Category: Co-ops in Capitalism

Posted on

The Credit Union Movement In Five Phases

For some time I have followed the writings of Father Richard Rohr.  He is a Franciscan friar, wisdom teacher, and founder of the Center for Action and Contemplation in Albuquerque, New Mexico.

His spirituality concepts are universal, informed by all denominations and spiritual traditions.  His focus is the search for unitary conscience.   Recently he summarized five stages that religious and cultural developments have historically followed.  He calls these the five M’s: human, movement, machine, monument and memory.

I have paraphrased his approach below to apply it to credit union evolution.  I believe the framework is useful for understanding the different motivations credit unions draw upon with cooperative design.  (Adapted from Richard Rohr, The Wisdom Pattern: Order, Disorder, Reorder )

The Five Stages

“It seems that many great things in history start with a single human being. If a person says something full of life that captures reality well, the message often moves to the second stage of becoming a movement. 

That’s the period of greatest energy. Credit unions greatest vitality  as a “cooperative  movement,” resulted in thousands of new institutions formed annually.  Each was an expression of a larger vision for community. The movement stage is always very exciting, creative, and also risky.

It’s risky because the movement in history is larger than any city, state, country or economic system. Society is unable to foresee its full scope or meaning. We feel out of control in this stage, and yet why would anybody want it to be anything less?

Yet we move rather quickly out and beyond the risky movement stage to the machine stage. This is predictable and understandable. Systems are developed to support individual often independent firms.

The Dominant Machine Stage

The institutional or machine stage of a movement will necessarily be a less passionate manifestation. This is not bad, although it is always surprising for those who see credit unions as the end itself, instead of merely a vehicle for the original vision.

There is no other way; but when we don’t realize a machine’s limited capacities, we try to make it into something more than it is. We make it a monument, a closed system operating inside of its own, often self-serving, logic. By then, it’s very hard to take risks for those most in need following core values that inspired the movement phase.

Eventually these monuments and their maintenance and self-preservation become ends in themselves. It is easy just to step on board and worship their success without ever knowing why they came to be.

At this point, we have jumped over the human and movement stages, becoming like the for-profit institutions we were meant to supplant. There is little hint of knowing who we are meant to serve. Members are often frozen out of any meaningful role other than consumers.

In this stage, credit unions are a platform for building ever larger financial firms while holding on to a memory of something that once must have been a great adventure. Credit unions are no longer serving a distinctive role. Rather they mimic the priorities of the existing capitalist, market driven competitors.

Overcoming the Monument-Memory Entrapment

Increasingly credit unions avoid addressing the most disadvantaged segments of society we were organized to serve.

To avoid becoming trapped in the monument stage with the initial vision merely memory, renewal is needed. Innovative efforts are necessary to keep in touch with the human and movement aspirations. This is not  being naïve about the necessity for machine-like competencies and the inevitable human drive to embrace monuments.

We must also be honest: all of us love monuments when they are monuments to our human ambition, our movement, or our machine.”  (End paraphrase)

Applying Rohr’s Insights to the Credit Union Movement

It is feasible to align the different phases of credit union history with this model.  The more powerful application however may be to help  leaders or institutions recognize that all five stages can be present and called upon at the same time.

Can the machine success be augmented with the human passion of the creation phase? I saw one credit union CEO attempt to connect these seemingly contrasting impulses.   He organized a public member meeting each week at a different branch of the credit union.  Fifty visits led by a senior staff person for every branch over the year.

Videos were made of the visits and shared with staff and board.   The results were not, I believe, some dramatic new product or service concept.  Rather it reinforced respect for the members and  their opinions  as well as supporting staff in scattered branches.

I believe the model’s usefulness is most helpful if not seen as linear, trending in a single direction.  Rather it alerts us to the multiple motivations which contribute to success.

If we focus only on the competencies of the machine stage leading inevitably toward monuments, then we lose the important advantages of the initial creative era.   For it is human needs and relationships that were the origins of every credit union and, still today, its most important foundational advantage.

 

 

 

Posted on

Jack Kerouac, Credit Union Member, Coming Home after a Life On the Road

Last Saturday, March 12,  was the 100th anniversary of American novelist Jack Kerouac’s birth in Lowell, MA.  He was an alter boy and member of St Jean Baptiste Church.

He and his family were also members of the credit union whose first office was in the same church.   Jeanne D’Arc Credit Union was organized years earlier  by the local priest.

In February 2022 Jeanne D’Arc celebrated its 110 anniversary.  The credit union’s safe is still in the church building.

Alison Hughes, Jeanne D’Arc Credit Union

The church is now closed, but the building remains. The credit union and a new community foundation are transforming the structure to become the Jack Kerouac museum and performance center.

It is an ironic embrace for Kerouac whose peripatetic lifestyle is characterized as offbeat. His artistic legacy now has a home.  A venue both to honor the past and present his continuing popular appeal.

Jeanne D’Arc and Lowell are reaffirming the power of Kerouac’s roots.

The credit union and Kerouac started  in the same sacred place.   Both shared common purpose to  support individuals  in all their diversity.

In this latest contribution, Jeanne D’Arc is adding to its ever-expanding legacy in the community by honoring one of its members.  A conversion of an historical  space into a homecoming for someone most remembered for exploring life on the road.

Christopher Porter, President. Jack Kerouac Foundation

Alison Hughes. Jeanne D’Arc Credit Union

Sylvia Cuhna, Executive Director, Foundation

Jim Sampras, CEO. Foundation

 Kerouac’s Lowell Roots

 

Jean-Louis Lebris de Kérouac[1]  March 12, 1922 – October 21, 1969), known as Jack Kerouac, grew up in Lowell, played high school football well enough that major colleges recruited him. Church and family were deeply embedded values even though his later lifestyle might be considered bohemian.  

 His parents were French Canadian;  Kerouac did not begin to learn English until he was six, and remained bilingual in his work.

A 1959 television interview with Steve Allen in which Kerouac briefly  reads from On the Road is a helpful portrait of him at a peak of his fame as a member of the  Beat generation.

Three Appraisals of Kerouac’s Work

His 100th anniversary has resulted in articles that take different views of his literary output and continuing relevance.

An article in the Guardian newspaper explores why his counter-cultural mage still resonates in contemporary society, calling him a symbol whose meaning is still not understood. “Nature-loving mystic or proto-dudebro? Untameable free spirit or reclusive mama’s boy? On the centenary of his birth, it is time to look past the icon at the ‘bleeding ball of contradictions’ behind it.”

The Wall Street Journal’s tribute celebrates his reverence for the natural world while his  characters want to abandon traditional social constraints.

Jack Kerouac lives in pop culture memory as a writer on a perpetual road trip, a shooting star riding the highways and rails of postwar America alight with Catholic mysticism, booze, bebop and outlaw liberation. That’s the milieu of his breakout novel “On the Road,” a masterpiece of widescreen travel writing populated by eccentrics “who are mad to live, mad to talk, mad to be saved, desirous of everything at the same time…who never yawn or say a commonplace thing, but burn, burn, burn like fabulous yellow roman candles. . . ”

In our time of ecological destruction and climate change, Kerouac’s Buddhist observation in “The Dharma Bums” that “One man practicing kindness in the wilderness is worth all the temples in the world” is a fine starting point for understanding that there really is a divine order to the natural world.”

An article on the Poetry Foundation’s website summarizes his literary output while alive and published posthumously, along with critical and public reaction of his counter cultural  themes.

Why Kerouac Still Resonates

Wikipedia’s describes his work as both stylistically and substantively inventive:

Kerouac is recognized for his style of spontaneous prose. Thematically, his work covers topics such as his Catholic spirituality, jazz, travel, promiscuity, life in New York City, Buddhism, drugs, and poverty. He became an underground celebrity and, with other Beats, a progenitor of the hippie movement, although he remained antagonistic toward some of its politically radical elements.

In 1969, at age 47, Kerouac died from an abdominal hemorrhage caused by a lifetime of heavy drinking. Since then, his literary prestige has grown, and previously unseen works have been published.

On the Road (from Wikipedia)

“Kerouac completed what is known as On the Road in April 1951, while living at 454 West 20th Street in Manhattan with his second wife, Joan Haverty.[39] The book was largely autobiographical and describes Kerouac’s road-trip adventures across the United States and Mexico with Neal Cassady in the late 40s and early 50s, as well as his relationships with other Beat writers and friends.

“Kerouac wrote the final draft in 20 days, with Joan, his wife, supplying him with benzedrine, cigarettes, bowls of pea soup, and mugs of coffee to keep him going.[

” Kerouac said that On the Road “was really a story about two Catholic buddies roaming the country in search of God. And we found him. I found him in the sky, in Market Street San Francisco (those 2 visions), and Dean (Neal) had God sweating out of his forehead all the way. THERE IS NO OTHER WAY OUT FOR THE HOLY MAN: HE MUST SWEAT FOR GOD. And once he has found Him, the Godhood of God is forever Established and really must not be spoken about.” 

“According to his biographer, historian Douglas Brinkley, On the Road has been misinterpreted as a tale of companions out looking for kicks, but the most important thing to comprehend is that Kerouac was an American Catholic author – for example, virtually every page of his diary bore a sketch of a crucifix, a prayer, or an appeal to Christ to be forgiven.[44]

“Kerouac’s literary works had a major impact on the popular rock music of the 1960s. Artists including Bob Dylan, The Beatles, Patti Smith, Tom Waits, The Grateful Dead, and The Doors all credit Kerouac as a significant influence on their music and lifestyles.”

The early home to both Jeanne D’Arc and Kerouac will now be used to ensure that his literary light continues to inspire.

 

 

Posted on

Going Public: Colorado Partner Credit Union, their CUSO and a SPAC

In March  2021 Colorado Partner Credit Union announced that Sundie Seefried, its 20 year CEO would step away to lead a new cannabis banking company called Safe Harbor Financial.

Safe Harbor was a CUSO formed through the combination of the credit union’s cannabis banking arm and its division that licenses those services to other financial institutions.

At December 2021 yearend Partner Colorado reported $575 million assets, six branches and serving 36,000 members.   Its CUSO investment, presumably all Safe Harbor, was valued at $8.2 million up from $3.8 million the prior year.   These valuations were achieved with a  reported total cash outlay of only $750,000.

In February of 2022 there was a new transaction announced: Safe Harbor CUSO’s cannabis industry-focused financial services would be acquired by ”Northern Lights Acquisition Corp, a special purpose acquisition corporation (SPAC).  

A special purpose acquisition company (SPAC) is a “blank check” shell corporation designed to take companies public without going through the traditional IPO process.

A $185 million Purchase Valuation

The terms according to one news report were that Northern Lights will pay $70 million in cash and $115 million in stock. Sundie Seefried – who created Safe Harbor – will be the CEO of the new public company.

The full February 14, 2022 press release projected the equity market value of the post-sale closing company to be $327 million.

In an interview the CEO Seefried described Safe Harbor’s competitive advantages in managing the financials for businesses conducting legal marijuana transactions:

“The amount of work necessary to manage that BSA risk is expensive,” Seefried said in July. “And the resources are demanding, in terms of the monetary system that you have to purchase. 

“We did cannabis and we did it thoroughly,” she added. “We think we have the compliance program to a good state of stability here.”

The only financial information I could find about the Safe Harbor CUSO was the following;

The company had almost 600 accounts across 20 states and $4 billion in transactions in 2021. It would appear to be a fee intensive business model in return for its compliance expertise and financial transaction management.

What Does this Example Mean for Credit Unions?

Credit union sale of all or partial ownership of a CUSO business is not a new event.  Several major examples include the sale of CUSO Financial Services (CFS) a broker dealer, with minority credit union ownership, sold to Atria Wealth Services in 2017.

Prime Alliance Solutions was a significant national CUSO offering first mortgage services to an estimated 1,900 credit unions.  It was developed by BECU, the majority owner with a limited number of other credit owners and Mortgage Cadence. The CUSO venture was sold to Accenture, in a private sale, in 2013.

Another industry CUSO model that is a frequent target for acquisition is data processing.  The largest credit union owned processor USERS was sold to Fiserv in the 1980’s.  A number of other regional DP firms have also been acquired by private companies.

What make the Safe Harbor-SPAC transaction unique is that the business will now be publicly traded.

At this time several aspects of the transaction seem noteworthy.

  1. The Safe Harbor sale is unique in that the stock will now be publicly owned.  In the past some credit unions converted to stock banks such as HarborOne, but this is the first CUSO to be traded on a public stock exchange.
  2. The creation and development of this unique financial intermediary is a tribute to the CEO who has worked on this business model since 2015. You can listen to her discuss the intricacies  in  podcasts posted on the CUSO website.  Her biography says she has served in the Credit Union industry since 1983 and became CEO at Partner Colorado in 2001.   She holds a Bachelors in Business Management from the University of Maryland and an MBA in Finance from Regis University.
  3. If the CUSO is indeed wholly owned, the transaction should produce a windfall for Partner Colorado and its members. In the FAQ’s on the Safe Harbor web site this relationship is described as: Yes! Your accounts are held at Partner Colorado Credit Union and will be insured through the NCUA Share Insurance Fund.  This would indicate an ongoing business relationship.

Wall Street Is Discovering Main Street Coops

My biggest takeaway is that this is another example of wall street firms discovering  credit unions as a source of new business.   In addition to this public listing, brokers, hedge funds and investment advisors are actively soliciting credit union purchases of banks, placing subordinated debt financing to enhance capital ratios and increasingly bringing wholesale financing and other funding opportunities to the industry such as fintech startups.

In subsequent posts I will review some of these other activities and what we can learn from them.

The Need for Transparency

One purpose in writing about these events is so they can be fully and openly talked about.   At the  moment most of the investment banking activities  are private with limited or no public disclosure.

For example two credit unions closed on subordinated debt capital  with identical structures in December 2021.   But the rates paid by the two credit unions appear to be significantly different.  Both are sound institutions but even they must rely on what their brokers and advisors privately tell them about the market which may not be indicative of other options.

The second reason is so that member owners, whose funds are used, will know how they  benefit from these transactions.   Rarely have credit unions discussed these transaction with members.

The annual meeting’s business report and election of directors would seem to be an ideal moment  to explain the financial impact and member payback on these investments.  I have yet to hear of this being done.

A Payday for Members?

Hopefully the members will be the big winners in SafeHarbor’s public offering.  The history of this effort was that it was all done with the credit union’s resources.

Partner Colorado valued its CUSO investment on the 5300 report for December 2021 at $8.3 million while reporting  a total cash investment of only $755,000.   With a SPAC cash and stock purchase of $175 million, will the members be in for a big payday?

 

 

Posted on

The Fix is In: Members Act When Denied the Right to Stand for the Board

Credit union’s democratic member voting is a critical feature of cooperative design.

However the practice of democracy can become a charade if those in control fail to follow long standing practices to make it a reality.

A Board Controlling Their Re-election

At December 2021 yearend Virginia Credit Union (VACU) reported $5.0 billion in assets with 310,000 members, 22 branches and 731 employees. The net worth ratio was 9.8%.

In yesterday’s post I shared the member Notice from my credit union’s annual meeting and the fact there would be no voting for four open board seats.  The number of nominations equals the number of vacancies.

Then I received this email from a credit union member about the board of VACU trying to control their own reappointment.  And members’ response.

“Are you aware of this? [link] It appears that VACU needs a mechanism for members’ self-nomination for board elections. Find that hard to believe but VACU is a state-chartered CU and the VA credit union act gives them much discretion.

“Although the nominating committee can send forward more than one candidate for each board vacancy, if they don’t, then nominations from the floor are not allowed and the vote at the meeting shall be by voice vote – which precludes any write-in votes!

“Under any circumstances, if only the uncontested nominees selected by the board appointed nominating committee are eligible to run…it ain’t right…talk about the destruction of cooperative principles?!?!?.

“The fix is definitely in!”

We Own VACU

The link in the email is to a petition in which four members of VACU state their interest in serving on the board.  They describe their efforts as follows:

The Virginia Credit Union Board is trying to rig their election so that YOU lose your right to vote for four amazing community leaders who are running for the board. 

Credit unions are financial cooperatives. They are owned equally by the members with a democratically elected board of directors – one member, one vote. The Virginia Credit Union (VACU) is a Community Development Finance Institution (CDFI) with a responsibility to invest federal dollars alongside private sector capital in the nation’s most distressed communities.

Four outstanding Richmond community leaders and VACU member-owners filed paperwork by last year’s deadline to run for the board in the March 23rd elections — Frank Moseley, Kati Hornung, Richard Walker, and Tori Jones — to bring a different direction, a different relationship with the Richmond community, and accountability for VACU’s atrocious pandemic response to an out-of-touch board of directors that needs all three.

VACU’s board has not only refused to allow their names on the ballot, it didn’t bother to interview or respond to the candidates. Instead the board is planning to hold a Soviet-style election at our annual member meeting on March 23rd, with three board-chosen candidates running unopposed for three seats. You can read the full story here, and learn more about the candidates here.

Tell VACU this is not democratic ownership and we will fight for our voting rights at the credit union the same as anywhere else they are under attack. 

A longer  post called We Own VACU provides the back story of their efforts.  They show the board chair appointed the nominating committee, which in  turn nominated the chair as one of the candidates for the four open seats.

Complaint Filed with NCUA

Where can members go if their efforts are denied?  Who is to call a foul on those in charge if they do not follow their own rules?

The members appealed to NCUA.  Yesterday they filed a formal complaint which can be read in full. The complaint gives the history of their attempts to be nominated starting in September 2021 and the repeated no responses or rebuffs by the board.

They attach their documentation and ask NCUA to vacate the “sham election scheduled for March 23 and require a new election with all four names included on the ballot.”

However their most important request is that NCUA make a policy statement declaring  that:

No credit unions in the country will be permitted to remove member owner oversight, participation in governance, or democratic control, thereby removing the temptation of misguided boards to try.

NCUA has published many such interpretations of acceptable bylaw implementation such as this:

  1. Nomination procedures: Under all options under this Article, the nominating committee must widely publicize the call for nominations to all members by any medium. This requirement can be satisfied by publicizing the information to a large audience, whether by newsletter, email, or any other satisfactory medium that reaches as many members as possible. The NCUA emphasizes that member participation is important during an election, and FCUs must make sure that members are aware of the nomination process. (emphasis added)

But in practice the Agency has shown no interest in member rights even when confronted with documented evidence of board manipulation of voting and annual meeting misconduct. A prime example is the denial of member rights in the Cornerstone Credit Union merger with Belco Community Credit Union.

As a result member participation in annual elections is increasingly a shadow exercise with no substance.  With more virtual annual meetings, the process becomes even more controlled.

As members are removed from the governance process, board and management are free to follow whatever course they alone believe is in the members’ interest. Even when this means giving up sound charters via merger or using member’s collective reserves to buy troubled banks.

Regulatory Leadership or Continued Neglect?

Chairman Harper in last week’s GAC address gave this view of his regulatory approach:

One of my favorite quotes by Molly Ivin’s reads: “I think government is a tool, like a hammer. You can use a hammer to build with or you can use a hammer to destroy with. Whether government is good or bad depends on what you use it for and how well you use it.

He then says how he intends to use his regulatory hammer as Chairman:

Protecting Consumers

Since joining the Board, I have focused on strengthening the NCUA’s consumer financial protection and fair lending resources. Given the consumer compliance examination program for comparably sized community banks, our program’s scope is insufficient, especially for those credit unions between $1 billion and $10 billion in assets. We should be doing more, and we can do more.

I understand this is not a popular opinion in this room. Many within the industry maintain that the NCUA should primarily focus on its safety-and-soundness mission or that the agency has not demonstrated a significant rationale for a stronger consumer compliance program.

Some also contend that the cooperative nature of credit unions prevents their lending practices from being discriminatory because their primary purpose is to serve their members’ needs. However, the logic that credit unions do not discriminate because they are owned by their members is a dangerous myth and one that should end.

Confusing Consumers with Member-Owners

Chairman Harper wants to protect consumers but not coop member-owners who are his primary responsibility.  The GAC comment suggests he has yet to grasp what it means to regulate cooperatives with their system of member governance.

The VACU members’ complaint and the ever-spreading practice of board’s ignoring the critical role of member’s franchise role will demonstrate whether the NCUA Board believes in member rights—or just wants credit unions to see their owners as only consumers.

The VACU members requested a straight forward policy statement that all credit unions could embrace.   It’s much shorter than a GAC speech. It doesn’t require a hammer. Just a reminder of who credit unions are.

I bet such a statement, recognizing members’ governance role,  would also enhance whatever shortcomings there might be in consumer compliance!

 

 

Posted on

A Question Sent to My Credit Union’s Annual Meeting

The annual members’ meeting is a legal requirement for all credit unions.   I recently was emailed this Notice from my credit union:

We are conducting the 2022 Annual Meeting by Electronic Transmission as provided in Section 411 of the Amended and Restated Bylaws of XXXX Credit Union. . .The Annual Meeting will be hosted by video conference on April XX, 2022, at 5pm. Members can register by submitting an email request to annualmeeting@creditunion.org.

Questions will not be taken during the Annual Meeting, so please submit any questions that you have in advance along with your attendance request. Answers will be provided during the virtual meeting. 

Please note that there is no new business to discuss. The only matter requiring a vote of the members in attendance is approval of the 2021 Annual Meeting minutes. The Directors nominated (4) will be approved by acclamation of the Board of Directors as provided by the Bylaws.

The Question I Submitted

Before my question I would offer brief context:

We are seeing people’s belief in democracy tested daily at home and overseas.

This one-person, one-vote governance model is the foundation for all credit unions. For coops, it gives every member a voice, an important factor in building a community of common effort.

Democracy is a fragile system both for countries and credit unions.  It requires continual renewal and participation.

The credit union is a strong financial performer. But no institution, especially a credit union, survives because of financial strength alone.

The foundation of every credit union is the relationships with its member-owners. The process of replacing the members’ voting role with self-appointed directors undermines democratic participation and our unique source of resilience.

My Question:  Will the board commit to having open nominations going forward to seek qualified candidates from the over 400,000 members, beyond the number of board openings, so members may make their voice heard by choosing who should lead the credit union? This would be a vital means of demonstrating the credit union’s statement in the Notice: We’re in this together

 

 

 

 

Posted on

Credit Union Leadership as a “Civic Trust”

In describing Jeanne D’Arc’s 110 year history yesterday, I said their leadership was fulfilling a “civic trust.” What does that mean when describing a credit union’s role?

The word “trust” refers to the fiduciary responsibility  of  credit union leaders to be conscientious  stewards of the member’s resources and affairs.   “Civic” enlarges the scope of that oversight to the entire community of citizens from which members join.   This public duty is confirmed by credit union’s tax exemption and their democratic one-person, one-vote governance.

As I researched Jeanne D’Arc’s legacy, an article about a credit union’s conversion to a bank was published.   The occasion was the retirement of Jim Blake the CEO of Brockton Credit Union, founded in 1917, which he rechristened HarborOne Credit Union in 2004.

As the credit union’s President, one of his industry honors was to be chosen by his peers as Chairman of the Massachusetts CUNA League.

In 2013 he initiated a controversial two-step conversion to make HarborOne a stock owned bank.  At the time the 96-year-old, $1.8 billion credit union was the largest state charter in New England.  The move was controversial.  The member vote was just over 60% in favor.

The result of the conversion was to transfer the “common wealth,” that is the approximately $200 million in reserves, to private owners. The new bank’s shareholders received the benefit of this equity but no payouts for credit union owners.

In his February 27, 2022 retirement interview with the Banker and Tradesman Blake shares his thinking about this decision.

The excerpts below  illustrate a different understanding of cooperative’s obligations than that followed by Jeanne D’Arc’s leadership.  I have added emphasis to certain of his statements.

Q: How did you end up at Brockton Credit Union?

A: A search firm that had called me over the years called because Brockton Credit Union was looking for a CEO. I didn’t know what a credit union was. The company told me about them, and I went to the commissioner of banks’ office and talked with them about Brockton Credit Union and then looked at their financials. When I looked at it, I said, “This looks like a mutual savings bank, and they don’t pay taxes.”

Brockton Credit Union at the time was the largest community credit union in the country. I was hired as the chief operating officer, and the expectation was that if things worked out, the CEO was going to retire and I’d take over.

Most of the people that were CEOs of credit unions grew in the credit union industry, and so their view of the industry was guided specifically toward credit union structure and financial capability. I’m not saying anything bad there – I’m saying it’s good.

That wasn’t my focus. I looked at the organization as a financial institution, and we had a credit union charter. The more I got into it, the more I liked it because we were doing really good things, and it was consistent with the history of what credit unions were about at the time.

Q: What led you to convert to a bank?

A: My position had always been that as a credit union, the charter worked for us. As long as the credit union charter worked, we would continue to be a credit union. But if the charter got in the way of the success of the company, then the organization should consider what other options were available.

That was unusual in the sense that credit unions didn’t want to hear comments like that. But the industry changed, and the economy changed. Then we started moving toward the Great Recession, and from my standpoint, that was the real issue for us. We didn’t have much in the way of foreclosures during that period.

What was obvious, as I pointed out to the board, is that we are the only financial institution in the country that has no ability to raise capital.

“We’ve just gone through a Great Recession where it hasn’t impaired us in capital,” I said, “and if this is what we’re dealing with, what do you think the next recession is going to look like? As a board, are we in a position to risk the future of the institution because of the charter, as opposed to having the capability to raise capital if needed?”

And we then talked about all the other issues that, from a product standpoint, we couldn’t get into. We couldn’t do business in Boston; we couldn’t do mortgages over $225,000; and we wanted to get into the indirect auto lending business.

Q: What was the process like?

A: It was a difficult decision to make because we knew that the entire industry was going to attack us. And they did. There were only 35 credit unions that had ever converted to banks. We were the largest credit union to convert to a bank.

Additionally, we were the largest community credit union in the country, and we had received numerous national accolades and trophies about what we do in the community.

We had the [National Credit Union Administration] that was absolutely opposed to us becoming a bank. The NCUA changed their policies as to how a credit union can become a bank, and we were required to send three proxy documents to all of our depositors that said that there’s really no reason for the credit union to convert to a bank.

We had our membership vote in Randolph at Lantana, and we had staff and police prepared in case there were protests. We had one of the largest in-person votes that had taken place in a conversion, and 96 percent of the customers said “yes” to convert to a bank. So, needless to say, it worked well for us. 

Q: When you converted to a bank, did you plan on going public as well?

A: No. When we became a bank in July 2013, we had a couple of things we wanted to do. We wanted to have the ability to go into Boston, and we wanted to buy a mortgage company. It worked for us until we began to get to a point where we needed capital for the growth that we were looking at in the future.

Q: Is HarborOne different from what you envisioned in 2013?

A: We’re totally different because I never had a vision of us being where we are, in terms of the business we’re in and the size that we’re at. This is a tough business, and I say that because the regulatory requirements and competitive environments and credit cycles that you go through – you do the best you can, and you still get bit.

We’ve never had a regulatory issue of any kind. We’ve never had a quarter in our history of losing money. Most of the years when we’ve had CRA ratings, they’ve been outstanding. I just wanted to grow the bank and certainly had no vision of anything like this at all.

End of Interview.

To see HarborOne’s regulatory environment as a bank, one can review the 110 page 2020 SEC 10K filing for the bank and its holding company here.

Other readers might find this link more appropriate.

Posted on

Jeanne D’Arc: A 110 Year Perspective on Sustaining Co-op Success

After the first year of operations, Jeanne D’Arc reported $6,063 in total assets.  At December 2021, the number was $1.8 billion.  This is a compound annual growth rate of 12.25%.

The credit union’s history, like its namesake, is an example  of human determination and independence.  It also demonstrates a credit union continually expanding its role as a “civic trust.”

The third oldest US credit union celebrated its 110th anniversary on February 12, 2022.

How does it sustain success for five generations, through two world wars, multiple economic crises, changing technology and always competitive financial markets?

What can credit unions learn from the example?   Can this longevity provide perspective as credit unions evaluate multiple business alternatives today such as mergers, greater size and even buying out local banks?

I believe there is much to be gained from their history.  For the fundamentals of cooperative success have not changed because  they are embedded in coop design.

The Founding

The credit union opened in 1912 in St. Jean Baptiste Parish on Merrimack Street, in Lowell MA, to serve the Franco-American Community.   It was founded by a catholic priest adapting Canada’s Caisse Populaire financial model to serve French speaking immigrants in an area known as Little Canada.

These workers who provided the labor in in the local weaving mills were an early example of an entrepreneurial enterprise “cluster” that might today be described as a “textile silicon valley.”

From the beginning the Credit Union helped build the community as a mortgage lender.  The board voted to accept loan and mortgage applications in May 1912. Personal loans were capped at $100 with an interest rate of 6.00%; real estate loans at $2,000 with an interest rate of 5.00%. It recorded its first mortgage on February 21, 1913.

In the decade that followed the credit union closed over 252 first mortgages helping members move away from the noise of mills to resettle in the fast-developing Pawtucketville neighborhood.  Today almost 85% of the credit union’s loan portfolio is first or second mortgages.

Over the years the credit union has grown steadily as membership expanded out from Little Canada, first to the adjoining area known as the Acre, and eventually migrating to the surrounding suburbs and beyond.

The Acre was the historical entry point for succeeding waves of immigrants.  These included Greeks, Irish and more recently Cambodian refugees and Hispanics.  Lowell today has the second highest population of Cambodian arrivals after Long Beach,  California.  The credit union has always been known as a safe place for these newcomers to put their  money.

Legacy and Continuity

The credit unions roots run deep so that until 1977 all board meetings were conducted in French.  Mark Cochran is only the 7th CEO.  When he moved to Lowell from New Jersey the members would tell him stories about the credit union’s long history in the community.

At the time the credit union had begun rebranding itself as JDCU.  Mark returned to the  original name, Jeanne D’Arc, and reemphasized the credit union’s long time commitment to the area.  He set a priority that the credit union should also be celebrating its heritage in addition to members’ stories.

Today Jeanne D’Arc serves 93,000 members though eight full-service branches in Lowell, Dracut (2), Tyngsboro, Chelmsford, Methuen and Westford, Massachusetts and Nashua, New Hampshire.   It operates three fully operational high-school branches at Lowell High, Dracut High, and Nashua High School South that serve as both financial training for the students and a source for potential future hires for the credit union.

Focus on Members

Jeanne D’Arc’s focus is the foundation of every credit union, that is, it is a movement by and for people, not a financial growth machine.

The most critical outcome of this design is the trust earned with members. Their loyal relationship means the credit union can go out on a limb to help those with damaged credit or no credit at all. Paul McDonald, the cooperative’s vice president of residential and consumer lending, admits the credit union makes loans his previous community bank employer wouldn’t have, and that’s OK.

A Commitment to Community

These loans nourish the community and members’ roots with its long-standing lending priority of helping members buy homes in the local community.  “When they move in this part of the state, it is traditionally only 5-10 miles away.” says Cochran.

In the construction of its new head office, Tremont Yard, the site is on the base of the remaining historic brick foundation of the Tremont Mills Power House, dating back to the 1840s.  “We’ve got a legacy that means something,” Cochran says. “Building on this historical foundation fits our legacy.”

It was also in investment to revitalize this commercial area of Lowell.

“We’re committed to staying on the street where we were founded and giving back to this area that’s been so good to us. People are shocked when I tell them about our history. They don’t believe we’re this old and still in Lowell.” according to Robin Lorenzen, chief marketing officer.

This sense of place determines not only its branch network including those in three high schools, but also how it distributes time and money to meet local needs.

Reinvesting Resources  in the Community

In recent years it has granted $240,000 to the Lowell Development and Finance and Energy Fund, hundreds of thousands annually from its “We share a Common Thread Foundation” to over 100 local organizations as well as similar amounts directly from the credit union.

These organizations range from local little league teams, to Megan’s House-an addiction recovery center for young women; Lazarus House, a shelter and soup kitchen- to direct donations to members to pay home heating bills in winter.

Employees have volunteered almost 10,000 hours annually to make their communities a better place to live.  “We have a reputation for giving back and being visible at our local institutions and their events,” says Cochran

A Strategy Based on Legacy

The credit union’s century long record of service was implanted with its origin story.  It remains literally grounded in the communities of its members and continually reinvesting and attracting more members from  new arrivals.  It is familiar with its communities and known by its members.  It becomes their primary financial home.

Generations of Relationships

Combining this historical local focus with leadership stability enables the credit union to serve members’ financial needs for their entire life.

From “saving at school” elementary programs to educating and recruiting employees through their high school branches, to donations to senior retirement communities, the credit union connections last a lifetime.

Tying Everything Together with Culture

The credit union weaves the threads contributing to its success by creating a culture of service.

“Building a culture of service starts in the hiring process.  We seek peoples with a heart to serve,” says Cochran.

The Unique Capacity of Cooperative Design

I believe there are two additional elements in Jeanne D’Arc’s success that are often overlooked because they are inherent in cooperative structure.  The first is the belief in local ownership as the foundation for vibrant communities.  The second is continuing to mine a niche that is so well developed that even much larger competitors cannot hinder its continued expansion.

“We’ve not strayed from our roots, we’ve just changed how we do it,” observes Cochran.

This is an era when some believe the future can be secured though boundary-less markets, technology innovation or acquiring other financial institutions.

The 110-year message of Jeanne D’Arc is that dedicated consistent implementation of traditional cooperative “knitting” advantages can underwrite a resilient future.  One resulting in an annual growth in excess of 12% for over a century.

Cochran’s future goal is straight forward: “Our members will speak in glowing terms about the institution and its work on behalf of their communities.”

Tomorrow I will contrast this legacy with an interview of a CEO who retired after converting the 96-year-old credit union he led to a stock bank charter.

 

Posted on

The President and NCUA Board Members Provide their States of the Union

Today’s post includes excerpts from the speeches of the three board member at the GAC conference in DC this week.

At the same time President Biden gave his administration’s agenda update, NCUA board members were given the opportunity to share their leadership perspective with thousands of credit unions in person at CUNA’s GAC.

Whether their remarks are described as a “state of the industry,” “regulatory update,” or even a “future vision,” I thought about topics they might  address.

My focus was on issues that would most directly affect credit unions and their members.

Will their remarks offer insight?  Will they enhance the credit union brand? What are their priorities? Their tone: concerned or upbeat?  Words to be remembered or quickly forgotten?

How might the extraordinary role of credit unions with members during the two years of the Covid economic crisis be celebrated? And the movement’s political standing enhanced?

Below is my “listening” list with any relevant comment by a board member.  The link to their speeches are on NCUA’s website.

My GAC Topic Checklist

  1. Why the Board decided to implement the new three-part RBC/CCULR capital requirement within days of being posted in the Federal Register. The rule immediately restricted use of over $26 billion in credit union reserves and required $4-6 billion more in additional capital to avoid the RBC regulatory burden. What was the evidence of a capital adequacy shortfall in the system?

Board Member comments:

  1. What are board members’ views of mergers of long standing, well-run, and well-capitalized credit unions that result in fewer choices for members and reduce the movement’s financial diversity?

Board Member comments:

  1. Do board members believe that members’ collective savings compiled over decades should be used to pay off bank owners at premium prices in whole bank purchases? If yes, what should members be told in advance about this expenditure of their reserves?

Board Member comments:

  1. What do board members believe will be the consequences of low-income designated credit unions’ (LID) increasing reliance on subordinated debt from outside investors to comply with higher new capital requirements and for “acquisitions”?

Board Member comments:

  1. How will the agency’s two-year experience with remote exams and work from home impact agency costs and effectiveness? Will future staffing needs be lessened?

Board Member comments:

  1. Is there a special role for the not-for-profit, tax exempt $2.2 trillion cooperative system in American finance? If so what is it?   Or should credit unions be part of a level regulatory playing field?

Board Member comments:

  1. When will the credit union shareholders of the four corporate AME’s  $1.2 billion surplus, receive their final payment as the NGN program ended in June 2021?

Board Member Comments:

  1. Would board members encourage an enhanced democratic member governance role in cooperatives especially at the annual meeting’s election of directors? Would NCUA consider developing a cooperative scorecard, with the industry, to enhance awareness and better implementation of the seven principles?

Board Member comments:

  1. As individual board members frequently voice a commitment to transparency, when will details of the NCUSIF NOL modeling and the Cotton accounting memo be public so credit unions can understand the logic behind NCUA’s financial decisions? Both are subject of FOIA requests.

Board Member comments:

  1. Are there any areas where the agency is willing to work collaboratively with credit unions to develop better solutions such as a wider role for the CLF, a more supportive new charter process, or even succession planning resources?

Board Member comments:

  1. Please share your vision for the future of credit unions given the their record setting performance during the Covid economic shock and recovery?

Board Member comments:

My Summary

Obviously my list and board member priorities differ.   None commented on any of these topics directly.

The themes from the talks included fintech partnerships, crypto and block chain’s future, and an important insight from Chairman Harper:  Leaders of this industry, like all of you gathered here today, should prudently use your hammers to positively affect the financial prospects of all your members.

Harper did not explain the credit union hammers he was referring to.  He made clear the agency would use its hammers for increased consumer compliance. “However, the logic that credit unions do not discriminate because they are owned by their members is a dangerous myth and one that should end.”

If my topics for board members are not yours, it just shows every person has their meat or their poison.   Skim the talks.   They may respond to  your interests or not.

They do however provide an insight on each board member’s view of the industry and his role as a regulator.  And maybe you should go out and buy some hammers!

 

 

 

Posted on

Yesterday the Most Important GAC Speaker Missed His Scheduled Appearance

In the gaggle of bipartisan congress speakers, the nobility of CUNA praising attendees, the inside the beltway literati’s wisdom, and the obligatory regulatory updates, there is one person who  missed his scheduled talk.

Chef and humanitarian José Andrés was to participate in a fireside chat with National Credit Union Foundation Executive Director Gigi Hyland on Monday.  The public purpose was to talk “how he lives out the ‘people helping people’ mission through his global humanitarian efforts as a passionate human rights advocate.

Chef Andres is not in Washington DC.  He was on the ground feeding refugees at the Polish-Ukrainian border where his World Central Kitchen has served more than 8,000 meals.

In a TV interview last night, his destination today was to go into Ukraine.

Chef Andres work in places of natural disaster such as Haiti, flood and hurricane regions of the American south and throughout the world have been widely reported.

In March 2020 I witnessed his work locally.   The entire economy had been shut down.  Restaurants were closed, but Chef Andres kept his Bethesda location, Jaleo open.  His staff was still employed providing free meals for several hours each day to workers and anyone else who needed access to food.

The occasion for his absence may say more than an appearance at GAC could have ever accomplished.

For Jose Andres embodies an aspect of “people helping people” that is often overlooked: he runs, not walks, toward danger, need and human suffering.

Walking Toward Member Problems in Credit Unions

Some of the most powerful examples of the cooperative model at work are when leaders walk toward, not away from their member’s needs.  Here are some examples:

  • In 2009 a Dayton credit union continued and expanded its dealer lending program when all other lenders backed out because the traditional car title collateral was suspect as the auto manufacturers faced bankruptcy.
  • A Florida credit union rewrote first mortgages with payments extending out 50 years to keep members in homes as  incomes were reduced by over half by job loss;
  • Credit unions in Lowell, MA (Cambodian), in St Paul MN (Hmong) and in Missoula, MT (sub-Saharan Africa) serve refugees from all over the world who are new to this country’s financial options.
  • The New York City taxi lender who divided his loans into A and B notes.  A was pay what you earn; B-we’ll worry about later.

Two Crises

In the national Covid economic shutdown in March 2020 there are thousands of examples of credit unions willing to walk in the members’ shoes, share their collective capital by waiving fees and giving loan payment holidays all the while setting up remote delivery options literally overnight.  Employees worked from new home offices and kept their full pay.

Perhaps the most consequential example was when I watched the CEO of the second largest credit union in America offer the senior management of NCUA a solution to the Corporate crisis in early 2009.  He said his credit union and his peers would buy all the legacy assets and carry them on their books if NCUA would guarantee no loss of principal.  He was turned down.  NCUA instead guaranteed wall street investors in the NGN program so they could walk away from the problem.

A Unique Capability

The cooperative model is unique in its capacity to walk the extra mile for its members when they are in harm’s way.   That is what self-help means.  Putting member needs first in all circumstances.

I don’t know what Chef Andres would have said in a “fireside chat” at the GAC.  However I believe his personal witness is more important than any words he may have used.

I would hope his example might inspire everyone to ask again what our slogan of “people helping people” means in today’s world.

Posted on

Presidents and Credit Unions

There have been two noteworthy moments when Presidents have saluted the credit union movement.

One was by democrat and the second a republican president, 46  years apart.

“We might do something to push this. They are popular”

Here is President Roosevelt’s “shout out” in 1936:

From 1934 through 1940, there were 4,793 new federal charters issued.  A rate of 600 per year.

Since NCUA’s three person board was established in 1978, there have been 1,958 additional charters.  A rate of only 45 per year.  In the last decade that number has fallen to  two per year.

“I want to congratulate you. .. “

The White House,

November, 17, 1982:

Dear Ed:

I want to congratulate you on the progress  you have made as Chairman. . .

It was refreshing for me to learn of the accomplishments of the Board and the 17,000 federally insured credit unions across the country. . .there has been remarkable progress toward self-help solutions to the problems facing the credit union industry.   I applaud your efforts to meet the growing competition among financial institutions through the reduction of unnecessary regulations, decentralization, and improved communications.

I especially want to note the way your were able to guide the credit union movement toward restoration, on its own initiative, of the financial health of the National Credit Union Share Insurance Fund. . .  (emphasis added) This effort illustrates a basic tenent of our administration, that, given the leadership and the opportunity, individual citizens acting together can often find solutions to their problems and need not turn to the government to bail them out.

Keep up the good work.

Sincerely,

Signed Ronald Reagan

Source:  NCUA’s 1982 Annual Report page 4

In April 1982, NCUA had completely deregulated the savings rules controlling all federal credit unions.  From 1982 through June 1987,  the credit union system’s share growth exceeded 15% annually.

In this same six years, 511 new federal charters were granted, a rate of of almost two per week.

The rules controlling bank and S&L deposit products were not fully ended until June 1987.  The April 1982 NCUA board action gave credit unions a five year head start competing in the new era of deregulation.