To demonstrate the cooperative difference, some credit unions plan sending bonus dividend and loan interest refunds to members at year end.
Yesterday I read in one CEO’s staff update that they were doing well enough to have accrued a minimum of $10 million in special distributions for savers and borrowers.
Here is an example of an announcment in which Robbins Financial CU is sending members $20 million. The special rebate program is to reward members’ loyalty and to demonstrate the credit union’s financial strength.
However credit unions are not the only financial firms which provide “members” with refunds, rebates or special dividends. The following are excerpts from a large mutual, insurance and investment firm which competes directly with credit unions.
USAA Members Benefit from ~$3.7 Billion in Financial Rewards in 2025
Record Amount Underscores Association’s Commitment to Military Families
San Antonio, TX – USAA members are receiving approximately $3.7 billion in financial rewards in 2025 — the largest amount returned to members in USAA’s 103-year history. . .
The announcement follows USAA’s initiative to provide its members with nearly $450 million in zero-interest loans, payment extensions and fee waivers during the recent government shutdown.
In November, the Association also launched Honor Through Action, a five-year, $500 million initiative to support military family resiliency by bringing together public, private, and nonprofit partners to drive systemic change around three key pillars: meaningful careers, financial security, and overall well-being.
“We are committed to putting our members at the center of all we do and every decision we make,” said Juan C. Andrade, President and CEO of USAA. “Sharing our financial results with our members reflects our responsibility to deliver strong value and exceptional service for the military community. We are taking action every day to help keep costs down and protect the long-term value of membership. . .”
This record amount in financial rewards is possible because of USAA’s financial discipline, . .It is also a result of proactive steps USAA and members have taken to prevent losses.
“Ensuring our members benefit from our financial strength is critical.” Andrade added. “We will continue to push for reforms that address the broader factors increasing insurance costs for consumers.”. . .
USAA’s Impact in One State
The person who sent me thlis information added a calculation for his home state of North Carolina:
Why this matters for North Carolina:
Members in North Carolina will receive an average of $200, depending on their policies and location, as a bill credit or money back based on the member’s preference.
Good ideas do not take long to replicate. Especially when customers are treated as members.
Do credit unions really need to retain an average of over 11.0% retained earnings when the well-capitalized goal is 7%?
The largest credit union conference ever held to this point in time began gathering on Sunday, December 9, 1984 at the MGM Grand Hotel in Las Vegas.
One of the most amazing aspects was that the entire effort was organized and led by NCUA. It was an event unique then, and still today, in credit unon history.
The conference had two phases. In the first two and one half days over 800 state and federal examiners and regulators held meetings to share their learning and expertise. On Wednesday afernoon they were joined by over 1,500 CEO’s/seniorexecutives, board members and leaders of multiple league and trade organizations.
An NCUA Led Effort
Two months prior in October, NCUA released a Video Network Edition XI for state and federal examiners to describe conference logistics: timing, travel arrangments, financial reimbusements and per diem. And most importantly, a preview of the speakers and conference agenda.
The National Examiners Conference preparation video is 20 minutes and can be viewed here or in the link below. The eight speakers are all NCUA DC staff members responsible for specific areas of the conference.
The details may seem pedestrian by today’s conference attendee. The room rates were only $35 per night for single or double. These critical instructions show NCUA staff at its hard working best.
The Agency’s Washington team organized a national industry wide meeting led by only existing personnel. At the time the Agency employed approximately 600 people. This special event was in addition to the entire staff’s day jobs.
According to the NCUA’ 1984 Annual Report there were 10,547 active federal charthers and 4,657 insured state charters, plus another 1,500 whose share insurance was from a state authorized cooperative fund. Moreover, all FCU’s were being examined annually, a process implemented in 1982.
The Agenda
Following six short briefs on conference logistics, at minute 14.21 a presentation of the “most important part of any conference” begins. Joan Pinkerton, NCUA’s Public Information Officer, gives an overview of the conference speakers and over 50 breakout sessions.
Topics include: Is the Regulator Obsolete?, How the Early Warning System (EWS) Rating is Assigned, Recent Industry Scams et. al. At minute 17 Mark Wolff describes real case studies that will be discussed in joint examiner-attendee sessions. The case details of up to 25 pages will be available to read in advance.
What Happened
The conference succeeded beyond all expectations. It was both a learning and bonding event. Next Monday I will publish Edition 18 of the NCUA’s Video Network, 55 minutes of live excerpts of the conference highlights.
Even today, some 41 years later, the event is still remembered as a special moment enabled by the collaborative character of the credit union system.
If you would like to share your memory, please send a short post to chipfilson@gmail.com. I will include these along with the video and photos of the conference.
(https://youtu.be/Tw_JKnheoSk)
Another December 9, 1984 Event
On Saturday October 8 NCUA colleagues Bucky Sebastian and Mary Beth Doyle stopped by the house to drive me to Dulles where we would fly to Vegas for the conference.
Mary Ann and I had been married for 17 years. Our first date was my senior year in college at the Harvard-Princeton football game. I had been expecting to go with her younger sister whose flight from Midland, MI was canceled due to snow Mary Ann took her place.
We married 18 months later in a service at Merton College Chapel, Oxford, where I was a student and she worked in London for Dow Chemical’s UK office.
We traveled the world together, first courtesy of Uncle Sam who said I owed him some time. Our first daughter, Lara, was born in Athens, GA while I was at Supply Corps School. Our second, Alix, was born in Yokosuka, Japan where I served as Supply Officer on the USS Windham Cty (LST-1170) and later at the Supply Depot on shore duty.
After four plus years in the Navy, in December 1973 I joined the International Division of the First National Bank of Chicago expecting a two year rotational training period. Six months later our family was in Sydney, Australia. I was in the bank’s rep office and assisted with their wholly-owned finance company FCAL. It was a time of critical economic turmoil, short term rates were over 20%. They wanted help working through the crisis in FCAL’s loan portfolio.
After three years, we returned to Chicago. I left the bank to work with Bucky Sebastian and Ed Callahan in the Illinois Department of Financial Institutions (DFI) where I was credit union supervisor. Five years later we moved to Bethesda as the three of us joined NCUA.
In these 17 years Mary Ann was critical to everything that life brings to a family. She not only had the primary care roles with our two girls, but also worked a full time job where possible.
Her talents for maintaining home life while I was traveling, expanding her interests in photography, design and working with her hands in the kitchen or the sewing room are habits both girls adopted. She was disciplined, but in a very soft way, always sensitive to others’ needs.
I am grateful our two children inherited all the good she gave them which they express every day.
She had an adventurous streak as well. Once we pulled into Hong Kong harbor on R&R. Mary Ann and several other wives flew from Japan to see us. Our LST anchored in the harbor. The city was still under British rule. The Navy purchasing office would first send out local supply boats to refill our fresh water tanks and order fresh food supplies.
As I stood on the deck waiting to give our purchase order to the local vendor, I saw the small harbor craft had an extra passenger. Mary Ann didn’t wait for us to come ashore via the harbor’s water taxis. She came out, on her own, in the middle of the harbor to welcome the whole ship. It was just plain joy as she came on deck. The Captain was a little uneasy with this protocol breach, but never said a thing.
In the picture below, Mary Ann with Lara and Alix are on on the beach in Hayama, Japan. Fuji is faint in the distance. It is the fall of 1971.
Mary Ann’s mother had flown in to help while I spent the week at NCUA’s Examiner Conference. Early Sunday morning I got a call from her mother that Mary Ann had gone to the hospital that night and died. Her five year fight with breast cancer was over. I flew home that morning. Our 17 year journey together was over.
Now go back to the 14th minute of the video above and see Joan Pinkerton. For in 1987 we were married. She knew Mary Ann and had even babysat our girls when we traveled together. Life is full of possibilities even when some hopes end. Joy can still be found.
Yesterday I posted a 3,000 word analysis of the proposed merger of Spirit Financial in Levittown, PA with Credit Union 1 headquartered in Lombard, IL.
Included in the analysis are the reactions of two Spirit members from NCUA’s website:
Member Brian Stuart comment: I am voting against the proposed merger of Spirit Financial Credit Union with Credit Union 1. Credit Union 1 is based in Lombard, Illinois. All of its branches are in Illinois. There is no advantage to the Spirit Credit Union member to merge with Credit Union 1. Merging with Credit Union 1 would take away the local Bucks County focus of Spirit Financial Credit Union, which should be its mission. . .
Member Joann Glasson:As a long-time member of Spirit Financial Credit Union, I am sad to see this merger occur when the CD rates are so much lower at Credit Union 1 and the loan rates are so much higher at Credit Union 1.
We are retirees with large deposits at Spirit that we will be forced to move if the merger is approved. This merger is not a service to the members of Spirit Financial Credit Union
Due to the article’s length, I sent the following summary to the press:
$9 MILLION IN LEVITTOWN COMMUNITY WEALTH TO BE GIVEN AWAY – CREDIT UNION CEO WOULD RECEIVE $4.4 MILLION
Spirit Financial Credit Union, a strong and profitable 72-year-old community institution, is being absorbed by Credit Union 1 of Illinois (pending a member vote) and in the process, Levittown’s families will lose nearly $9 million in community-built capital, while Spirit’s CEO personally will walk away with more than $4.4 million in payouts and benefits. Member balloting on this proposal ends Dec. 22.
Spirit Financial isn’t struggling — it is thriving:
highly capitalized,
financially stable,
outperforming peers,
and the only locally headquartered depository institution serving Levittown.
Yet in a quiet, opaque merger, every dollar of the members’ accumulated equity of approximately $9 million will be transferred to an out-of-state institution for free:
No payouts to Spirit Financial member-owners
No equity retention
No bonus dividend
No local control
No sole ownership
Levittown’s families built this wealth, and now it’s about to go away.
Meanwhile, the Spirit CEO who championed the merger receives:
A massive cash bonus at closing
A guaranteed five-year employment contract
Incentive packages to solicit more mergers
A fully vested multimillion-dollar retirement package, all totaling more than $4.4 million in personal enrichment.
Community wealth will be removed, assimilated, and relocated, while ordinary member-owners will be left with nothing.
Control of Levittown’s financial legacy will shift to a board in Illinois that is unreachable, unelected, and governed by mechanisms that dramatically limit member democracy.
This is not an isolated incident. Credit Union 1 has initiated over 20 such mergers in just 3½ years, importing hundreds of millions in community assets and capital and using merger accounting to mask weak operating earnings while expanding its asset base by taking over independent, strong local credit unions.
This development raises urgent public questions:
How can a member-owned institution be sold without any benefit to its owners?
Should executives be allowed to personally profit from the liquidation of community capital?
Where is regulatory oversight when cooperative ownership is silently dissolved?
Which Pennsylvania credit union will be targeted next?
If this were a stock corporation or public company, shareholders would be compensated, and regulators would not tolerate uncompensated transfer of equity. But cooperative members will receive no payout, no recourse, and diminished legal standing.
Whether one calls the current period a time of transitions, transformation or just multiple uncertainties, there is a sense that national and credit union futures seem to be nearing a precipice.
Washington’s political divisions are heightened by increasing consumer anxiety. Economic uncertainty is created by the federal government’s policy shifts and attacks on opponents, ending key social programs and assaults on leading private institutions.
Trump 2.0 is not the same as the first term. He is turning the entire executive branch into his personal fiefdom installing loyalists in every department and agency of the federal bureaucracy. That is, when their functions are not being downsized to feebleness.
NCUA is no exception to Trump’s government onslaught. The lone republican board member became Chair on January 20th. His two democratic colleagues were subsequently fired so the White House could directly control NCUA actions. This ending of an independent agency’s leadership is now in the hands of the Trump dominated Supreme Court.
Chairman Hauptman’s term expired in August. At the same time the agency initiated a reduction in force that led to at least 20% of staff leaving. The agency now holds no regular board meetings. Regulation is by rote or reptition rather than design or intent. The role of NCUA is at best cloudy and at worst, irrelevant to credit unions’ future.
The largest trade association ACU has a new CEO, Scott Simpson, a veteran of the league system. He is introducing himself to credit unions speaking of unity, advocacy and defending the status quo. The credit union Defense Council (DCUC) is trying to position itself as a new national voice for the industry with daily press release postings.
With the economy and consumers both showing contradictory signals, the momentum for America’s economic outlook seems fuzzy even with record stock market highs.
In this period of transition in both public policy and AI generated business disruptions, credit unions third quarter results showed stability and resilience. However there are multiple concerns rippling across cooperative waters as the industry’s new national leaders take over.
Symptoms of Growing Coop Fissures
The absence of a vision for credit unions’ unique capacity and purpose to address urgent member needs:
The merger frenzy based on a faulty premise, which is that mergers are growing the movement’s market share. Rather it is simply consolidation largely fueled by CEO ambition and in a number of instances personal greed.
The absence of new coop startups and the steady decline in credit union charters and local presence;
The exclusion of member-owners from any meaningful governance role or even awareness of democratic coop design.
The use of member funds to purchase whole banks often at premiums to prior market valuations.
The lack of credit union initiated and controlled innovations and instead relying on third party vendors for both operational orginations and enhanced member value creation.
Hope For a Cooperative Future Vision
Those in leadership can wait and watch. Try to keep pace by doing more of the same.
And, hold tight until market forces or political challenges force a change of direction.
Or, create a new cooperative vision that becomes a rallying point for those concerned about current trends,
A Lesson From the Past
Credit unions have been mired in uncertainty before. Sometimes the confluence of external events; other times by internal shortcomings marked by grasping for false advantage. For example the effort to convert to mutual bank charters in the first decade of this century—an option taken by over 30 credit union CEO’s, of which only one survives today.
History suggests the gift of cooperative hope is more likely to come from the passion of insiders rather than the hired experience of other industries. These Insiders should know cooperative history, its multiple strengths, proclaimed values and commitment to member and community wellbeing.
Moreover any “updated” vision must be fought for, not just proclaimed. It wil require repeated articulation and conversation to define a better direction than following the status quo crowd.
Last week I posted the final video, Edition XX from NCUA’s Video Network created during the Callahan era from Oct 1981 through May 1985. The 30 minutes is a summing up of the major internal changes that took lace during this initial period of deregulation. Three themes stand out: change requires will, teamwork and documented results.
But the real foundation for the successes in this final video was laid in the first film the network distributed in cooperation with the Illinois Credit Union League: Deregulation-What Does it Really Mean?
This initial communication presented a new regulatory policy and the approach for how it would be pursued—cooperatively and in dialogue. The panel includes the NCUA Chair and General Counsel, three credit union CEO’s and Jim Barr who was CUNA’s Washington spokesperson.
This video portrays what is required to state and implement a path of hope and progress in an era marked by uncertainty, rapid change and new leadership.
The video is an example of leadership in a cooperative system. It is as relevant today, as when it was created over forty years ago.
One of Helen’s observations was, “The only thing worse than being blind is having sight but no vision.”
I received an email last night announcing a merger of a top ten credit union and one of the fastest growing credit unions (their term) in their market.
The release contained this triumphal statement: The combined credit union will serve 1.8 million members and operate more than 80 locations under BECU’s charter with more than $33 billion in assets. This will make it the fourth-largest credit union by asset size in the U.S.
The email also included a slick PR poster that made it appear that this was a done deal, between the two firms. The member-owners apparently have no say or voice.
This “fait accompli” approach suggests the continuing credit union has not looked at the track record of large credit unions whose growth strategy is mergers. They might want to review PenFed’s recent history as a start.
Only Two Turnovers from Failure
This haughty announcement also confirms the observation that every organization is only one or two CEO turnovers from failure. This was by a credit union leader who had witnessed countless changes in his four decades.
Failure in his view was not financial, but the end of an independent, sui generis, credit union. It occured as subsequent leaders lacked commitment to, and often knowledge of, the organization’s founding principles.
In tlhis case the continuing credit union had been led for over three decades by a CEO who could have chosen to merge multiple credit unions supported by his single sponsor. But that was not how he thought coops best served their members.
I’m sure there will be more to learn about this transaction as we get past the “people helping people” claptrap. With this swaggering start, the rest of the story will likely become another case study of credit union CEO’s and boards implementing “The Art of the Deal.”
There is useful information in the IRS form that is not available elsewhere, including details about the compensation of the CEO, senior managers and board (when applicable).
Here is a link to a sample for the largest state charter SECU-North Carolina at their fiscal yearend, June 30, 2024. The initial pages are similar to call reports. Additionally, many yes-no questions about governance link to data in the subsequent schedules.
This full report would be even more valuable if the data of the two federal credit unions closest in size, Navy and PenFed, were available for comparison.
One part of this initial data includes the question about the disclosure/availability of thefiling to the public. Most credit unions only check this option: Upon request In other words, filed, but not readily available.
Information not provided in other required call reports includes:
Schedule I: Cash grants and Other Assistance to Domestic Organizations and Domestic Governments.
Schedule J: Compensation-Officers, Directors, Trustees, Key Employees, and Highest Compensated Employees. Also, Loans to and/or From Interested Persons including those funding split dollar life insurance-a retirement benefit described at the end of this post.
Schedule O: Supplemental to Form 990 includes information on governance, elections, salary oversight process et. al.
Should Federal Credit Unions Be required to File this IRS form?
I believe it is in the interests of individual credit unions and the industry that federal charters be required to file the same data as state charters.
Here’s why this filing should be standard operating practice.
Transparency is critical to democratic governance and accountability for credit unions’ elected leadership.
Compensation for CEO’s and senior staff (and when permitted board members) is the single most important indicator of personal stewardship of members financial assets.
It is vital in organizations that receive a tax exemption to maintain accountability in return for this benefit. Especially so when most credit union competitors pay taxes.
State charters have been disclosing this information for over five decades. There has been no downside from the practice. Public disclosure is a responsibility in return for this significant exemption.
There are problems with the practice, however. The due date for filing is the 15th day of the fifth month after the fiscal yearend. That would be May 15th or November 14th for December or June fiscal years. Many credit unions seek an extension; for example the SECU report was filed on May 29, 2025, versus the November deadline. This means the information is often a year old. Ideally the report would be sent to all members in their Annual Meeting information, as part of the year’s financial report.
Filings Reviewed as Part of Examinations
Also when seeking specific reports via public sources such as Pro Publica, it is not unusual to find that some credit unions are apparently not filing. There appears to be no regulatory enforcement or review to see if the information is correct.
Failure to file for three consecutive years results in a revocation of a credit union’s tax status-certainly a safety and soundness problem. No state charter should be approved for merger unless the most recent IRS 990 is available, as that information is critical to understanding the required Member Notice compensation disclosures.
Credit unions should support this 100% public filing for the movement. That would demonstrate public responsibility and respect for the member-owners.
Summary of 990 Filing Requirements for Credit Unions
All state-chartered credit unions that are tax-exempt under section 501(c)(14)(A) are required to file an annual information return with the IRS (either Form 990, 990-EZ, or 990-N), with the specific form dependent on their financial activity.
There is no asset level that completely exempts them from this filing requirement.
The specific form to be filed depends on an organization’s gross receipts and total assets:
Form 990-N (e-Postcard): For organizations that normally have annual gross receipts of $50,000 or less.
Form 990-EZ: For organizations with annual gross receipts less than $200,000 and total assets less than $500,000.
Form 990: For organizations with gross receipts of $200,000 or more, or total assets of $500,000 or more.
Federal credit unions, in contrast, are exempt under section 501(c)(1) and are not required to file an annual information return with the IRS.
Failure to file the required return for three consecutive years will result in the automatic revocation of the organization’s tax-exempt status. The IRS provides resources on the Form 990 series filing requirements on its website.
Split Dollar Life Insurance-Employee Benefit Description from SECU NC’s latest 990 IRS filing.
SPLIT DOLLAR LIFE INSURANCE: THE CREDIT UNION HAS GRANTED NONRECOURSE LOANS FOR LIFE INSURANCE PREMIUM PAYMENTS TO SELECT MEMBERS OF SENIOR MANAGEMENT. THESE LOANS ARE COLLATERALIZED BY THE ASSIGNMENT OF THE CASH SURRENDER VALUE OF EACH RESPECTIVE LIFE INSURANCE POLICY. THE POLICIES ARE OWNED BY THE EXECUTIVES AND THE OWNERS HAVE SOLE CONTROL OVER THE LISTED BENEFICIARIES. UPON DEATH OF THE INSURED, THE PROCEEDS FROM THE DEATH BENEFIT OF THE LIFE INSURANCE POLICY ARE USED TO PAY THE OUTSTANDING BALANCE AND ACCRUED INTEREST OF THE LOANS. THE LOANS ARE CONSIDERED NONRECOURSE AND AS SUCH, THE CREDIT UNION HAS RECORDED THE BALANCE AS THE LOWER OF THE OUTSTANDING LOAN BALANCE PLUS ACCRUED INTEREST, OR THE CASH SURRENDER VALUE OF THE LIFE INSURANCE POLICIES.
On June 1, 2025 Thrivent FCU converted to a state issued Industrial Loan Chatered (ILC) bank with FDIC insurance. There are only 24 such charters operating in the US,
The process took three years and had to be approved by the credit union’s member-owners with at least 20% voting on the change.. The conversion resulted in the full payout of the members’ collective equity, plus a bonus dividend on shares. The full details are reported in the post Thrivent Members Approve Sales to a Bank.
Thrivent Bank’s Sponsor
In its June 2 launch announcemnt, Thrivent Bank reported $1.09 billion in total assets. It is a wholly owned subsidiary of Thrivent Financial.
The parent company,Thrivent Financial for Lutherans, is a member-owned, fraternal benefit society. It is a non-profit , managing over $193 billion in administered assets, with a tax exemption based on religious affiliation.
According to Thrivent Financial’s 2024 Annual Report, it holds $18 billion in capital and serves 2.4 million members. Its primary products inlude insurance, annuities and health care programs. The Report has statistics on its community contributions and volunteer efforts.
The parent company’s CEO said the new charter: “combines our legacy of trusted financial advice with a modern, client-first banking solution. Thrivent Bank will help us build relationships with younger clients earlier in their financial journeys – who we can then serve throughout their lives.”
The New Bank’s Strategy
In a November 12, 2025 interview with a Banking Dive reporter, the CEO outlined his focus. The conversion “aimed at broadening the financial institution’s reach nationally and attracting new clients.”
Located in Salt Lake City, the bank is digital only with no branches.
The CEO. Brian Milton’s value proposition is to combine its digital platform with live personal advice and the financial expertise of the Thrivent organization: “everything that we see out there seems to be having to pick one of those two,”
The new web banking platform is still under construction. The current site provides a fairly standard listing of consumer services. Savings rates would appear to be at the lower end of the market. Auto loan rates are based on a matrix of model year and loan term.
The bank’s business financial services appear targeted to the non-profit sector:
It takes organization, planning, passion and vision to run a business, church, school or charity. It also takes the right financial institution to help you navigate the nuances of business and nonprofit banking. Whether you’re a new or established business, church or foundation, business banking tools from Thrivent Bank will help you every step of the way.
A Strategy Combining the Best of Credit Unions and Banking
The web site is still under construction so there is not a lot to see at this time. The CEO stated the bank would rely on ouside vendors to meet its technology (presumably digital banking) solutions.
The banking charter gives the possibility of national reach for younger geneations of retail customers. Those at the beginning of their financial lives may not be the sponsors prime target for insurance products today. Rather loans may be their first financial need along with basic transaction services.
The bank’s differentiation will be personal service: “We’re not going to be putting bots in front of clients, The human piece is extremely hard to replace.” This approach is called “purpose based advice.”
The de novo has a lot going for it. A 120-year old non-profit financial sponsor-owner with deep pockets; the experience and start up relationships from the credit union; and a philosophy of service seeking life-long member relationships. It has an affinity client base from the parent as an initial focus.
The critical question is whether a digital only delivery strategy can effectively compete with local, personal credit union service centers staffed with experienced personnel. Being present in and an active part of the communities served is both the foundation and special advantage of credit unions.
Digital offerings for most credit unions, compliment but do not replace the option for in-person service. And community presence and involvement. In the few cases where digital-first is the primary go to market effort, those credit unions are struggling compared to the performance of their more grounded peers.
The Thrivent Bank is very unlikely to fail. The real question is how successful the digital only strategy will be? And at what cost to create a clear value advantage for users? Especially in a virtual world where options are just a click or AI search away?
I received a communication from an experienced, throughtful and committed credit union leader last week. He believes in the unique role of cooperatives in the American financial system.
But he is throwing in the towel, so to speak. He has been an advocate for member value, especially in merger situations. That strategic choice, he believes, should be especially well-documented with data and plans. Because it ends the independence and member choice of a long serving institution.
Most importantly he supports the position that owners, whose loyalty created the credit union’s mutual equity, should benefit from such combinations.
No more though. For his stance for cooperative integrity has resulted in an anti-merger reputation. In his words: Welive in a capitalist society, and we have a cooperative movement that often co-opts cooperativism while fully embracing capitalism. . . So rather than spending my energy in opposition to that current, I’m shifting toward supporting the institutions that actually want to grow strategically and maintain themselves — the ones who want to remain independent, sharpen their execution, and live more fully into their cooperative identity.
He will find that there are plenty of cooperative leaders who still embrace that approach.
Moral Relativism and the Erosion of Public Trust
But there is another rationale I hear repeatedly from credit union leaders defending the growing merger frenzy. This logic asserts: Mergers are the wave of the future; everyone is doing it; so let’s not be left out of this treasure-scavenger hunt now going on.
This defense, everyone is doing it, is common in many areas of life, not just in business. It quickly leads to moral relativism. That is, some asset, cooperative values must keep up with the times and current practices.
Last week the Wall Street Journal published an opinion piece of this frequently stated defense for leaders’ actions. Here are excerpts from that article by Gerard Baker: (link)
Moral relativism is enticing. It enables me to establish the moral value of everything I do by reference to the behavior of others. It allows me to avoid censure by judging my intentions, choices and actions not on the basis of whether they are intrinsically right or wrong, but by the lesser standard of whether someone in a similar position might have done something similar.
It is deeply corrosive of personal mores and social trust. Over time it dulls the conscience to any moral hierarchy. It is never a legal defense and shouldn’t be a moral one.
Moral relativism is hardly new in public life. Self-exoneration through false moral equivalence by public figures is as old as time itself. But when it becomes the controlling ethical architecture of public behavior, we are in serious trouble. Its effect is to give leaders permission to do just about anything they want, unconstrained by guilt, shame or political sanction.
Moral relativism and the ratchet effect will ensure that there is always some precedent close enough to persuade people to shrug even when confronted with some evidence of genuine turpitude on their own side.
The Questions for Coop Mergers
Isn’t it time for credit unions who believe in the special role of cooperatives to ask whether this increasing frenzy is really serving members or merely the acquisitive ambitions of CEO’s and passive boards?
Only about 3-4% of of credit unions will complete a merger in any one year. Yet the vast majority remain silent as some of their peers become coop predators.
Are leader’s uncritical acceptance of this restructuring a sign of the system’s strength or a fundamental weakness?
There are many more questions that should be asked. (link) But the most important one is Qui bono, Latin for who benefits?
Required disclosures in the NCUA approved Member Notices suggest it is rarely the members.
Last week the Trump team floated the concept of a fifty year mortgage as a means of improving housing affordability.
It is a dubious financial proposal that would bascially turn a new home owner into a “long term renter with a mortgage.” It gives the appearance of building wealth without any substance.
Home ownership is key to longer term personal financial well being. But a twenty year extension of the 30 year standard mortagage means that almost all of the initial decade of payments are for interest only. Little equity is being built.
The average life of an initial home purchase, before moving up or on, is generally under ten years. Equity accumulation would most likely come from a gain in market value on sale versus any paydown on the mortgage loan itself.
Most first time home owners are in their late 20’s or early 30’s. The idea of paying on a mortgage till age 80 would not appear to be a realistic financial plan-unless one hopes to refinance with a shorter term when higher income permits.
In the short term, a 50-year mortgage may appear cheaper. The payment on a 50-year mortgage, for instance, for a $200,000 loan at 6% would be about $1,052, where a 30-year loan would have a payment of $1,199.
However, a long term mortgage is always likely to have a higher rate than a shorter term or an adjustable rate loan.
Finally if for reasons not otherwise obvious at this time, if a 50 year mortgage did increase purchaser’s buying power, it would likely increase demand for homes. When demand goes up, so do prices.
More Creativity Not Impractical Ideas
The 50 year mortgage is not a solution for housing affordability. Rather other creative innovations such asf coop ownership, shared equity or creative financial terms would appear more in the member’s best interest.
Housing affordability is a fertile area for credit unions’ ingenuity. Because they still portfolio mortgages they can invent new financial approaches to home ownership and not merely conform to secondary market requirements.
Credit unions are stewards for vital member owned assets: shares and their loan IOU’s. Both are critical in any member’s financial life. Wise deployment of members’ funds is critical to their confidence and an institution’s reptation.
Cooperative stewardship has many aspects beyond financial soundness. A failure in any of these responsibilities, whether big or small, can create cracks in the foundation of member-owner trust.
Market events this past week raise important questions on two initiatives that are central to some credit unions’ strategic priorities. The first is out of market mergers/acquisitions for growth. The second is offering to assist members purchase of digital assets, for a fee, as an extension of the credit union’s service profile.
Entering Far Away Markets
As local merger opportunities become less available, credit unions have increasingly sought acquisitions far beyond their core markets. These involve out of state mergers where there is no prior connection by occupation, sponsor or other affinity. The continuing credit union brings no prior market recognition.
Sometimes these out of area mergers result in the jettisoning of all prior local relationships and branding legacies for both institutions. (link) A complete makeover of market positioning is necessary for the surivor in both its old and new markets. This can sacrifice generations of member goodwill, attention and loyalty.
Last week a major regional bank pushed back against this opened-ended territorial expansion in a presentation to his banking peers. The story was reported in the Daily Banking Dive on November 7: M&T eschews the temptation of national presence. It reads in part:
The Buffalo, New York-based lender remains focused on dominance in its current markets, said CEO René Jones, expressing some doubt that banks can perform at optimal levels as they expand.
“The most active bank merger-and-acquisition environment in years has lenders chasing scale in far-flung areas of the country. But regional bank M&T is taking a different tack. . .
The $211 billion-asset bank has about $162.7 billion in deposits and 960 branches across 13 states from Maine to Virginia. Jones, for his part, seemed to cast doubt on banks’ ability to execute at the same level as their footprint expands.
“As you get further and further away from home and [add] more geographies, I think the management challenge goes up, because you’re really an organization that is built around culture, and cultural norms, some of which are documented, many of which are not.”
“Having enough people to deploy across that kind of a geography, who will make the same decisions that you make, I think, becomes more and more challenged as you get larger,
He acknowledged buzz around national scale, “but the question is, what is your reputation and the awareness and how well you do your job for those people that you concentrate on?”
“We’ve decided not to be a national bank, so we better be focused on achieving our goal where we are.” He added. “Mergers of equals “don’t make sense.”
The article has further M&T history. But he is taking a public strategic position that is at odds with many of his peers, industry consultants and forecasters of banking’s future.
Is there a message for credit unions from his experience and performance? For credit unions, what is the track record of member benefit with out-of-area acquisitions? How do such efforts help the surviving credit unions member-ownes?
Facilitating the Sale of Crypto Assets to Members
Offering members the ability to invest in digital assets in partnership with third parties has become a front line service extensions for an increasing number of credit unions.
This past week the value of bitcoin declined about 15% from its peak. This has resulted in sharp declines in the stock of firms holding significant crypto assets (sometimes called treasury- companies). These stock traded firms buy bitcoin or other crypto currencies intending to benefit from the increasing investment hype in these new assets.Their value proposition is to provide consumers indirect exposure to these assets without the hassle of direct ownership.
The market leader in this effort is the company Strategy. Here is the November 9thWall Street Journal story about the performance of these indirect crypto investments so far this year: The Year’s Hottest Crypto Trade Is Crumbling.
It describes hownthe recent market selloff in bitcoin and other digital tokens has hit these crypto-treasury company stocks . It provides multiple examples of price declines of over 30% in one month. It documents how ”the hottest crypto trade has turned cold” gives multiple examples of wealthy individual investors and companies who have lost money.
These October events have caused some to reiterate their skepticism of crypto as a store of value. With no performance or use, it is pure market speculation. While true believers say this is a “buying opportunity” asserting “bitcoin is on sale.”
The Wisdom of Crowds or the Greater Fool Theory of Speculators?
The Trump administration is certainly crypto-friendly. There are numerous efforts to bring crypto into the financial mainstream as a “routine” financial investment.
But should credit unions be facilitating diect or indirect transactions at this very uncertain point in the future of alternative currencies? The fees can be attractive when members both buy and sell. The credit union would seem to have little to no risk exposure in the traditional understanding of that term. The payment is in cash and a third party offers and holds the asset.
But is it wise for the members whom the movement was formed to serve? Credit unions present themselves as expert in many areas of a member’s financial life. They offer through third parties, or CUSO’s, insurance products, mutual funds and stocks, and financial advice, planning and consultation.
Crypto as a financial assetand has a vary different character than other currency assets. The coins are offered via third parties (not governments-yet). Some stable-asset coins are in theory backed by government issued currency or bonds. But the oversight of this structure is unclear.
Yes, members can go elsewhere to purchase crypto assets directly or via EFT’s or “treasury company’s” stocks.
But I know of no one recommending that a large part of a person’s savings be put in crypto. The future value is a gamble. All of he experience so far is at best erratic and uncertain, exuberance followed by quick periods of decline. Crypto based options appears to be speculation, not an asset of proven value.
The Efficacy of NO
Sometimes the best response a credit union can give a member request is No. We don’t believe the member’s request for a loan for a specific car, or selling lottery tickets or crypto is a wise decision for our member(s).
Oftentimes we recall persons in institutions that said No to us. Especially when we wanted something strongly. Even though it is hard to understand the No, later we realize it was a decision made for mutual interest-yours and the institution’s reputation. I believe in time, we remember and respect these moments of wiser concern than what we can grasp, at the time, on our own.
The Wisdom No
The market is saying something important in both of these recent examples. Are we willing to examine other’s judgments, not just take our own counsel?
For our purpose is to be wise stewards of our members’ financial well being through example and deed. And not simply join a herd heading to who knows where in the future.
