created FCCU2 charity from its initial IRS 990 report. Part II The Pied Piper of Stockton.  (February 1, 2024)

In a Game with No Rules (February 2, 2024) two FCCU member’s comments critiquing the merger’s premise and  “giving away the member’s $10 million”  showed the reality from the owners’ perspective.

California and NCUA regulatory approvals were critiqued.  Their combined inaction was more harmful than mere benign neglect. The cooperative system’s fundamental soundness was being compromised.  I asserted that credit union mergers have become a game without rules. Longtime, sound credit unions were being transferred out of existence where the only concrete benefits  were for the CEO and senior staff who initiated the transaction.

The Continued Self Dealing

The CEO, senior executives and board of FCCU negotiated the merger of their overcapitalized institution in return for $800,000 of immediate bonuses and continued employment in vacuous  responsibilities (Chief advocacy Officer, Legacy Ambassador). The undisclosed terms  of their future employment compensation and benefits resulted in  their receiving $2.5 million in 2022, per the IRS 990 form filed by Valley Strong.

These five senior executives gave up all leadership roles and accountabilities. They no longer report to a board and their performance is not subject to external examination or audits.  The team which they supposedly joined is 240 miles distant (Stockton to Bakersfield). But their full pay and more continued.

This continuing compensation was in addition to receiving the benefits from retirement plans they previously awarded themselves in FCCU and reported in the IRS 990 filings.

The FCCU2 Foundation Becomes The 54 Fund

Old habits are hard to change. The continued self-dealing, clothed in philanthropic disguise as evidenced in FCCU’s final years, continues with the diverted $10 million (sic) in members’ equity.

In 2022, the first full year of activity by the newly created 501C3, we learned the following as described in The Pied Piper, Part III:

  • Almost $12 million, not the Member Notice amount $10 million, was diverted to the Fund;
  • The Fund’s name was changed from FCCU2 to The 54 Fund, distancing itself from its credit union origins;
  • The address is no longer at the former credit union’s main office, but 2616 Pacific Avenue #4081. It is a box at the local post office.
  • The fund received a $250,00 grant from Valley Strong CU and dividends and interest income of $118.7K (a return of .99% on its $12 million in assets)
  • Total charitable donations were $272.5K to 86 local 501 (C) 3’s. That total was much less than the  salary that each of the five FCCU executives received individually from Valley Strong.
  • For each $1.00 donated, The 54 Fund reported $.38 cents in expenses.
  • The 54 Fund’s nine directors were all from the merged credit union: Three former senior FCCU employees, five former directors and Mary Webb, no previous connection noted.
  • A former FCCU director Ed Figeroa was paid a salary of $46,667 and is listed working 40 hours per week. He had recently retired as CEO of St. Mary’s Dining Room.

The2023 IRS Filings for The 54 Fund and Valley Strong

In the continuing credit union Valley Strong’s 2023 IRS return, three former FCCU senior executives were still on the payroll earning the following:  Nora Stroh $1.662 million; Steve Liega $1.311 million; and Michael Duffy $1.021 million. The two senior “at will” FCCU employees in 2022 were no longer listed.

Stroh’s total compensation was the highest of any credit union employee, and Liega’s the third highest just behind Valley Strong’s CEO.  Both former FCCU executives had unusual compensation \structures.  Each received salaries less than the prior year 2022. In Valley’s 990 Schedule O listing,  Stroh received other reportable compensation of $ 1.332 million and Liega, $971.537.

No other of the 39 Valley Strong employees listed any amount close tp these numbers. This unusual compensation suggests a transfer of some asset other than normal salary/benefits and bonus  cash payments.

Even with the two “at will” FCCU employees gone, the three remaining at Valley Strong received  total compensation of $3.994 million . That amount was $1.473 million greater than all five together earned in 2022.  None of this post merger largess was disclosed in the Member notice as is required by NCUA rules.

Charitable Data Just Once per Year

The effort to transform the FCCU 2 foundation into a non-public, inaccessible entity continued in 2023.  IRS filings are required only once per year, often filed late into the next reporting period.

Here are summary totals from The 54 Fund’s first three years filings. 2023’s is the  most recent we have.

  Year Assets Y/E Income Expenses Grants
  2021 $11.974 M $19.7 K $5.2 K $0
  2022 $12.058 M $368.7 K $106 K $272.5 K
  2023 $13.302 M $592.1 K(1) $222 K $438.5 K

(1) Revenue before deducting a $157.5K loss on sale of investments.

As part of its “going dark” operations, the Fund affirms in IRS Part XIV 2 that “the foundation only makes contributions to preselected charitable organizations and does not accept unsolicited requests for funds.”   

The Fund has no office or web site. When calling the the telephone listed a recording says an answering machine has not been connected.  All directors and the books and records are reportedly held at the single post office box address.  It must be a very big box!

I could find no public information about ithe Fund’s activities other than the listing of donations in the IRS filings.   I would surmise that many Stockton recipients would be grateful for these annual tokens  of manna from this minimalist financial resurrection by FCCU’s former leadership team.

Despite this ongoing lack of pubic information, an analysis of 2023’s filing shows:

  • The fund spent 50 cents in administrative costs for every $1 donated to a charity, up from 38 cents in 2022.
  • The Fund’s full time employee, Ed Figeroa received total compensation of $110K or two times his  earnings in 2022.
  • The fund reported cash interest and dividends  on its average investment monthly balance of $12,6 million  of 2.7%. After subtracting an investment sale loss of  $157.5K, the cash return is 1.8%,
  • However, the Fund reports its portfolio’s market valuation increased by $1.5 million, This gain accounts for almost all the growth in Fund assets.
  • Because the Fund uses cash accounting, the minimum 5% IRS distribution calculation includes only cash received, not the total portfolio valuation. The Fund’s contribution requirement  was $625K in 2023. It used only $24K of this amount along with the unused  balance of $584K from  2022 to comply with the 2023 distribution test.  It carried pver to 2024 the balance of $600K left undonated from 2023.
  • The Fund’s $115k increase in operating expenses includes, besides doubling its one salary, expenses including events of $28.3K and office and software expense of $5.6K although no physical office address is listed.

In summary, the Fund distributes only the bare minimum required by the  5% IRS test. It grew total assets by over $1.3 million from increases in the market value of investments. Operating expenses rose at a faster pace than contributions.

The Ten Year Plan

The Fund has received two $250,000 initial payments from Valley Strong as part of a ten-year $2.5 million pledge reported in the Member Notice.   This planning suggests he Fund never intended to distribute all of its assets.  Instead it has become a personal petty cash account for a rump group of former FCCU leaders to further an impression of public philanthropy-with members money.

The 54 Fund’s financial giving meets only the minimum IRS contribution requirements.  This charity is a closely held, unelected, private entity with no public accountability. The former CEO of FCCU keep the books. His self selected previos directors make all decisions.  The purpose continues their pevious public performance as Stockton philanthropists.  But it is not their money they use but the former member owners of Finance Center Credit Union which they closed down.

Similar to the final five years of the credit union’s operations,  the Fund has became a personal platform for promoting Michael Duffy.  It is not resolving the needs of the former member-owners of the credit union or the Stockton community with its multiple, tiny token grants.

FCCU’s senior executives and board negotiated a merger that rewarded their own self interest, not the members’ well being. The 2023 extraordinary compensation Valley Srong paid to two of the former FCCU senior executives was not disclosed in the Member Notice.   This failure was on top of the additional $2.0 million sent to the new Fund versus the $10 million listed in the Notice.

A Continuing Failure of Fiduciary Responsibility

This continuing saga of self-dealing was designed by the CEO of FCCU, but was enabled by the Valley Strong Board and CEO.  They only had eyes on the prize of free capital and a $630 million asset transfer.  The inaction of NCUA and California state regulators who approved this deeply cynical transaction is a critical failure of supervisory responsibility.

Cooperative mergers, for a number of CEO’s, have become a Game with No Rules.  It is whatever one can get away with in private deal making.  There is no added value for members. just future promises. Board members  approve these transactions and payments oblivious to their fiduciary obligations.  The process of members voting is nothing more than a sham. Regulators routinely approve communications that lack any meaningful substantive disclosures.  Those who benefit from the event control the entire member manipulated voting approval.

When is Enough, Enough?

This continuing blight on the cooperative system undermines the  basic foundation for the soundness of any financial system: the trust of the users.

This is however an opportunity for cooperative leaders to demonstrate both moral and common sense clarity. Who wlll stand up and say “enough is enough”?

Without leaders’ voices, this  rampage will continue. The  future of an alternative cooperative system is at stake.  But not from political change from DC, but rather from internal decay.

Some credit unions act out the belief that their future is the same as that of the for profit, self-interested commercial competitors. But this internal corruption is only succeeds until members see the reality behind these tortured transaction. Their response may be either fire (anger) or ice (apathy).  Both are equally fatal to the member-owned model.

 

 

 

 

 

 

 

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The World’s Solidarity with Ukraine-A Time of Moral Clarity

Note: Because of embedded video links and pictures, this post is best read in the browser format)

Three years ago today Russia invaded the independent country of Ukraine.

The attack’s intent and the expectation of many outsiders was that the country would be subjugated in a matter of days, or at most, weeks.

Three years later, Ukraine has shown the incredible resilience of people willing to sacrifice for their country’s freedom.

The fog of war, time, elections and competing  events have clouded the perceptions of some about the largest conflict on the European continent since WW II..

In this current moment of uncertainty about the war’s end, we must state the obvious:  Ukraine has won.  They have fought the second largest army in the world to a standstill.  Their nation’s courage has earned them the respect of freedom loving people the world over.

Their determination against overwhelming odds inspires all persons yearning for freedom the will to prevail.  Most importantly, Ukraine’s fight is protecting all other democracies in Europe from Russian imperialism.

Putin’s quarter century dictatorial reign is at great risk. Russia is desperate for a ceasefire. Its central bank rate is 21% and its inflation 9%. Between 900,000 and a million troops have been killed and wounded.  An estimated 25 to 30 of its oil refineries have been hit and disabled. Economic change is frozen by sanctions.

And Ukraine’s democratically engaged population has shown the Russian people the need to rediscover their humanity and self-determination.  The example of the Ukrainian people’s revolution  is why Putin began this conflict.

Following are scenes from three years of total war showing clearly what the world understood then, and is still the reality today.

Taking a Stand: “I Am Here”

Zelensky’s words days after Russia’s direct attack on Kiev:  I am here. I don’t need a ride; I need ammunition. 

(https://www.youtube.com/watch?v=z3cU9d9ciY4)

Moral Clarity Across the Nation

Om February 28, 2022, New York’s Metropolitan Opera opened its performance by singing Ukraine’s National Anthem. The sole person without music, hand on heart, is a Ukrainian. One of hundreds of spontaneous presentations showing the American public’s support.

(https://abcnews.go.com/WNT/video/us-world-show-solidarity-ukraine-83215195)

The Sacrifices

A  soldier and his wife await their first child.

Citizen Soldiers

A civilian engineer builds drones for the front line.

A Shared National Anthem

Opening day at Wrigley Field, Chicago 2022.

(https://www.youtube.com/watch?v=59k-qONWAlc)

Generations Honor Each Other

Soldiers on recuperation receive sunflowers.

The National Cemetery

A Stamp Honoring Defender’s Defiance on Snake Island

An Underground School in the Kiev Metro

Overnight Destruction

A Wartime Playground

In the first days, civilians practice with wooden guns, until the real ones are available.

Citizens create a roadblock on a road that leads to the Zaporizhzhya Nuclear Power Plant, in Enerhodar, Ukraine, March 2, 2022.

Sudden Death

– A relative knees by the body of a teenager who died in a Russian missile strike at a bus stop in Saltivka, a northern district of the second largest Ukrainian city of Kharkiv on July 20, 2022 amid the Russian invasion of Ukraine. (Photo by SERGEY BOBOK / AFP) (Photo by SERGEY BOBOK/AFP via Getty Images)
KYIV, UKRAINE – OCTOBER 17: A Ukrainian soldier rests on the sidewalk after the Russian attacks in Kyiv, Ukraine on October 17, 2022. It was reported that two separate explosions occurred in Kyiv due to the attacks carried out by the Russian forces in the early hours of the morning. (Photo by Metin Aktas/Anadolu Agency via Getty Images)

A Soldier Holds Out in the Azovstal Steel Plant

The siege of the Azovstal steel plant in Mariupol, Ukraine was a key part of Russia’s invasion of Ukraine in 2022. The plant was a symbol of Ukrainian resistance and the last holdout in Mariupol before the city fell to Russian forces. 

Twenty seven funerals

DNIPRO, UKRAINE – JUNE 3: The funeral ceremony for 27 Ukrainian serviceman who died fighting with the Russians in the eastern front-line, in the military part of Krasnopilske cemetery in Dnipro, Ukraine, on June 3, 2022. 12 of the Ukrainian soldiers were buried unidentified.
(Photo by Wojciech Grzedzinski/ for The Washington Post via Getty Images)
BAKHMUT, UKRAINE – DECEMBER 5: A Ukrainian soldier, heavily wounded in conflicts within Russian-Ukrainian war, waits to receive medical treatment at Bakhmut Hospital in Bakhmut, Donetsk Oblast, Ukraine on December 5, 2022. (Photo by Metin Aktas/Anadolu Agency via Getty Images)

Evacuating a Pregnant Women from a Bombed Hospital

Christmas in Wartime

A Patriot’s Portrait by Noah Regan

Russian Dictators

Civilian Rescues

Ukrainian Flag in the Sanctuary of Chevy Chase Pesbyterian Church, Washington DC 2022

We Support Ukraine Yard Signs in America

Washington National Cathedral Honors Ukraine 2022

Putin’s Reality by TIME

European Countries Boycott Russian Products

Our Flag is Still There

BORODYANKA, UKRAINE – 2022/04/17: View of a damaged residential area in the city of Borodyanka, northwest of the Ukrainian capital Kyiv. In Borodyanka in the Kiev region, rescuers pulled out the bodies of 41 dead from under the rubble. This was reported by the press center of the State Service of Ukraine for Emergency Situations. Russia invaded Ukraine on 24 February 2022, triggering the largest military attack in Europe since World War II. (Photo by Sergei Chuzavkov/SOPA Images/LightRocket via Getty Images)

Music Mission Kiev Women’s Chorus Concert in Alexandria, VA (2024)

Bridge gone.  Helping civilians to safety.

Treating the  wounded: “Talk to Me”

Ukrainian Language school in Bethesda, MD

A country whose people’s spirit will never be broken.

(https://www.youtube.com/watch?v=sgTI8FPwW0Q)

 

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An Ukrainian Responds to Trump’s Terms for a Ceasefire

One US analyst described Trump’s public support for Russia’s terms for a ceasefire as follows:

Putin gets the domestic glory he craves and lets him save face by winning a war that would’ve likely outlived him.

Plus he gets 19% of Ukraine — over 43,000 square miles (27 million acres), capturing a significant chunk of Ukraine’s railway network, power plants, pipelines, military bases, heavy industry, tons of anthracite coal, vital Black Sea ports on Crimea, and a big fat buffer zone with non-NATO Ukraine.

Following is the response by the editor-in-chief of the Kiev Independent addressing Trump’s about face in America’s support for Ukraine’s freedom.

Her words portray the courage, character and resilience of a nation that will be free.  Plus the hope from three years of sacrifice that inspires her fellow citizens today.

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Big Topics-Brief Thoughts

Five observations on  credit union subjects.

From Steve Jobs on credit unions:

“While many economic and social factors weigh into the success of a credit union, I’ve seen first hand the difference a passionate team can make on the bottom line. The most successful credit unions we’ve worked with have not had the best marketing, they haven’t had the most college degrees in one room, nor have they had the best circumstances.

The credit unions, which have the most success, are winning because they personally believe in their credit union. They have a mission statement and a vision they are passionate about. Their members are friends and family. 

“If you don’t love something, you’re not going to go the extra mile, work the extra weekend, challenge the status quo as much. What separates the good credit unions from the great credit unions? Culture. Vision. Passion.” (Source: SECU Just Asking)

From Mark Arnold on leaders:  Jim Collins found that great companies build leadership from within. He goes on to say, “Visionary companies develop, promote and carefully select managerial talent grown from inside the company to a greater degree.”

From a CSIS panel discussion on current government reform efforts:

I led two major reviews in 1999 and 2011 of top down reform experience around the world. Of the many lessons I learned, two stood out: the process of reform is as determinant of the outcome as the goals of reform. Even the best-designed civil service reforms falter when national leaders fail to lay out an affirmative vision for the role of government.

Governments, after all, are mission-driven. They are dependent both on a service ethos on the part of public employees, as well as the public’s trust in those who serve. 

From Mike Higgins, consultant on scale:

The “there used to be 14,000 banks  and now there only 4,000″ is an old and tired statement used to justify scale. . .there are some strong arguments that scale is not the answer. 

Complexity of scale is a real thing – and complexity occurs in a lot of areas simultaneously – it’s like watching a fight between two octopuses – lots of tentacles in motion.

Two notes from Who Pays for all Those Generous Credit-Card Rewards?

It’s also worth remembering that lots of Americans don’t have incomes or credit scores that provide access to the most desirable credit cards. This means that debit-card and cash users, who tend to be lower income, are essentially paying for the credit rewards enjoyed by wealthier Americans. . .

“Nobody ever got rich through credit-card rewards, yet lives have been ruined due to credit-card debt,” Wang says. Sticking with a debit card, which comes with many fewer risks, “I think it’s totally reasonable for lots of consumers.”

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How Members Turned a Credit Union Around

Knowing history helps us navigate current uncertainties, even severe problems. This is a story of a credit union that was mismanaged.  There was front page publicity about the problems, NCUA’s role, and direct quotes from NCUA, including Chairman Callahan.

The year was 1983.  The credit union was charter number 435 which opened on January 1, 1935.  State Department FCU also served NCUA employees.

Here are the opening paragraphs of an August 16, 1983 Washington Post article investigation of the situation:

The State Department Federal Credit Union has operated at a loss since last year and has been placed on a “problem list” by federal regulators, according to credit union officials.

The federal action is based on the credit union’s overall financial condition, but it comes at a time when the credit union’s administration is under attack from some of its members for the amount of money it spends on receptions and trips for employes and board members to conferences in places such as Las Vegas, Munich and Paris. 

The credit union, which has $166 million in assets and 36,000 member accounts, reported a loss of $346,095 on total income of $8 million for the first half of this year. Last year the credit union, with a total income of $15.7 million, lost $224,200.

Examiners from the National Credit Union Administration (NCUA), which regulates federally chartered credit unions, told the board of the credit union in a meeting July 27 that the member-owned institution has been placed under special surveillance, according to Edward N. Gulli, general manager of the credit union.

Here are further detals from this lengthy report:

NCUA examiners said the credit union “would have no problem” if board members “took the steps to turn it around and become very profitable again.”  . . 

Some 7 percent of the 11,200 federally regulated credit unions in the United States are on the NCUA’s “problem” or “watch” list, according to Layne L. Bumgardner, director of supervision and examinations at the NCUA. . . 

In an effort to conserve the credit union’s cash, Gulli said the board has voted to stop traveling first class, which was previously allowed on any trips of more than three hours’ duration, and to suspend any travel until the end of the year. However, he said travel to conferences is a necessary part of credit union activities and will be resume .. . 

During 1982, the credit union spent $51,628 to send board members–who are State Department employes performing the credit union work as volunteers, receiving no extra salary–to conferences in places including Paris and Munich. . . 

They spend money like water on trips, and they say they don’t have the money to hire additional tellers or pay better interest. They think we’re dumb,” said Mary Drakoulis, an employe in State’s Freedom of Information office who was one of the original organizers of protest against the credit union management. . . .

The article included five paragraphs listing individual board and senior executive travel expenses.  Here is one example:

A June 26 to July 1, 1982, trip to a credit union industry conference in Las Vegas by six board members and three of their spouses costing $3,099 in hotel expenses at the Las Vegas Hilton and $9,520 in first class airfare. Five board members and a credit union employe traveled to Las Vegas again for a similar conference in May of this year. . .

NCUA’s chairman, Callahan, said the question of what is or is not a proper level of expenses is up to the members to decide. “We do not usually get down to splitting hairs as to which expense is appropriate. If it is a problem institution, I’m sure their expenses are being scrutinized,” said Callahan, who is a member of the credit union.

Even Larry Connell, the former NCUA Chair and now CEO of Washington Mutual Savings Bank was asked for comment.  He stated: “To me,” he said, “the best enforcement is for the membership to vote on whether to continue the management. I would think the members should have reasonable access to the records of the credit union.” 

Finally, the President’s compensation was published. Federal charter salaries are not required to be disclosed as is the case with state charters.

Because Gulli’s salary increases are based on the (board) recommendations, not the (U.S.) president’s decision, he got a raise last year of 18.47 percent, while federal workers got a raise of 4 percent.

Gulli currently makes $89,000 a year, about $9,000 more than Secretary of State George P. Shultz. He said that since he is not a federal worker, his salary should not be compared with the secretary of state’s. He pointed to a recent industry study showing the median salary of executives employed by the top quarter of government credit unions with assets of $80 million or more is $84,502. 

“I don’t have a chauffeur-driven car or a plane at my disposal,” he said, referring to Shultz. He said he got a 15 percent increase in lieu of health insurance and a pension plan. 

Lessons from This Case Study

First, the credit union survived this very public airing of its leadership’s perks and excesses, its poor performance and being added to NCUA’s watch list.

Today State Department FCU is a $2.9 billion institution with 88,000 members, 6 branches and over 200 employees.   It’s 2024 performance mirrors the industry’s overall trends: delinquency 1.14%, ROA of .34%, net worth 10.5% and loan and share growth around 6%.

Secondly, the transparency on these issues was an important catalyst for change.  Members were provided the information on senior management compensation, board and staff travel and their stewardship of the members’ funds.

These details should be standard operating disclosures for all credit unions today.  Special events and  major business initiatives such as a bank purchase financing should be routinely provided.  Such transparency not only provides essential owner information for the annual election of directors; it also induces accountability.

Thirdly, senior NCUA officials from the examiners, the RD, the DC head office and even the Chairman spoke directly to the press.  If one reads between the lines, the reporter was questioning whether the regulator should be more forceful in stopping these activities.  The response was that this was the responsibility of the owners, unless the excesses undermine the operations.  But members must  have access to all relevant facts whatever the circumstances.

Every Credit Union Is An Example

Finally, the article several times refers to the entire credit union system and their role in the economy.

Credit unions are nonprofit organizations originally formed to help employes get loans when banks did not make consumer loans. The industry now has $93 billion in assets nationally and 48 million members. The State Department credit union is 46th largest among 19,630 credit unions in the country. 

Each credit union today is a representative for the entire cooperative model, for good or otherwise.

Actions from the Article

My colleague Bucky Sebastian’s rule as a public employee was to never say or write anything that you wouldn’t want to read on the front page of tomorrow’s newspaper-or the lead in a blog post.   However the solution is not to avoid the topic or say you can’t comment.   That will just make the press more interested.

Every credit union will have performance problems. Economic cycles are just that, cycles, not straight line performance.  Managers are not perfect and board oversight will vary.

The best way to prepare for these inevitable ups and downs is to be transparent with pro-active disclosure habits in all seasons. This creates a pattern that  demonstrates responsibility to the owners, even in times of performance shortcomings.  State Department survived this very public thrashing by the Post.  NCUA was upfront about its role.

Without this practiced accountability any credit union can risk becoming the next poster child for a cooperative system that seems to have lost its way. And added to the lists of examples kept by those seeking to undo the special role of credit unions in the American economy.

 

 

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The Banks We Deserve

Osacar Abello is the economic journalist for Next City, a web publication which reports on innovative examples of tackling long standing urban challenges.

He has written a new book, The Banks We Deserve. It is about the future of credit unions as much as he focuses on banks.  He offers this reason for writing.

So how many community banks do we need? I’m not sure that me or some policymaker or expert should be the one answering that question. Maybe it should be up to each community that feels ignored or frustrated with larger, distant financial institutions to take some of that money creation power for themselves and see how they do with it. 

We’ve never done anything big in this country without little banks. Yet the number of community banks in the US has been steadily declining for decades, giving way to big banks that have little connection to the communities they claim to serve.

The massive, unprecedented shift toward such a highly concentrated banking sector has weakened our ability to take action at a community level and leaves many people, especially those who have been historically marginalized, without access to capital.

The Book’s Message from a Review

In The Banks We Deserve, journalist Oscar Perry Abello argues that community banking has a crucial role to play in addressing urgent social challenges, from creating a more racially just economy to preparing for a changing climate. At their best, community banks unleash the agency and aspirations of the communities that establish them.

Abello challenges people working on racial justice, community development, or addressing climate change to start more community banks or credit unions as part of their work, while also calling for policies and regulatory reforms that will help tilt the landscape back in favor of community banking.

The Banks We Deserve tells the stories of new community banks — like Adelphi Bank, in Columbus, Ohio, the first new Black bank in 20 years; or Walden Mutual Bank in Concord, New Hampshire, the first new mutual bank since 1973 and the first chartered specifically to finance a more sustainable food system; or Climate First Bank, in St. Petersburg, Florida, which has grown exponentially since opening for business in 2021. He hopes these stories inspire others to take some of these same daunting-but-not-impossible steps.

My takeaway:  Credit unions have been evolving into this community role since deregulation. Who is telling their story?

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“The Greatest of These is Love”

Robert Gamble is a presbyterian minister who has led a mission in Ukraine since 2006.  His charity, This Child Here, is a 501 C 3 non-profit.  Here is   What We Do from the website:

We work with families displaced by the war. Thousands of people have fled cities in the east and arrived in Izmail, Ukraine in the west. As many fathers are in the military or still residing in places now dangerous, these families often consist of mothers and children. We provide products from grocery stores, and centres for youth and children’s activities, including sports, music,and art.  Through these activities, summer camps, and the supportive community we have built, we offer therapy for the trauma and shock suffered by these families. 

Early in the war in 2022 he wrote a long letter reflecting on the seeming contradiction of peacemaking and love in a time of war. An edited version follows.

 From a letter by Robert Gamble

Love in a Time of War

                                               A time to love and a time to hate, a time for war and a time for peace.

Ecclesiastes 3:8 

And now these three remain: faith, hope and love. But the greatest of these is love.

I Corinthians 13:13

It’s hard to say something not already said, but I’ve learned something knew. A hard truth.

In December I rode in a van with a Mennonite minister; we were crossing a field on a dirt and snow covered road lined with bushes and trees on both sides. In the war zone in the east. I saw a few military vehicles. I saw a Ukrainian soldier with a rifle sitting on the snow, covered in white. A tree had been cut to fall across the road ahead of us.

At first I thought we might get out and move it. But then I thought: maybe it is rigged to explode. In the field on both sides were red and white signs: Danger Mines. There was no way around the tree. We backed up about 200 yards and started on another road across the field.

That’s when I realized, this could be the plan. They knew we would go around. . . I remember sitting in the passenger seat to look out the windshield at the dirt and snow ahead in search of signs of digging to place a mine.

For the first time, I was afraid. Confronted with the TRUTH: YOU MIGHT DIE, all thoughts of peacemaking, or reconciliation between Russians and Ukrainians dissolved.

Here are some truths, spoken by people in Ukraine:

“Ordinary people, as always, suffer while politicians play games.”

“This genocide will be in history, but we do not need such a history, we need peace.”

“Today, on the eighth day of the war, I felt as if I were living in another life. The first shock has passed, there remains a persistent belief that we must be patient, and all this will pass. That everything will end well. …. Moreover, almost everyone has become close – having united in one family, they are trying together to help for the sake of victory. Children, little home front warriors, draw touching pictures calling for peace, women cut fabric into strips and weave camouflage nets, men ensure the life of the city and prepare Molotov cocktails. And all together help the weak and lonely. There has never been such a unifying, inspiring feeling…”

Lies in War

I don’t know what is true in this war.  .  .

In Ukraine, there are two LIES.

  1. Ukraine is run by Nazis
  2. Russia must be protected from invasion by Ukraine and NATO.

The truth is Putin is the Nazi, and Putin is invading Ukraine.

He projects his own darkness onto the country of Ukraine.

Many in Russia believe these lies.  I’ve seen it… written on the walls of buildings burned  “Death to Nazis”….. written by pro-russian separatists, living in Ukraine, believing that Ukraine is run by Nazis.

Media outlets in Russia Facebook, Instagram, other social media are closed. How long can he keep the truth outside Russia?  15,000 were arrested for demonstrations.

How can they keep this lie alive? They keep it alive with fear.

Fooled by Lies

I was fooled by these lies.

I did not believe this war would happen. I knew he was lying and I thought it was all posturing to negotiate. What I didn’t realize was that Putin knew that I knew he was lying. And I would believe it was all posturing for negotiation. All this was like smoke covering the truth that was truly unbelievable: all along, he intended to invade.

The war began at 4am on Thursday, Feb 24th.

I was in a small city in the western and southernmost part of Ukraine. Izmail sits on the Danube; across the river is Romania. It’s a safe place to be, far from the paths of any Russian troops.

On Friday, the second day of the war, I saw a video of a Russian Submarine, cutting through the Black Sea, close to the coast of Odessa, likely in preparation for a landing of soldiers by sea. I watched videos of Russian soldiers, gunfire on the streets, a Russian tank crushing an  automobile, a tiny island laid waste by a Russian warship– all 13 Ukrainian guardsmen dead. I saw crowds fleeing Kiev and citizens lining up to receive automatic weapons to defend Ukraine.

In the afternoon, my brother-in-law called, a colonel in the US Army, retired. We talked for the third time. He explained how wars steadily expand in the beginning, urging me to get out of Ukraine.

I decided it was time to leave.

I took a taxi to the border and a ferry to Romania. Volunteers from Romania met me on the other side. They offered us food and drinks. A man came and we drove an hour to his city; he took me to his home where his wife prepared dinner. Later, he put me on the train to Bucharest. “Tell the rest of the world how the good people of Romania took care of you”

I have been working for peace in the world since the 1980’s.  I was in Nicaragua during that war, trying to build bridges for peace…. I’ve been working for peace in Ukraine since the war started in 2014.

This Child Here has trained many teens in peacemaking techniques: how to manage conflict, how to listen to your enemy, how to offer alternatives to violence, how to reach consensus.  My hope is for a camp for Russian and Ukrainian youth together. My hope is that nations will “beat their swords in plowshares and spears into pruning hooks.”

Evil In the World

But a time comes, rarely comes, when humans, people of faith, the people of God, and I speak as a Christian, must take up weapons to protect and save their own lives and the lives of those they love.

There is evil in the world, and at times this evil has to be stopped. The only hope lies in picking up the very same guns you hoped would go away.

I could have gotten in line for an AK 47. But do I pick up a weapon and kill?  I think I am now too old and sensitive to do this… I don’t want those images in my mind.

Do I recruit Americans to go and fight? Do I pray for Russians to die.

Do I believe God is with us?   Do I bless war itself?

At best, I can pray and hope it will end.

This Is Love

Now I want to say something personal, because what is most personal is also most universal.

I said goodbye to someone I love and care about before I stepped on the barge to cross to Romania. I said goodbye across a fence. I did not feel sympathy; I felt respect.

I fear for her life, not because she is weak but because she is brave..  This is love.

And then I realized this is how I feel for the Ukrainian people, not sympathy but respect. I fear for their lives, not because they are weak, but because they are brave. This is love.

I think about love and war. I am talking about romantic love, love for family, friends, colleagues, a country even.  But it came to me, when I was looking at someone I love…. just looking at this person. I understood: love makes war bearable.

Milan Kundera who is Czech wrote about that country’s 1968 invasion in the Unbearable Lighteness of Being:  “For there is nothing heavier than compassion. . .The heaviest of burdens crushes us, we sink beneath it, it pins us to the ground…. The heaviest of burdens is therefore simultaneously an image of life’s most intense fulfillment. The heavier the burden, the closer our lives come to the earth, the more real and truthful they become.

Love helps us bear the burden of war. And there is a second truth: War makes love precious.

I close with this: we say what we believe in that ancient creed, “He was crucified, dead and buried.” For Christ it was the heaviest of burdens, and was followed by the resurrection—the image of life’s most intense fulfillment.

For the people of Ukraine, and for any of us, the heavier the burden, the closer we are to the earth, the more real and true we become. It is a hard truth, and it is why “the greatest of these is love.”

Editor’s note:  Rev. Gamble returned almost immediately to Ukraine and continues his work there today.  In 2024 he married the woman who is the local administrator of his charity.

 

 

 

 

 

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Uncertainty in Washington-What are the Options?

When I was a member of Ed Callahan’s team, he would offer two thoughts when evaluating uncertain situations:  The first was “Never say never,” when talking about future possibilities.  The second was “What are the options” when working through a challenge.

Each day brings more Washington rumors, supposed plans, new faces and real events that have led to increased uncertainty for NCUA and credit unions under the Trump overhaul of the federal government.

Those who see changes as a threat to the independent co-op system are urging credit unions to prepare for battle, increase lobbying efforts and deploy new member engagement tools.  Others will go with the flow assuming they will be OK if they stay invisible as part of a herd of 4,500 institutions.

If a never-say-never event unfolds, how does one prepare for it? Are there options that should be ready to go beyond the standard lobbying or “fight back” efforts?

A Short Credit Union History

The most important means of acting as a check to an overreach or an unresponsive federal regulatory environment is the dual chartering system.

Credit unions were birthed and spread first in the state legislatures.  From 1909 until the Federal Credit Union Act passed in 1934, over 25 states authorized local and varied credit union charters.  These multiple state examples were the “proof of concept” that gave Congress the example to extend this unique member-owned design to all states via a federal chartering option.

But state innovation did not end with this beginning. Senator Proxmire in a 1984 hearing stated he received his first  real estate loan in the 1940’s from a credit union.  FCU’s did not have real estate lending power until 1978.  State systems pioneered the introduction of NOW (checking accounts) in Rhode Island and share drafts in other states before this transaction authority was given all financial institutions in the Monetary Control Act of 1980.

State charters led the way in deregulating rates and terms on savings years ahead of the DIDC and NCUA action in 1982. State options have had much more flexible fields of membership, CUSO investments and other varied business options.

State credit unions lead federals in transparency with their required annual IRS 990 reports.  These filings disclose director and senior executive compensation as well as listing all 501 C3 contributions and political donations, if any.

Dual chartering has been a source of diversity, change and responsiveness to local conditions.  The NCUSIF’s regulations, including the risk based capital requirement, impose a one size fits all accounting and capital model on a very diverse industry.

The Critical State Advantage

However, there is one option that keeps the independent role of the state system intact.  That is the opportunity, currently in ten states, for their credit unions to choose private versus NCUSIF deposit insurance.

At yearend ASI, the Ohio based deposit insurance company, covered the shares of approximately 100 credit unions with $23.4 billion in assets serving 1.4 million members.  Six of these insured firms have over $1 billion in assets; seven have less than $1.0 million.  The average asset size is $240 million.

Expanding CU Choice Across the System

Recently ASI presented a webinar as part of a campaign called CUChoice.  The focus was on Michigan credit unions to encourage their support for a legislative change to give  state charters a choice in their insurance coverage.

The full recording of the webinar is here.

(https://www.youtube.com/watch?v=hP-QN8HazKA)

The slides present the advantages of ASI vs NCUSIF.  Points covered include credit union ownership, a member-elected board of directors, and the specific role of an insurer that is not a regulator.  ASI’s focus is on being a business partner with its credit unions in which interests are aligned.

Slides 13-29 are a presentation by CUNA’s long time chief economist Bill Hampel, now retired.  In his talk he discusses the advantage of a Michigan state charter and compares the performance history of NCUSIF and ASI from 2007 though 2013.  He directly answers the vital question referred to as the tall tree issue by showing how the two insurers compare in size to their single largest credit union. (slide 22)

Slide 29 is a detailed comparison of ASI’s equity to insured coverage ratio of 1.75%. to the NCUSIF’s 1.31%

More Than a State Charter Option

The choice of deposit insurance has benefits far beyond state charters.  The option enhances the vitality of the entire dual chartering cooperative model.  In those states with an option, Hampel presents data suggesting those states have stronger performance.

Having an option prevents NCUA from being a total monopoly and provides real time performance comparisons. For example, ASI financial audits and reports follow private GAAP accounting, whereas the NCUSIF in 2010 adopted federal GAAP.  This federal standard mischaracterizes the NCUSIF’s operations and distorts the NCUSIF’s year end financial position. Also ASI must comply with reserving requirements under both GAAP and state insurance regulations.

ASI’s most critical difference is You Do Own It.  The credit union elects the board and there is an appointed advisory group. The users have a direct say and responsibility for the management of their collaborative fund.

ASI has a performance track record as long as the NCUSIF.  That history had a direct impact when the NCUSIF’s financial model was redesigned by Congressional legislation in 1984.  The 1% deposit model, which provides the earnings and equity foundation for the fund’s financial stability, was a direct borrowing from ASI’s structure and experience.

By offering choice, ASI provides all credit unions a check and balance on the unilateral power of a monopoly insurer/regulator.  The choice follows the unique constitutional system of state and federal powers.  It rests on the cooperative values of self-help and collaboration.

No one knows what the future of federal regulatory and insurance systems will be under Trump’s administration.  Credit unions should further enhance their options now building on their unique dual chartering roots.

In all other areas of Americans’ insurance coverage-life, auto, health and many more,  the licensing and regulation responsibility rests solely at the state level.  There is no federal option-except for deposit insurance.  ASI is an example of this responsibility and choice that makes the credit union system more resilient and viable than any other model yet created.

Uncertain about outcomes at the federal level?  Act now because no one knows today what you might need tomorrow.