The Institute for Local Self Reliance (ILSR) has turned 50 years old. Its mission is to build local power and fight large corporate control through research, advocacy, and community assistance to advance vibrant, sustainable, and equitable cities and towns.
This 11-minute video below provides its history from founding in 1974 in D.C. to its present multi-faceted efforts. The organization became national in the early 1980’s when it opened its head office in Minneapolis.
In the 90’s It was an outlier in the world of “bigger is better” and the pull of the global economy on large corporate growth ambitions. However, its focus on local self-reliance regained momentum and focus as the power of monopolies became increasingly questioned, especially its impact on local economic communities.
The Institute’s approach is decentralization emphasizing local control and resisting corporate displacement of independent options. The goal is enhancing freedom and democracy with self-reliant economic projects and political control. Today it has four areas of focus: community broadband efforts, composting, energy democracy and promoting independent locally owned businesses.
While the advocacy and research efforts would seem to make the ILSR a natural ally of credit unions, there appears to be no overt participation in this cooperative financial sector.
Why Local Matters
In an era in which many tout scale as the most important competitive necessity, the real sustainable advantage for most credit unions is their “local” character, identity and related service advantages.
At September 2024, the industry’s call report data suggests that over 87% of credit unions offer some form of on online transaction access. The Internet advantage, no matter how sophisticated, is rarely a sustainable or unique delivery channel or even special user experience. However, being local is.
An Example of a Large, Local Advantage
Recently Jim Blaine has posted several articles on the founding of the country’s second largest credit union, State Employees of North Carolina (SECU). The post below details the founding character and common bond of the credit union.
Almost every state in the country had at least one or multiple credit unions with state employees as their core FOM. But only SECU made the breakout to record this growth achievement versus many states with much larger potential in their employee base.
How was this breakout accomplished? As the credit union’s operations expanded to locations and counties throughout the state, the critical advantage was keeping local input, oversight and responsibility at the branch level. Loans were made and collected by each branch; local advisory boards and committees were formed; employees were local; and the various aspects of community involvement were locally determined. Out of this local self-reliance, the second largest credit union in America was constructed.
“No one questions that credit unions were created in the U.S. to provide access to credit for working men and women – particularly those of “modest means”. Why? Because “back then” many payroll offices were confronted with regular, recurring employee requests for “a short-term advance” prior to payday. Money is always in short supply for most folks – both “back then” and now.
“Not helping an excellent employee in a time of need was “bad for business” and employee relations. Sending them to a loan shark was worse. “Payday lending” at rates usually exceeding 100+% – both “back then” and now – creates a death spiral of financial dependency for a consumer. Shackles not made of iron, but shackles just the same.
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. …” I owe my soul”... that can be a problem, … beware.
“Employers embraced “company credit unions” as an added benefit which could be used to assist and retain employees. Employers liked having an independent, employee-owned and led lender making the decisions on which employees qualified for loans – choices the employer did not want to make. Employers didn’t want to be in the lending business, nor have to “advance” company funds. To help out, employers frequently provided back office support, payroll deduction, office space and assisted employee-member volunteer leadership of the credit union.
“SECU, although a separate, independent organization, was “the company credit union” for North Carolina state government and the North Carolina school systems. The idea of a credit union as an important employee benefit caught on!
“Other N.C. companies also formed credit unions – R.J. Reynolds, AT&T, IBM, Champion Paper for their employees – as did many municipalities, local post offices, our military, and churches. At its peak, there were 360+ different credit unions in North Carolina, today just 60 remain.
“Is SECU still “the company credit union” for North Carolina state workers? What has changed?In order to know where you’re going, it often helps to know where you have been.”
(End Quote)
SECU’s Relevance for Today
Some of the companies and many of the 360 credit unions referenced in Jim’s blog no longer exist. However, the local communities and their residents are still present—even if now in separate lines of work. Local does not go away.
Local does not mean an effort must remain small. No, local wins because it is built on the ultimate credit union advantage of relationships and self-reliance.
A billion dollar credit union’s car loan, savings account or even mortgage are often a commodity, no different from similar products offered by a ten million dollar institution. The difference is personal, being able to talk with a real person who is familiar with your community and circumstance.
The ILSR has continued to present the power of local solutions and control in its newsletter. A recent article was on grocery prices: High prices are a problem. Here’s how to solve it. Perhaps its opportune for credit unions to align and participate with the work of the ILSR. For it appears to capture the ultimate advantage of a member-owned cooperative-its local identity. control and focus.
Writing about the future is easy. Rarely do readers look back when events have unfolded. Moreover such forecasts often reflect, not insight or wisdom, but rather one’s own efforts to protect vested interests.
However there are some reference points which can help us think about what a credit union might do going forward into a possible disrupted regulatory future.
Today I will review what Project 2025 says about federal regulation. I could find no direct reference to credit unions although I did not review all 900 pages.
Published in 2023, President-elect Trump has denied association with the ideas presented in the document. More than 100 conservative organizations were involved in its creation. I found the brief section I cite below had over four pages of extensive reference notes.
From page 705:One of the priorities of the incoming Administration should be to restructure the outdated and cumbersome financial regulatory system in order to promote financial innovation, improve regulator efficiency, reduce regulatory costs, close regulatory gaps, eliminate regulatory arbitrage, provide clear statutory authority, consolidate regulatory agencies or reduce the size of government, and increase transparency.
Merging Functions. The new Administration should establish a more streamlined bank and supervision by supporting legislation to merge the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the National Credit Union Administration, and the Federal Reserve’s non-monetary supervisory and regulatory functions.
U.S. banking law remains stuck in the 1930s regarding which functions financial companies should perform. It was never a good idea either to restrict banks to taking deposits and making loans or to prevent investment banks from taking deposits. Doing so makes markets less stable. All financial intermediaries function by pooling the financial resources of those who want to save and funneling them to others that are willing and able to pay for additional funds. This underlying principle should guide U.S. financial laws.
Policymakers should create new charters for financial firms that eliminate activity restrictions and reduce regulations in return for straightforward higher equity or risk-retention standards. Ultimately, these charters would replace government regulation with competition and market discipline, thereby lowering the risk of future financial crises and improving the ability of individuals to create wealth.
From page 706: Direct government ownership has worsened the risks that government-sponsored enterprises (GSEs) pose to the mortgage market, and stock sales and other reforms should be pursued. Treasury should take the lead in the next President’s legislative vision guided by the following principles:
Fannie Mae and Freddie Mac (both GSEs) must he wound down in an orderly manner.
The Common Securitization Platform57 should be privatized and broadly available.
Barriers to private investment must be removed to pave the way for a robust private market.
The missions of the Federal Housing Administration and the Government National Mortgage Association (“Ginnie Mae“) must he right-sized to serve a defined mission.
(End Quote)
The text also states that Congress should repeal titles of the Dodd-Frank Act that created the Financial Stability Oversight Council (FSOC), a federal government organization which identifies risks, promotes market discipline and responds to emerging threats. Project 2025 defines the FSOC as a “super-regulator tasked with identifying so-called systemically important financial institutions and singling them out for especially stringent regulation.”
A Learning Event: The S&L Dissolution
In the late 1970’s the S&L industry held the largest deposit market share in California, much larger than banking competitors. This was before deregulation. Most depository firms were limited to operating in a single state or in some cases, a single location (Illinois).
Today S&L’s no longer exist as a separate industry even though 555 savings institutions with $1.2 trillion in assets still operated at June 2024. All deposits are FDIC insured. Of the total institutions, 241 are supervised by the OCC, 276 by the FDIC and 37 by the Federal Reserve. While state and federal chartered institutions still function, the system is under federal direction.
While there are many reasons for the loss of the S&L’s as a separate, independent financial segment, the dominant factor was that many of the causes were self-inflicted. These included a loss of special purpose, rapid multistate expansion through acquisitions, and balance sheets weighed down with fixed rate mortgages in a deregulated deposit funding environment after 1981.
After the mid 1990’s, there was no separate FSLIC insurance fund, no Federal Home Loan Bank Board to oversee the industry, and the FHLB liquidity system survived by serving all real estate lenders including credit unions. In most states the mutual charter exists as an anachronism, with no new charters being issued. At the state level supervision is provided by a single banking/financial institutions department.
While external financial events did contribute to the industry’s collapse, competitors did survive and thrive, especially credit unions. At the February 1982 GAC in D.C., CUNA President Jim Williams told new NCUA Chairman Callahan there was only one topic on credit union’s minds: survival.
Together credit unions and NCUA embraced deregulation and the changes in structure and oversight the new environment would require. Hunkering down , protecting existing ways and asking for more funding to address problems was not the approach.
Whether the new administration will be as disruptive of federal regulators as indicated in campaign rhetoric, remains to be seen. The lessons from an earlier era can be helpful: remember who you are and build on what brought success to this point in time.
Many of the factors in the S&L demise were self-initiated with leadership failures. Cooperative success in navigating external changes was accomplished though enhanced collaborative efforts between credit unions and their regulators. not each trying to go their own separate ways.
Every day credit unions cause miracles to happen for members. You and I may not always see it from the recipient’s point of view. It may seem like just another transaction. But these events are miracles for persons often in extended circumstances and feeling without options or hope.
Following is a miracle story. It may seem small in the overall scheme of things, but it is everything to this member’s family.
Being Treated “Like a Human”
(Used with permission)
This story is about Corey who was assisted by our Financial Coach Ashley, who works at the Wilmington Member Center. While working the lobby on a busy Monday, Ashley met with Corey who had come into to talk about a car loan.
When they started talking about the loan details, Corey told Ashley that he was not even sure if this would be possible. He stated they had some life altering changes a while back and their credit took a major turn for the worse. He was not in desperate need of a new vehicle, but he wanted to try. Corey had been working on their family’s credit for a while and wanted to see where they stood.
Ashley encouraged the member, and after pulling his credit report she took a deep dive. The report showed his credit score of 536. (Note: this is a “below average” credit rating; the average American consumer has a 714 score.)
She recognized that Corey was hesitant to even talk about the credit score and that it was weighing on his mind.
She explained that if we have a reason “Why” behind what happened, that can give us the full picture. We are aware that “life happens.” She asked him to clarify what life changing circumstance occurred. Let us just say the member and their spouse were put though something we hope no one will ever have to go through.
While typing up her notes, Corey asked if she was putting the details of what happened in the loan file. Ashley realized that Corey had just re-lived a traumatic event in his life.
When they were finished with the application, Corey got up, shook Ashley’s hand and said thank you. Ashley replied, “No problem, it is what we are here for.” The member responded with, “No, thank you for treating me like a HUMAN.” Corey stated he had been to several banks and was just given a hard no. Without asking questions, without seeming like they care, they just saw a terrible credit score and not a person and valued member.
The next step was for Ashely to review the details and give the full picture of the situation to the underwriter. The next day Ashley learned the loan was approved. She was so excited to call Corey and share the great news. When Corey came into the member center for the loan closing, he gave Ashley a big hug and thanked her repeatedly. Ashley is now working on a share secured credit card to help him improve his credit even more!!
To quote Ashley, “This is one of the most genuine interactions I have ever had with a member. I will most definitely be their person at the credit union going forward!! Even when we learned a tough “why” as to what happened, we were able to serve with the best possible solution. “
This story represents the hope we provide through our caring financial partner-employees. I love that Ashley recognized bad things happen to good people. Congrats and thank you Ashley for demonstrating why we exist!
Some Financial Context
This midwestern credit union serves a market that largely lives paycheck to paycheck. In other parts of the CEO’s staff update, he reported on the increase in charge-offs this year:
For the year, we have expensed $52.3MM for credit losses which is $16.6MM more than we budgeted for the year and $26.8MM more than in the same period of 2023. Credit loss expense remains one of our primary concerns for the short and longer term. It is the #1 reason we are missing our net income target in 2024.
Even with this drag on financial results, the credit union reported loan growth of 8.3% and share growth of 8.8% or almost three times the national average at September 2024. ROA is .80% and networth 10.9%.
Most importantly, this increase in defaults did not stop employees from doing the right thing for members, especially those in financial difficulty.
Taking care of members, even those on the financial margins, is good business. And that’s how cooperatives make real miracles happen in people’s lives every day.
As consumer focused financial providers, changes in local employment patterns can have a profound impact on members’ and their credit union’s financial outlook.
Credit unions have always walked toward members and communities in difficulty, not away. The importance of a local credit union option is especially critical for those living in areas of slower growth and/or lower paying job opportunities. Now a study has tried to identify those cities whose economies trail national averages.
In the FDIC’s Second Quarter report, there is an article U.S. Industrial Transition and Its Effect on Metro Areas and Community Banks (pgs 45-74).
The study covers fifty years from 1970-2019 in the shifting employment patterns from higher paying industrial occupations, such as manufacturing, to an economy based on service industry and technology.
The study uses Metropolitan Statistical areas (MSA’s) and developed a “transition score” for ranking the areas showing those most impacted by the decline in higher-paying to lower-paying employment.
Of the country’s 387 MSA’s (cities over 50,000) those with higher transition scores had slower economic growth, were mostly smaller in population, and located in the Northeast and Upper Midwest. The two study tables below show the MSA’s with the highest employment transition scores along with the change in total employment over the past fifty years.
Of the 54 MSA’s in states with the highest number transition scores, Pennsylvania led the states with ten.
(note: for highlighted MSA’s above the study presents analysis of each showing why they reported high population growth)
Additional tables and graphs illustrate both the distribution of the highest scores and the lower impact scores among the largest MSA’s which tend to have a more diversified industrial employment base (table 3 page 55).
As one would surmise, MSA’s with high employment transition scores had slower income growth than the nation as a whole. (chart 4, pg 57)
In the four metro areas with the highest scores above, there were a number of other negative economic factors in addition to the erosion of manufacturing. These included total employment and population declines, slower per capital and GDP growth versus national averages, natural disasters and a lack of amenities such as universities and favorable weather.
Impact on Community Bank Performance
The report’s final pages analyze the performance of banks whose headquarters were in one of the 54 MSA’s with the highest transition scores, that is communities impacted by the greatest change in employment patterns. Following are some of their conclusions.
While overall performance is generally lower, these banks performed better than other community institutions in periods of high economic stress. In terms of structure, consolidation occurred as in the industry at large, such that only 31% of high transition communities were left with a local institution by 2019. New charters were less frequent in these MSA’s. But bank failure rates were lower.
In the highest transition scored MSA’s, banks had weaker branch and deposit growth, slower overall financial activity including pretax ROA.
The reason for these banks better performance during the two periods of economic crisis, was that their balance sheets contained more single family residential loans and lower exposure to commercial and industrial loans than institutions located in a less impacted MSA’s.
The Takeaways for Credit Unions
Credit unions are no strangers to changing employment patterns in their market areas. Many were originally chartered with employer based FOM’s. The deregulation of the early 1980’s allowed both state and federal charters to diversify their member base and seek other growth options.
The banks that were most resilient during these employment transitions focused more on first mortgage lending and less on commercial. Credit unions are almost exclusively consumer and real estate focused lenders. Even when an industry or local employer closes, the members tend to stay local. And need their credit union more than ever.
The study shows the external context matters in overall performance. It shows the obvious–that slower economic growth tends to correlate with lower financial performance. It also reinforces the critical and crucial role locally-focused financial firms have in these community transitions.
There is a cyclical pattern in much economic change. A high growth area becomes crowded, expensive, and loses appeal versus communities with lower home prices and more stable institutions. The role of credit unions as local economic actors is vital in both communities.
Many commentators suggest the latest election outcomes were driven by voters’ dissatisfaction with their economic situation, especially inflation.
Credit unions have the chance to take the lead in giving these members a hand up.
As other firms may rush to the high growth market attractions, the study shows that sustainability in times of deep transition is not only possible, but critical to the bringing the time closer when good fortunes return.
As the new administration’s post election appointments and policy directions are implemented, the credit union system is on a stable foundation.
There are still latent issues of vital importance, most of which the NCUA board has adeptly avoided. But the macro-financials reported in Callahan’s 3rd Quarter Trend Watch overview yesterday are strong and heading in the right direction. This is the link to the 72 slide deck. The full recording is available here.
Some observations I noted:
Improving liquidity: In Alloya Corporate’s economic summary they presented their balance sheet trends to show the industry’s improving liquidity position as demonstrated by the growth in members’ deposit balances.
For all natural person credit unions, total borrowings have fallen and are now only 5.2% of assets, loan and share growth are in even balance, and the market value in underwater investments has recovered another $9 billion in value. Liquidity is coming back.
Slow Growth
The overall theme for this quarterly update was balance sheet growth much less than the industry’s CAGR over the past 20 years. The September 2024, 12-month share increase was 3.2% versus 6.3% over the past two decades. For loans, the latest 2.59% growth is less than half the 20 year average of 7%.
An interesting statistic about the 2.5% in additional members is analysis showing credit unions with organic growth grew faster than those institutions relying on third party loan originations, a common means of adding members.
The upside of this modest growth was that the various measures of total capital and net worth(10.8%) have all increased versus one year earlier.
Takeaways In a Changing Administration
The credit union system was financially strong before the election. Nothing has altered this fact. A change in regulatory leadership is coming. Questions credit unions might consider as this political turnover occurs might be:
How will this change affect your members’ lives? Will the direct governmental assistance of the COVD era and programs such as student loan forgiveness end?
How will reliance on market outcomes affect lending opportunities such as climate related projects or electronic vehicle sales?
Will the new normal in the Fed’s overnight rate settle in an expected range of 2.5-3.0%–or will fiscal policy drive a higher or lower level?
With a more market-oriented administration, will the unique role of credit unions be sustained, or will the industry just be seen as another option in an ever expanding lineup of fintech, bitcoin and other financial providers.
In a future blog I will explore issues of regulatory policy and present a case study of a prior time of major change in administration.
The Good News
The good news for credit unions at this moment of national policy changeover is that they are in a sound position to deliver for members on all of their traditional service options.
They can continue to help members who feel vulnerable or overlooked. And maybe they can bring to those struggling with inflation or even bigger goals such as buying a home, even more responsive financial solutions in the four years ahead.
A critical strategic advantage for most credit unions is location, a place members can see and access as necessary. A local office serves a different and broader role than just convenience. While telephone or virtual web access are necessary, they are not the same as a unique presence.
A credit union office serves notice to the community that the credit union is theirs. Members not only have interaction with employees but also with each other. Many credit unions use signage and participation in events to reinforce being part of the community. Local emloyeess and directors provide real time market knowledge that are impossible to acquire in other delivery channels.
Following are two examples of service experiences, one remote and one in person. Both involve a member trying to resolve an issue.
A Remote Service Experience
Even before I read your article on Credit Union 1, I have been preparing to leave for another credit union. The credit union has become just a computer Bot. Call member service and it takes 15 minutes to get around the automated phone responder “LUNA”. You can repeatedly ask for a member service rep but she always has another set of buttons for you to press. I’m not against automation and use it often to transact much of my personal business. But when you need to talk to a person that is not an option.
Recently the credit card company they use overcharged me. I called CU1. Immediately they put the transaction on hold and referred the problem to the Credit Card Bank. After filling out several reports to file with the card bank and months (June to October) of waiting for them to remove the charges I was notified that they were going to go ahead and put the charge on my credit card as they did originally.
Contacting CU1, they gave me instructions on how to deal with my credit card bank and the airlines to maybe solve the issue. We’re talking about $775 and no help from the credit union. And I do not like the card processor. More electronics and fewer personal assistance.
I know this sounds like someone from the past not being up to date with what is going on in the present; but really I make many of my daily transaction payments with my Apple watch; having connected voice over internet protocol for my home phone service; and many more. I do like the speed and direct processing that the new electronics offer, but it can’t replace a person for everything.
Remote Islands, Microsites and Personal Service
Tongass FCU, Ketchikan, AK serves Southeast Alaska with locations in a region of islands (the Alexander Archipelago) and the Tongass National Forest. No roads connect these islands!
At September 30, 2024, the credit union reported $228 million in assets from 13,710 members served by 13 branches and 85 employees.
CEO Helen Mickel has worked at this 61-year old credit union for 22 years. For the credit union the distance to the nearest branch often requires a small plane or ferry.
It has developed Community Microsties to meet the financial needs of remote coastal villages. Microsites are built upon a relationship between TFCU and the local community. The community invests in TFCU by opening accounts and providing a free space to operate, while TFCU provides an ATM, lobby hours, and local jobs.
The future: TFCU seeks to build community-microsites and branches to promote prospering communities. We believe that a financial institution is a pillar of a community. It brings education, opportunity and financial access to the remote villages and towns of our beautiful state.
Here is a story with pictures from Helen of what this sometimes requires in practice.
A Grumpy Member
It started with a very grumpy member threatening to close her account, to one of the best visits I’ve had with a member!💯
The mail is tricky in southeast Alaska and our statement vendor is in the lower 48.
This grumpy and worried member told me over the phone she was going to pull her money out on Monday because she still hadn’t received her monthly statement for August. I told her I’d like to meet her when she comes in and asked what time she would be at the credit union.
She said she heard the weather was going to turn and maybe she wouldn’t come down after all. She uses a cane and has 45 stairs to navigate when she leaves her home.
I offered to bring her a printed statement and introduce her to our assistant branch manager, Sabrina, so she wouldn’t have to leave her house. She liked that idea.😊
When I called to make sure she was okay with us stopping by, she said, “Yes! I’ve been waiting for you!”
The Member’s Museum
What a wonderful time we had! We worked out our business problem and then got a tour.
She had a “museum” of artifacts she had dug up on beaches and old community sites all over southeast Alaska! We talked about the good old days of early Ketchikan and shared stories.
I took pictures and told her I would be posting them and she was okay with that. She has lived in her home for 80 years – her whole life. It was the “cabin” for the first house that was built by her family on the side of a mountain.⛰️🌲
Pioneer members are some of my favorites. I love it when something difficult turns into a blessing for everyone! I couldn’t have started the week off better! ❤️
In addition to consumer inflation concerns as in the price of groceries, another economic topic on voters’ minds was affordable housing. High interest rates have brought the home purchase market to almost a standstill except for the well-to-do.
The average home price in the United States in 2024 is around $420,400, a 25% increase from 2020. Home prices vary widely by location. For example, the average home price in Iowa in 2024 is $205,988, while the average in Alabama is $217,75. Even with candidate Harris’ $25,000 down payment assistance for first time buyers, many would still see the aspiration as very difficult.
Today an update on the median home price for every state as of August 2024 was published by the Visual Capitalist website. The overall median (not average) for the US was $385,000.
Credit unions have been innovators in assisting members first home purchase efforts. These changes often go outside the standard secondary market underwriting requirements as many credit unions hold non conforming loans on their balance sheet. Product initiatives include low or sometimes no down payment, waiving transaction closing costs, and structuring variable rate loans with initial lower short term fixed rates followed by variable price reviews to ease the first years of payments.
This video is an example of how Community First (WI) structured their home lending to meet a family’s unique circumstances.
FHLB grants and other forms of community assistance are sometimes available. But given the continual rise in home prices even in the current slow markets, the prospect of a higher normal level interest rates, and the lack of affordable supply in many markets, is another approach required? Housing is also a market where technology would seem to have limited potential to change the cost side of the problem.
New approaches rethink the structure of home ownership by separating the cost of land from the house built on the property. Here are two examples of this approach. The descriptions are largely from the linked websites.
Neighborhood Housing Trusts
The first example is the Community Housing Trust (CHT) based in Ithaca, NY. CHT helps people with modest incomes buy their first homes. Since 2009, all of Ithaca Neighborhood Housing Service’s (INHS) home sales have been part of the Community Housing Trust. By using a special ownership structure, It is able to keep CHT homes affordable for the first buyer, and all future buyers as well.
INHS got its start by trying a new way to reverse the decline of downtown Ithaca: fixing homes up rather than tearing them down. In the 1960s and 1970s, Ithaca faced the problems challenging urban areas across the nation: a depressed economy, deteriorating housing, and the flight of homeowners to the suburbs.
Most of the homes in Ithaca’s downtown neighborhoods were more than 100 years old and owners could not get bank loans to buy new ones or didn’t have the skills or financial resources to make repairs.
In late 1976, inspired by an urban renewal program created in Pittsburgh which relied on a partnership between residents, businesses, and local government, Ithaca joined a network of successful Neighborhood Housing Services (NHS). Recognized by Congress in 1978 and known today as NeighborWorks® America, the national network of NHSs continues to recognize and nurture local solutions to local community development.
The Program’s Structure
The CHT is a “shared equity” program: the homebuyer purchases only the house and the Trust owns the land. The homeowner has a 99-year lease on the land, with a small monthly land rent. This arrangement greatly lowers the purchase price of the home. Because most CHT homes receive a special tax assessment, the property taxes can be much lower than a market rate house. INHS ensures that all CHT homes are built or renovated to be energy efficient and environmentally sustainable, another way that operating costs are kept low.
In exchange for these financial benefits, CHT homeowners agree to limit the amount of profit they can take from their homes when they are sold. CHT homes have a resale value that is capped at 2% increase per year. This allows the homeowner to build wealth in their properties, while ensuring that the home remains affordable for future owners.
The Funding
CHT homes cost on average more than $400,000 each to develop. The homes are sold for only about half that amount—between $150,000 and $210,000. INHS receives grant funds from a variety of sources to help fill the gap between development cost and selling price.
The permanent affordability of CHT homes means that the grant funds utilized to build them will benefit many lower-income households for generations to come!
The Durham Community Land Trustees
The timeline of this second example begins in 1987. The development of this North Carolina affordable housing initiative can be found here.This video, from 2017, shows a before and after look for one neighborhood built with members’ self-help.
How It Works
Similar to to Ithaca, a community land trust nonprofit organization retains land ownership, ensuring future housing affordability. Purchasers buy DCLT homes and lease the land these houses sit on for a low monthly fee for 99 years.
Owners can improve and maintain their homes.
They can leave their home to their children.
If a homeowner decides to sell, DCLT retains an option to repurchase the home to sell or rent to a future low-income resident or to assist the homeowner in identifying a new income-eligible purchaser.
The key feature: Homeowners share the equity they earn on their homes with future buyers, thus fostering long-term affordability even as surrounding neighborhood property values grow.
Credit Union’s Enhanced Role
Cooperatives are critical mortgage lenders in their local communities versus the nationwide all-comers model such as Rocket Mortgage. Many credit unions also sponsor foundations for local grants. Partnering with local housing agencies can facilitate oversight of land trusts or gain zoning support for both building and then managing the subsequent turnover with foundation land ownership.
Credit unions creative lending with on balance sheet solutions are a start to home ownership for some situations. But the broader challenge of affordability requires a collaborative effort that brings multiple resources and a different ownership design to the economics of single home ownership. A design that is partly cooperative but also combines with individual ownership responsibility.
If you are aware of credit unions participating in efforts to develop new ways of organizing home ownership and address affordability, I would welcome examples.
If one looks at the amounts of foreclosed property reported on the quarterly 5300 call reports, this suggests credit unions are already vested in home ownership turnarounds. Why not go the next step and create CUSO’s or other organizations that will restore neighborhoods and members’ ability to build financial well-being from home ownership?
November 5th’s outcome is not the end but just the next stage in our country’s political life. Regardless of the final party balance in Congress, for credit unions our work is cut out for us. We will find more ways to help members in need thus beginning to heal political divides in our communities and country.
While credit unions are rarely overtly partisan, their purpose is inherently political. The collective resources managed on our members’ behalf are intended to address member circumstances in ways for-profit market forces may overlook.
The role for the cooperative spirit has never been greater. Our mostly local focus is a critical advantage. Credit unions can again be leaders bringing light and hope to those who feel left out, or left behind, by economic events. Let’s get to work.
Synopsis:This detailed analysis of Credit Union 1 (Illinois) presents a pattern of declining financial performance covered up by multiple merger acquisitions, one-time sale events and rented capital. The future fortunes of eleven local sound credit unions have been destroyed in just two years. I believe this kind of predatory activity, left unexamined by all those in positions of responsibility, will lead to a reassessment of the advantages of the credit union charter by external legislators.
The article’s length is to present as much of the facts from these events so readers can make their own assessments. The situation summarized is I believe an example of internal industry reckless actions which present a false perception of success. The question for readers is: Does something need to change?
When there are no guardrails for a financial institution, anything goes. It is the law of the jungle; or what some describe as free market capitalism.
The dictionary definition of rogue is “an elephant or other large wild animal driven away or living apart from the herd and having savage or destructivetendencies.” Another reference is to unprincipled behavior by a person or persons.
This word rogue came to mind as I reviewed the activities and results of Credit Union 1 in Lombard, Illinois, since its conversion from ASI share insurance to NCUSIF in February 2022. A summary of the credit union’s merger tempo since this insurer changeover is shown in the following table for the ten already completed or scheduled to be by the 4th quarter of 2024.
In addition, the $12 million Synergy Partners CU, Chicago announced on October 17 a members’ vote for January 2025 to merge with Credit Union 1. That would increase to 11 mergers in only two- and one-half years. These will transfer over $650 million in total assets and over 62,000 members’ financial futures to Credit Union 1’s control.
In its October 2024 Member Notice, Synergy listed 23 Credit Union 1 branch operations in six states including the head office in Lombard, Illinois. The two furthest branches are in Bradenton, FL (1,230 miles) and Henderson, NV (1,750 miles apart).
Other new or ongoing initiatives along with this accelerating merger expansion activity include:
The credit union’s continuing and new sponsorship and marketing promotions with four outside organizations:
The Western Conference tie-in: On October 3, 2024 the Big West Athletic conference announced Credit Union 1 had become its official financial and literacy partner and the entitlement partner for the Mountain West Basketball Championships and all Olympic Sports Championships.
On June 3, 2022 Credit Union 1 announced agreement to purchase the $311 million NorthSide Community Bank, located an hour north from Lombard in Gurnee, IL. Both boards approved the transaction subject to regulatory and bank shareholder approval. The deal was not completed. There was no public explanation.
In May 2023 Credit Union 1 announced it would serve New York cannabis entrepreneurs who plan to open marijuana businesses as part of the state’s CUARD coalition. The same CUTimes article reports, “Credit Union 1 has been selected to participate in the Illinois Department of Commerce’s Cannabis Social Equity Loan Program and is also the preferred banking partner of the Chamber of Cannabis in Las Vegas..”
Even with these multiple marketing and business initiatives, the core of Credit Union 1’s growth efforts are mergers. The operational intensity of acquiring and converting 11 credit unions (six outside Illinois) and all associated member and vendor relationships in just over two years would be a major operational challenge for any organization.
The immediate question is how will the members of the merged credit unions benefit?
In the Member Notices posted on NCUA’s website for these combinations, the wording used under Reasons for Merger, Net Worth and Share Adjustment or distribution are identical. Members’ collective reserves are never distributed to owners even when the merged ratio is higher than Credit Union 1’s.
But zero is not what several of the merging CEO’s and senior staff are gaining.
Rewards for the Enabling CEOs
In the case of the $34.4 million Enterprise CU in Brookfield, WI, the 24-year tenured CEO, Jeff Bashaw, will receive a minimum ten-year contract with a base salary increase of $38,000 on top of his current compensation. I estimated (absent the required 990 IRS filing) that to be a minimum of $125,000 per year plus a $100,000 bonus upon closing. Total minimum amount $$1,350,000.
The credit union is in sound shape at 10.6% net worth, a profitable, single branch with low delinquency. After turning over his CEO responsibility, Bashaw’s role if any will be a branch manager or other honorary title. This ten-year contract with a pay raise seems merely a lengthy sinecure. The 8 employees and 2,815 members receive nothing-except the retiring CFO who will receive a bonus and severance of $110,000.
A Minority Depository Institution Leader?
At the $34 million Financial Access FCU in Bradenton, FL, the situation is more complicated. The credit union prior to merging, reported a 1Q ’24 loss of $517, 310. However, its net worth was still high at 18.4% ($6.4 million) and delinquency of only .39%. Was this a temporary loss or other problem?
In this merger CEO Sherod Halliburton is receiving a total of $3.2 million composed of a bonus of $125,000, an eight-year employment contract at $200,000 per year, and 100% immediate vesting of a $1.5 million split life benefit plan. He no longer has any CEO responsibility as the credit union will become merely a branch operation. The 15 employees and 2,577 members of Financial Access received nothing for their loyalty.
In a CEO Profile published by Inclusiv in February 2022, prior the merger efforts, Halliburton is lauded for his leadership. The article remarks on “his strong community ties and business acumen and how he decided to “bet on me” when offered the CEO position” eight years earlier. Further he points out that he is “one of a limited number of African American men running a financial institution and he accepts the great responsibility accompanying that honor.”
The profile lists his efforts “toward racial equity and responsibility.” He states, “We’ve gone from a somewhat negative perception . . . to now being viewed as a vital part of the economic infrastructure.” The credit union received two technical assistance grants to upgrade technology to meet his goal to double membership in three years. He closes with this affirmation: “We’re here to change lives. I want that to be the enduring message even when I’m gone.”
This Bradenton community credit union which he described as “a vital part of the economic infrastructure” no longer exists. Halliburton is now a Market VP for Credit Union 1 for the next eight years.
An October 2024 Approved Merger
The most recent example of CEOs cashing in is the $116 million Illinois Community CU with over 11% net worth and delinquency of .5%. In this acquisition, CEO Thor Dolan will receive a minimum in immediate total benefits of $1,904,494.
This total is described in the Member Notice as follows: a retention bonus of $150,000; deferred compensation of $50,000; a salary increase of $33,724 added to his 2023 reported 990 compensation of $245,770 or $279,494 per year (no employment length given}; and immediate 100% vesting of a $1,425,000 split dollar 20-year life insurance benefit plan.
This salary increase is despite the fact he is no longer CEO, either managing branches or a regional rep, both with no CEO operating responsibilities. Every additional year he remains employed will add another $280,000 to the package. There is no indication the 38 employees (except the CEO and CFO) gain any assurances of employment; and the 10,482 members receive nothing.
The Fates of the Merged Employees and Members
Each Member merger Notice posted by NCUA which I reviewed includes two standard assertions:
The credit union’s branch location(s) will remain open and become a part of Credit Union 1’s nationwide branch locations.
Employee Representation: Employees of the credit union will be offered employment with Credit Union 1.
However intended, neither of these statements have proved lasting in practice. Comparing the branch listing in the August 2023 Kankakee Valley Notice with the latest listing in the Synergy’s October 2024 Notice, six of the branches in the earlier Notice no longer exist, including three for Emory CU in Georgia and three for Illinois credit unions with single branch operations.
As for employees’ fate, for the twelve months ending June 2024, Credit Union 1 reported a reduction of 67 FTE from 418 to 351.
As a result of Credit Union 1’s merger strategy, there will be eleven fewer local charters which were operating well, a reduction of 70-80 volunteer directors and member committees, and loss of all local relationships and legacy brands.
All member savings and loans, collective capital, liquidity and fixed assets are now in the full control of an institution for which the members have no connection or first-hand knowledge. And in some cases thousands of miles distant. Ironically, Credit Union 1 states in all its promotions that anyone can join, so if members really thought this was a better deal, they could join anytime. But that would be a much harder marketing task than just purchasing the business by paying the CEO—and getting the members’ accounts and accumulated reserves for free.
Members also have a totally new financial institution relationship to navigate. The Credit Uniion 1 material sent to each member post-voting is a 15 page pdf system conversion process and timeline. Member instructions include setting up new payment and loan options, establishing digital accounts and using online financial tools.
Depending on the version usent, the membership agreement for each merged credit union is a minimum and 20 pages. It contains essential information about fees, rates, funds availability, mandatory arbitration and multiple other disclosures which few will be able to read through. The members will learn through experience how everything has changed.
An important difference in Illinois state versus federal charters is the use of proxy voting in all member required elections, including mergers. For Illinois credit unions, proxies are controlled by the board. I did not see this fact disclosed in the FCU mergers, where proxies are not permitted. In essence, FCU members turn their voting governance power over to a new board. These directorst can routinely reappoint themselves without any member vote. More about this later.
Implementing a Capital Markets Strategy-Without the Risk
Credit Union 1’s merger campaign is an adaptation of a traditional capital market strategy of hedge funds and investment firms. Except these buyouts of numerous, smaller independent firms in an industry (think hospitals, barber shops, rental housing, or local HVAC firms) require putting their own capital at risk. These new hedge fund owners then burden their acquired firms with the debt used to finance the buyouts, strip and sell the highest value assets, reduce costs and services to pay for the debt coverage, and ultimately resell the merged business back to the market for a capital gain.
Credit unions reverse this model in mergers—they use the acquired assets, not their own members’ capital, to finance these acquisition sprees. Except when buying banks. The equity in these “mergers” is often transferred in full with no payout to the owner-members. The only necessary sales pitch required is to convince the CEO to bring the board along. There is zero risk to the continuing credit union. The “acquisition” is free. The members lose all their financial and institutional legacy and become subject to the control of a board and CEO that will be completely new to them.
We learn in the Notices that no staff or board due diligence or alternatives is presented. There is rhetoric about “technology and systems that align with members needs.” And, how “internal core values align with our own and . . . confident (that) members will experience a much needed upgrade in the quality of service.” No facts, just vague promises.
These same words were used in the eleven Notices showing the abdication of any director or CEO independent assessment. The words are merely a formula from previous transactions to pass regulatory approval. The members are given no objective measures or specifics that would identify better rates, fees or specific services. Just indefinite promises.
As for core values, institutions don’t have values, people do. So the acquirer’s goal is to find CEOs willing to cash out of their leadership role, rather than evaluate what is in the members’ best interest.
The Numbers Show the Urgency in Credit Union 1’s Merger Efforts
Some readers may believe this is just another example of self-dealing in mergers. It is. But there is a major financial imperative driving this effort.
Credit Union 1 is desperate for mergers not simply for growth, but because its financial performance is a house of cards. For the past five years it has been unable to generate a normal operating net income from its own balance sheet assets. As a result, it has turned to non-operating gains, acquired and borrowed capital (sub debt) and other financial options that disguise its very poor or sometimes non-existent internal rate of return. Here are some of the numbers.
At December 2021, Credit Union 1 had $106.8million net worth ($98.9 Undivided Earnings -UDE- and $8 m other reserves). The net worth ratio was 8.7%. Net income of $13.8 million that year was largely driven by a $7.5 million non-operating gain on sale of fixed assets.
At June 2024, the credit union reports just $88.6 million in undivided earnings, $8 million in other reserves for a total $96.6 million, that is $10 million lower than at December 2021 total.
To report an acceptable net worth ratio the credit union now includes $20.5 million in subordinated debt (borrowed capital), $45.1 million in equity acquired from credit union mergers, and a $7.1 CECL transition reserve. Without these non-operating additions to reserves, Credit Union 1’s net worth ratio would be only 5.8% versus the reported 10.2%.
But even the $88.6 million in UDE at June 2024 is misleading. At yearend 2020 the credit union reported $16.9 million in land and buildings. Three and a half years later, June 2024, the total is just $2.9 million. In the same period the credit union reported $15.1 million gains on sale of fixed assets. In the 18 months ending June 2024, the credit union also had non-operating gains on loan sales of $4.6 million.
It is not possible to determine how much of these sales are from Credit Union 1’s own assets or from the loans and fixed assets acquired via mergers. These sales amount to almost $20 million of the $88.6 reported UDE in June 2024. These are one-time events that are reported in net income thereby adding to retained earnings, but in fact are non-operating, one-off gains.
Safety and Soundness Questions
If these one-time gains are subtracted to show actual operating net worth generated from continuing operations, the net worth ratio from internal operations would be only 4.6%. Hence the credit union’s drive to raise external capital (sub debt) and acquire other credit unions’ reserves. Its dependence on external capital and one-time sales raises significant safety and soundness questions.
Internal operations are not generating sufficient capital to maintain required net worth minimums. For example, in the full year 2023, the credit union would have reported an operating loss of $429,000 except for the one-time gains on sale of fixed assets and loans. Through the first six months of 2024, the credit union’s ROA is only .39% or just .23% without extraordinary gains. (all data from NCUA tables)
The financial results are in even steeper decline than what is presented. If one considers the impact of adding merged shares and loans from the preceding four quarters prior to June 2024, there are critical balance sheet trends. These five mergers added approximately $210 million in loans and $346 million in shares to Credit Union 1’s balance sheet. Without these external gains, the credit union’s decline in outstanding loans for the 12 months ending June 2024 would have been $288 million or 24%. For shares, the falloff would be $73.3 million or a negative 5.5%, not the 4.6% increase reported. The credit union also relies on $35 million in external borrowings for funding.
Since converting to NCUSIF, the credit union has reported growth and acceptable ratios only through the acquisition and then sale of fixed assets and loans, and using the free transferred capital to maintain its required net worth.
What to Do About a Runaway Credit Union?
Once NCUSIF-insured in 2022, Credit Union 1 has been on a merger and marketing binge which is hiding serious financial performance shortcomings.
In all credit unions the Board, as a group, holds the direct, legal fiduciary responsibility for the performance of the credit union. The Board members approve all policies and hire the leadership. The buck stops with the Board members – all of them.
This is especially true in Illinois which has an unusual provision in the state act that allows the board to collect proxies from all its members, thus giving the board full decision-making authority in all areas, including mergers.
This is the reason for the extended proxy explanation in the Notices of Merger of the five Illinois chartered credit unions which reads in part:
Illinois permits voting on merger proposals only at the meeting or by proxy. If you do have a proxy. . . you may do nothing, and the board will vote in favor of the merger in your sted. . . If you have a proxy on file, to vote NO you must revoke that proxy by giving written notice to the board secretary. . . and then assign a new proxy to an attending member.
This is why all mergers of Illinois’ state-charters are reported as virtually unanimous. The process also puts a higher standard for due diligence and fiduciary responsibility on board members as they are now acting directly for the member.
There have been several recent class actions against credit unions around improperly disclosed overdraft fees and cyber breaches. When merged Credit Union 1 members confront the reality of losing their independent cooperative some may be deeply upset. With their board’s unilateral actions and failures to document their duties of care and loyalty, these transactions could become fertile ground for such actions.
Where Are the Regulators?
Except for the several federal charters merged, initial approval is by the state as Credit Union 1 is Illinois chartered. Most of the credit unions merged in MI, WI, GA, IN and IL are state chartered. All the data cited above is in public call reports and in multiple year analysis formats on NCUA’s website.
The trends for Credit Union 1 are clear, the extraordinary payments to CEOs presented in the Notices, the copy-book wording in the Notices all the same, and the vigorous public marketing communications easily reviewed for this nationally aspiring credit union.
NCUA routinely signs off on all mergers even those characterized by extraordinary self-dealing (eg. CEO contracts with change of control clauses), no clear business logic or member benefit, and Notices with misinformation, disinformation and missing critical facts for any member to make an informed vote on the issue.
There are indications that this hands-off response is the NCUA staff and board’s preferred laissez faire policy. The outcome is fewer credit unions by encouraging smaller credit unions to merge with larger ones driven by monetary payouts to achieve their policy of industry consolidation. But of course there are no asset limits as recent merger announcements have demonstrated.
The explanations for this dual chartering supervisory failure are wanting. In some instances, it may be a repeated failure by staff to do any elemental analysis. To my knowledge, there has never been a regulator “look back” to see if any of the merger commitments were followed up—even in a situation involving $12 million in members’ capital diverted to the merging CEO and Chair’s newly organized non-profit.
Regulators appear to lack a common sense understanding of events, not wanting to see or address the obvious conflicts of interest and board fiduciary failures. They thereby become part of the problem, abetting the worst aspects of cooperative leadership.
The result is no regulatory guidance or even backbone to stand up for members‘ interests or rights. There is no director-board check and balance on CEO’s ambitions or performance. And no regulatory effort to hold accountable those credit union CEOs who use their positions of power and institutional wealth to take advantage of the member-owners of acquired credit unions.
A System Circling the Political Drain?
Instead of expanding member economic opportunity, credit unions are imitating the tried and profitable capital market efforts to roll up their smaller locally focused brethren though payoffs and the rhetorical promises of better service through—even if only virtual.
Credit Union 1’s “purchased members” have lost the heritage and identity their cooperative predecessors passed on to them. Trust and loyalty earned over generations is gone. Members will vote with their feet when they learn there is no more advantage to being with Credit Union 1 versus dozens of other online financial offerings just as easily accessed.
Credit Union 1 has maintained its regulatory financial requirements only by acquiring other credit unions’ capital reserves, one-time sales of fixed assets and loans, closing local branches and letting employees go, and borrowing sub debt capital. These are efforts to buttress its balance sheet and cover its inability to earn an acceptable return on its own assets for its member-owners.
This practice will eventually be found out, the mergers will end. and the credit union’s safety and soundness will be much more closely scrutinized.
However, in the meantime, eleven local credit union charters are destroyed, their professional and community leadership roles ended, members’ long-time relationships to their credit union dissolved and the industry’s reputation put at political risk.
As Credit Union 1’s financial short comings become increasingly apparent, their external relations with Notre Dame athletics, the U of I Chicago campus, the new WCC partnership and Tinley Park Amphitheater will be in jeopardy. So too the industry’s public image.
I believe Credit Union 1’s actions are a threat to the future of the cooperative model. Every system has “bad actors.” That is why there are regulators. When directors fail in their fiduciary roles, and supervisors abdicate their appointed oversight responsibilities, the system’s integrity is at stake.
When other credit unions remain silent, state regulators default in their oversight, and NCUA appears unconcerned about the consequences of these events, it is only a matter of time until cooperatives forfeit their unique role in the American economy.
And should that day of reckoning come, thousands of credit unions trying to do the right thing will be end up in the same reduced status as their rogue colleagues.
What lesson does the oldest continually operating restaurant in Bethesda have for credit unions? Especially those who believe they need size and scale to succeed?
In 1935 in the middle of the Depression, the Tastee Diner began operations serving twenty-four hours a day. (Note: the Federal Credit Union Act was passed the year before) The diner would close only 42 hours a year from noon on Christmas eve until 6:00 AM the day after Christmas. However, it reduced its hours from 5:00 AM to 10:00 PM after reopening from the covid epidemic.
Its long narrow layout is just like the typical diner: wooden booths or single seats at the counter where you can watch as the cooks prepare your meal at the open grill.
The menu specializes in “comfort food” such as a full breakfast anytime. Daily specials are offered– spaghetti or fish on Fridays, meatloaf and mashed potatoes , with two sides; and every familiar sandwich option including grilled cheese and hot dogs. The menu has daily specials and senior selections at reduced prices. Its real milkshakes are served in the metal mixer can which contains at least two full soda glasses of my favorite food.
The owner sits on a counter stool opposite the cash register to welcome you. Sit anywhere. Waitresses welcome you back. You know their names. Montgomery County police on duty stop by for takeouts. High school students gather after football games. Families have birthday celebrations with young kids and floating balloons;. “Seniors” like my wife and I, go to have an outing in a familiar setting. The tunes on the jukebox at each table still cost just a quarter to hear Johnny Cash Walk the Line or other 1960’s Rock and Roll favorites.
A New Neighbor
In September 2022 a new neighbor opened its doors. Marriott International cut the ribbon on its new headquarters, a 21 story building built using all the vacant land around the diner.
Screenshot
The chairman of this Fortune 500 firm (ranking at # 173) is David Marriott. In the September 21, 2022 Washington Post article celebrating the opening, he presented the company’s history and how it chose DC as the base for this Utah raised family.
In short, David’s grandfather opened a root beer business in Washington after completing his two year Mormon mission assignment on the East Coast. Ice ooid root beer from his first stand was not in great demand in winter cold, so the business expanded to hot food such as the Teen Twist Ham Sandwiches, Mighty Mo Burgers. The business’ new name: Hot Shoppes.
Today, there are no Hot Shoppes. Marriott long ago diversified into the airline catering and then lodging businesses. Now it operates 8,100 hotels with brands from Aloft to the Ritz -Carlton.
The New Building’s Notch
But what does this international food and hospitality conglomerate have to do with Bethesda’s Tastee Diner?
In the 2022 interview with Chairman David Marriott the oldest, longest operating Bethesda restaurant came up this way:
The views are great from atop the glassy new headquarters, designed by the firm Glensler. David pointed out the Sugarloaf Mountain in the distance. We were standing near a notch in the Building. Twenty floors below was the reason for the notch: the Tastee Diner building ,whose owners had declined to sell.
“When my parents were away, the woman who watched used take me there” he said.
Not to Hot Shoppes? “She liked “Tastee Diner,” David said.
The Priceless Moral of the Story
Want to know how to counter the threat and buyout temptations of even the most aggressive credit unions?
Have loyal customers who seek your product, especially those who care for the children of the founder of a restaurant chain or even a credit union executive. Such loyalty is a variation of SECU’s mission statement: Send us your Moma! And also, keep local ownership of the business.
Following the Post story, the next time we went to Tastee I asked the owner sitting at the counter why he didn’t just sell out. He said he owned the land and they “wouldn’t offer me what I though it was worth.”
In the recent decade all of the chains and restaurants our family visited growing up have closed: Roy Rogers, McDonalds, Dominos and Pizza Hut plus other locally managed eateries. Today I know of no restaurant in Bethesda that has been in business for over ten years. Most new entrants create new concepts to appeal to a well to do clientele. These primary locations seem to change business brands about every 3-5 years. Their “newness” gets old fast.
Local matters, especially when you “own the land.” So the next time some glib acquisition broker or salesman comes calling to buy your credit union, just remember a child’s babysitter who brought the future leader of Marriott International to the Tastee Diner because “She liked the place.”
A loyalty so special that the “child” recalls the experience four decades later. Local loyalty is priceless.
