Category: Co-ops in Capitalism

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One State, a Credit Union CEO and Financial Literacy

According to the December 2023 Lane Report, a Kentucky Business Journal, there is change coming to the teaching of financial skills to students in the state:

Kentucky high schools maintain a C grade in a national report card on how well they teach personal finance, but by next year their grade may climb to a B.

Given a C in 2017, Kentucky maintains this grade in the updated 2023 National Report Card on State Efforts to Improve Financial Literacy in High Schools, issued by The Center for Financial Literacy at Champlain College in Burlington, Vt. . . 

John Pelletier, director of the Center for Financial Literacy, says that by 2028, 23 states are projected to have an A grade. . .

“Kentucky requires high school students to take vocational instruction, which includes personal finance concepts,” says Pelletier. “The Class of 2024 will be required to take one or more courses or programs with financial literacy content, but implementation will be up to school districts.”

Pelletier says state policy makers are responding to families without financial safety nets during the pandemic, as well as to advocacy by educators, administrators, parents and students. 

Prior to the passage of this bill in 2018, there was no specific financial literacy instruction requirement for high school graduation.

The Kentucky Department of Education now lists financial literacy resources on its website to assist schools implementing this requirement beginning in 2024.

The Advocacy Role by Credit Unions

At the recent GAC I spoke with a Kentucky credit union leader, a CEO for just ten years, who has put financial education at the center of the organization.

The credit union offers classes at  local high schools, for military retirees and veterans, and for employees of groups the credit union serves.

The CEO has taught some of these classes.  As a member and leader of the Kentucky league, the credit union community became advocates for this educational  priority in Kentucky schools.

This financial education concern was but one of  many initiatives this CEO shared about his short tenure.  What impressed me was his focus on “connecting” with the many constituents the credit union reaches.  He meets with the leaders of government and private organizations they serve, supports community and other credit unions in the state, and advocates for members’ financial well-being.

The History of Financial Education

His efforts are an example of a generation changing event.  His role is more than managing the financial trends of a credit union, but uplifting possibilities for all across the state.

What I didn’t realize was how difficult this education priority was until seeing this brief, five minute history of financial education in America.  It shows how educational priorities have changed since the Eisenhower era’s  focus on math and science. Today the emphasis on teaching financial life skills is one area of strong bipartisan support.

(https://www.youtube.com/watch?v=0uvurQcj0fs)

This is how one CEO has provided leadership far beyond his membership.  Yet without his credit union’s example and the practice of what he was seeking, the effort might not have been as successful.

Now all Kentucky students, and their parents, have the prospect of a “B” or even an “A” in this most important understanding of  financial responsibilities throughout life.

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The Oscar Nominated Film Every Credit Union Should See

Nominated as best documentary for this year’s Oscar awards, The Barber of Little Rock is a must see for every credit union believer.

The film is the story of Arlo Washington’s personal commitment  to bring financial services and hope to the black community of Little Rock, Arkansas.

The film produced by the New Yorker magazine is 35 minutes and can be watched online any time.

(https://www.youtube.com/watch?v=1amOPUn49aM)

Story upon Story

Arlo is a barber who converts his basic role in the black community to one of broader service.  This story is told in this Next City article The Black Barber Opened the First Credit Union In Arkansas Since 1996. 

The film is Arlo’s first person account filled with dozens of examples of hardship. hope, and grant making through the CDFI he organized to make loans.

There are numerous examples of what it means “to be banking while black” and why there is little trust in the existing banking system. The film provides a brief history of black efforts for economic equality from the post civil war promise of “forty acres and a mule”  to modern day red lining in Little Rock-a city divided by inequality and a highway.

The film even shows learning empathy in the “two minute drill”  where two former incarcerated men learn to “see” each other’s hurts.

A Potential for Every Credit Union: Economic Justice Rights Wrongs

The film is a study in self-help.  It shows the need and power of putting money back into the community.  “A tree is known by the fruit it bears,” says Arlo. “If you have all the money and wealth you want, and don’t make an impact, what do you have?”

The film’s many residents assert multiple times  that economic opportunity brings freedom.  One says that if this (model) catches on, it will become a threat because people can see what they can do to be free.  There will be no more excuses for economic injustice.

People Trust Community FCU

The film’s story of Arlo’s efforts ends before the credit union he chartered is up and running.  There is a picture of the building and sign, but no recognition.

At December 2023, the credit union reported total assets of $4.4 million, loans of $326,410 and 445 members.  It has capital of 11% or $482,000.

The film was released just two months ago and has been viewed 352,000 times with 433 comments posted afterwards.

The impact of this enterprising person’s example  is extending far beyond the borders of Little Rock. It is a wakeup reminder for every existing credit union of the potential to change people’s lives and the trajectory of their community.

Viewing this current effort should be a catalyst for conversations in every credit union  trying to make a difference in their members’ lives.

 

 

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Credit Unions Before NCUA, America’s Credit Unions or Share Insurance

Before the organizational titans of today’s cooperative system were created, there were tens of thousands of credit unions chartered by ordinary men and women.  Who believed in extraordinary possibilities.

A living example of this belief is Rincones Presbyterian Credit union, chartered on January 1, 1960.  This founding predates the “origins” of most of today’s credit union leaders.

At yearend 2023,  the credit union was $5.2 million in assets with 804 members.  It has three employees with an average salary of $32,745. Last year their loan originations increased 15.7% to total $2.3 million, the majority for autos.

Rincones in Spanish means a “small secluded valley,” or literally a nook. Located in Chacon, an unincorporated area of New Mexico with an elevation of 8,166 feet, harsh winters have given the area the name “Little Alaska.”

Their vision and mission are printed on the sign marking their “head office.”

Would credit unions be even more successful if they followed the Trust of these founders?

After all, that is what we print on all of our coins and  currency.

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A Study of US Credit Unions

“. . .our results indicate a serious misalignment between the legislation that establishes the credit union mission (a tax exemption in exchange for meeting the credit and savings needs of consumers, especially those of modest means) and the actual performance of credit unions under that legislation.”

Brief extract from: Who Consumes the Credit Union Subsidies? (Queen’s Management School, Research Paper 2022/03 written May 10, 2022)

The Challenge

How would your credit union respond to this academic conclusion?

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Wisdom for Life from Children’s Stories

The Giving Tree by Shel Silverstein

Time to say ENOUGH!

This children’s book is overtly about the relationship between a tree and a young boy.

He first asks to pick the apples from the tree to sell.  The tree says OK. He then requests to take  branches to build a house. Again the tree agrees.

As the boy grows older the tree lets the boy take its trunk to build a boat.

For some this is a heartwarming tale that explores the selfless nature of unconditional love.  It is a relationship of tree and a boy, a metaphor that teaches valuable lessons about the joy of giving and the importance of gratitude.

For others the morale is more straightforward and simple: it teaches the dangers of being selfish.  When life has no boundaries, we just take and take until we end up destroying the source of our well-being.

Current day readers have generated interpretations far removed from what may have been the author’s initial intention.  Some argue the boy’s behavior is narcissistic and the tree an enabler.

The power of a good story is to draw forth multiple reader reactions.  So at the risk of some reader’s understanding of The Giving Tree, I want to apply its lessons for credit unions.

A Metaphor for Credit Union Behaviors

I believe one takeaway is that the current view of some credit leaders that theirs is an organization with no limits (internal or external), subverts and could destroy the integrity of the cooperative model.

There is no logic or reason between cross-country mergers or even those many states and miles away eg. Maine and Illinois. The continuing credit union’s home market and legacy has no relation to the newly acquired members or local community.

These deals corrupt the merger process making the executive sellers rich and the members poorer. The member-owners who are victims in these  financial empire building combinations are asked to give away their accumulated value for nothing.

The justification for buying banks, sometimes completely out of the credit union’s market, is also suspect. These bank owners often reap above market returns.  The credit unions readily pay premiums to bank owners, but acquire members’ accumulated wealth in mergers for free.

Both cases use members’ mutual savings accumulated over decades to enable corporate ambition, not improve member benefit. The intangible value and goodwill that created this common wealth becomes the means of transforming the coop’s purpose into a market-driven, tax exempt financial hybrid.

Instead of a more equitable and just financial system,  the result is a greater concentration of wealth and power often outside all local connections–the antithesis of the cooperative model’s intent.

There is no virtue in being a tree and allowing someone to take away everything created until there is nothing left.  The free market defense of these open-ended expansions, destroys the mutuality on which credit unions depend.

The irony of these takeovers is that they eliminate the critical source of credit union’s abundance-the trust and belief by member-owners that coops are different.

Boundaries are critical for knowing when to say yes and when to say no.  It’s time for credit unions to say enough!  Let’s remember who we are and how we earned our standing.

The Dish Ran Away

Silverstein was not the only author offering  wisdom in a children’s idiom. If one looks at Mother Goose’s brief verses, they can be applied to many areas of our behavior.

Here’s one that is may also be relevant to the above concerns.

To See Such a Sport

The Cat and the Fiddle

Hey, diddle, diddle!

The cat and the fiddle,  

The cow jumped over the moon;

The little dog laughed

To see such a sport 

And the dish ran away with the spoon.

A nonsense poem to teach children rhyme and verse with familiar words?

Or, might one ask who is the Cat playing the fiddle?  Who is the dish running away with the spoon?

Does this seeming blather suggest the pretense that buying and selling  cooperatives is somehow benefitting members?

 

 

 

 

 

 

 

 

 

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Reclaiming Civility in American Politics

Last night I attended a forum where Spencer Cox, Governor of u Utah and Wes Moore, Maryland’s governor discussed the idea to “Disagree Better.”  That is the initiative Cox has put forth in his term as chairman of the National Governor’s Association.

The effort is to model how leaders in positions of accountability can avoid polarization and conflict even when they disagree, but instead learn by listening to contrary points of view.

Cox initiated this approach to leadership in this joint campaign ad in 2020 with his democratic opponent:

(https://www.youtube.com/watch?v=w5_ajRH0QN8)

The two governors are supporting the Disagree Better theme by telling their learnings from each other’s policy successes.  They shared multiple examples from addressing childhood poverty, transgender rights,  and a “year of service” for high school graduates.

Their bottom line is that everyone wants to be heard—it’s the most fundamental principle of democratic governance.  Leaders need to model the ability to listen and the importance of showing up or a “presence” even if not in supporter’s districts.  They suggested  most issues are not binary, that is a right or wrong solution, but are open to multiple outcomes.

An example of a civic initiative by Moore was the year of service Maryland offers to high school graduates who may not wish to go on to college or work immediately.  Participants can choose from multiple areas of interest from environmental to personal care roles.

His observation is that “service is sticky.”  It can lead to lifelong friendships (eg military service), builds community and creates the capacity to unite to solve problems later.

In their interchange they talked how to avoid the public polarization on which much of media today thrives.  How do political leaders become the adults in the room when national politicians thrive on creating conflict?

Their response:  Never forget who put you in the position you hold.  People became angry when they feel they are forgotten.  Each of us stands on the shoulders of others who brought us to this point.

The Credit Union Lessons

Moore’s description of how ”service is sticky,” is exemplified in the most successful credit unions.  They raise up their members in the community and become an essential part of its character.

But I think the example of open, public dialogue that draws from each person’s leadership experience approach to their role, is one credit unions can learn from.

NCUA legal counsel has interpreted the law to say that two board members may not speak to each other except in the context of a public meeting.  But what if the public board meetings are not real conversations, with members reacting and learning from each other’s positions?  What if they are just written recitations of decisions arrived in advance?

The Kabuki theater of today’s public process minimizes  the professional capabilities of board members and of the professionals who are supposedly briefing them.  Instead staff read prepared answers to questions given in advance.   Credit unions and members deserve to see their leaders as actual leaders, not performers looking at slides or presenting prepared remarks.

The Public Forum

Another opportunity for real dialogue between credit unions and NCUA is the GAC.  When I was at NCUA, it was routine for CUNA’s governmental affairs committee to hold their pre-conference sessions with Washington staff and credit union members from around the country.  Ed Callahan, Bucky and I would be invited just to listen to these legislative and regulatory priorities or concerns.  Not to speak, unless asked, but to listen.

After presenting the annual Chairman’s update at theGAC, Ed and senior NCUA staff would then sit in the Hilton’s café space at tables talking with all comers—often for hours.  Impromptu conversations about whatever people wanted to say.

Today those opportunities are rare.  In discussing NCUA issues my experience has been that the dialogue often is about who is wrong or right.  It is not a search for options, or a better or more just solution.  It becomes a defense of the status quo.

This inability to learn by listening carries over to staff.  Following a board meeting last fall I wrote to ask for clarity on a single number—was the ratio on an annual basis or for the entire period? After hearing nothing for several weeks, I followed up and was told PACA had to approve the response.   The explanation came a week later.  The answer was at best unclear, and could have been taken care of in a 30 second phone call.

Whether one is an elected governor or an appointed NCUA senior leader, the most important role is modeling the behavior that you believe consistent with democratic governance.

Do you want to learn by listening or instruct by preaching?  Are you open to meeting with those who disagree, or just exchange written communications restating positions?  Are democratic norms encouraged or priorities set by a political agenda?  Do we remember we stand on the shoulders of those whose work preceded ours, or do we think the present belongs wholly to our dispensation?

Polarization or civility – can the cooperative system be the example that demonstrates  the values that America urgently needs for democratic institutions to succeed?

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Einstein’s and Others’ Thoughts on the Advantages of Credit Unions

The “Home Court” Advantage

From Greylock Federal Credit Union:

We have officially welcomed over 100,000 Members! We are deeply proud to be the hometown financial institution of choice by so many in our community and we want to say THANK YOU!

From Springfield High School’s student newspaper on the school play:

. . .One of the important aspects of high school is the opportunity to be a part of something bigger than yourself. Being involved in the production process, like Hashmi stated, has allowed students to contribute to the creation of a captivating performance. It is a chance to collaborate with a team of talented individuals and learn new skills along the way. Plus, there’s a unique sense of camaraderie that comes with being part of a play. So, if you enjoy the idea of working behind the scenes and being a crucial part of bringing a story to life, the fall play is definitely worth considering! 

A Video: What Good Business Looks Like

This short video “story” from Thailand should be  required viewing for every credit union board that has ever contemplated the merging of their long- serving coop.  It is a stunning example you won’t forget. It disproves the capitalist adage, “Everybody has a price.”

(https://www.youtube.com/watch?v=1HtaYMhDr4k)

Einstein on the critical credit union advantage in a Market Driven Economy

This week has seen another bank’s stock price fall by over half from $10 to $4 per share.

From Yahoo finance:  The Pressure on NYCB is Not Letting Up.  At yearend 2023 the bank reported $116 billion in assets and $10.8 billion in total equity.

Its history in brief: New York Community Bancorp, Inc. (NYCB), headquartered in Hicksville, New York, is a bank holding company for Flagstar Bank. In 2023, the bank operates 395 branches in New York, Michigan, New Jersey, Ohio, Florida, Arizona and Wisconsin under multiple local brands acquired via multiple acquisitions.

Einstein’s explanation of the credit union advantage, especially in times of crisis, is simple-Time: The only reason for time is so that everything doesn’t happen at once. 

The cooperative member-owner structure gives management and the owners time to straighten things out when problems occur.  Let markets cycle through their phases.  However, there is no respite in the winner-take-all world of competition when a market owned firm falls from grace.

The Justifications in Self-Serving Mergers in Which Members Get Nothing

In my recent look back on several mergers, I reached out to a participant from several years ago. Had the members seen any change for the better? The reply:   it’s just another bank without heart or soul or members, just customers…but then, we might just be American Idiots …

If we’re honest, culture forms us as much as our statements of personal values.

Human beings can live without many things, but not with an absence of meaning. In our “free” market driven economy dominated by for-profit firms, cooperative CEO’s and boards will continue to cloth self-interested actions in moralisms and myths.

Fortunately, members are not idiots.

 

 

 

 

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A Winner’s Inside Account of a Very Close Merger

On November 9, 2021 the results of one of the most contested credit union merger elections were announced.  The members of Vermont State Employees (VSE) had approved a merger with New England FCU.  The final tally was 7,622 for and 7,304 against, a margin of 318 votes.  Approximately 21% of the members voted, an unusually high participation.

I wrote a number of blogs about the contest.   The opposition put up a website Calling All Members led by the former CEO and previous board directors. It  presented powerful arguments against ending VSE’s independence.  For these longtime VSE supporters, the outcome was a surprise and disappointment.  However, they chose not to challenge the results.  Since the  merger date of January 1, 2023, VSE has operated as a division of New England FCU.  A new name/brand is promised for the future. 

“In the Room Where It Happened”

John Kennedy once said, “Victory has a thousand fathers; defeat is an orphan.”  In this case victory has a mother.

I recount this story from a much longer article about her efforts.  This insider’s account raises the question what the outcome might have been had this approach been revealed during, not 8 months after the vote.

In July 2023 this VSE senior executive who directed the merger campaign was the subject of a long account by Joel Berg. It is posted in full on the Financial Brand website, Tactics from a Nail-Biter Merger That Every Bank Marketer Can Use.

This lengthy, first-person story of the voting campaign centers on Yvonne Garand, VSE’s chief marketing manager.   The article includes examples of the mailings and other promotions from the campaign which are not included here.

Writer Berg describes Garand’s communications strategy as the “make-or-break factor.”  These included messaging to target segments at critical points in what ended up being conducted like a “political  campaign” including hiring a consultant expert in political elections.

The author believes this case “offers lessons for other institutions concerned about how customers will react to a change in ownership.”  Also an example of tactics necessary to  win.  He says the fundamental challenge in any merger or purchase-even if members vote:  “the customers or members coming on board didn’t choose to bank with the acquirer on their own.”

The Critical Tactic for “Getting out the Votes”

The critical communication tactic was segmentation.  Identify key groups and prepare different messages, tone and style for each subsector.

The two credit unions had different histories and business priorities.  Both were community charters but VSE’s (1947) legacy was its state employee origins. New England’s roots were as an IBM chartered credit union (1961) with  members outside the state from the beginning. These two Vermont based credit unions had created different business models, cultures, and brands.

Garand called her communications strategy a “human-centric approach” that ensured the “messages were empathetic.”  In this short  video link in the article she summarizes her approach with this point–the campaign couldn’t be a typical merger story about greater scale and efficiency.

“All of those things are important. But that’s our inside jargon. And we knew that if we came out with messaging and communications that sounded like that, people might not understand it, and it might even feel a little intimidating.”

(https://www.youtube.com/watch?v=Xtc2GWunoZY&t=55s)

Several key segments included “digital natives,” environmentally minded members,  and those located around New England’s branch structure in Burlington.

But the most group was VSE members who lived near the state capital of Montpelier.  As the longest tenured members, “We knew that this was probably the segment that would feel the greatest sense of loss because they grew up with VSECU. We really wanted this group to know that they were still going to have the same experiences that they have today.”

As Berg notes in the article, “knowing many “no” votes would come from the state capital area, the credit union focused on reaching potential voters in other areas of Vermont who might be more receptive to the merger plan.”  He quotes Garand: “We strategically focused on the Burlington market — Chittenden County — as well as other smaller regions in Vermont, to encourage those members to vote. And it worked.”

Changing Tactics as the Opposition Organized

Garand’s reaction to the opposition, “It did take us off guard just a little bit, how effective this opposition was in the central Vermont area.”

The independence effort was led by Steven Post the former CEO of 26 years and other directors and senior executives.  Their website offered multiple, thoughtful reasons for sustaining VSE’s unique values based, Vermont-centric model. I wrote several blogs presenting their position that VSE’s continuation was in the members’ best interest.

The Vermont State Employees’ Association and the Vermont Retired State Employees’ Association, opposed the merger. Given this backing, “we thought we were going to win,” says Post the previous long term CEO.

What made the difference?  The opponents say it was VSE’s resources used to promote  the merger.  If one looks at the increase in marketing and professional services spending in 2022 versus the prior year, it would seem to confirm one critic’s estimate that over $1.0 million was used to convince members to support management’s decision.

From Berg’s article, “If we had had money to put ads on TV, I don’t have any doubt that the outcome would have been different,” says Jerome W. Diamond, the state AG from 1975 to 1981 and a former chair of the credit union’s board.”

The Vital Tactical Change

As the opposition organized Garand changed tactics from a traditional company marketing-messaging effort to a political campaign.  Even bringing in outside consultant with election expertise.

Berg’s article includes more details with marketing collateral.  This is an insider’s account of her role to persuade members to support VSE’s termination. She avoids debates about member benefits, rather the member communications focus on “feel good” concepts:  “Better Together,”  “Leading from the Future,” and “Enriching the Quality of Life.”

Garand rejects traditional business logic for mergers-scale, efficiency, innovation- to solicit votes.  Recognize the opposition, but don’t engage with the critics.

The credit union controls the communication channels to reach the members including branch signage and multiple message marketings. Focus on advertising a potential bright future not on whether members should give up control over all the resources, relationships and community focus they have created and own.

Learning from the Past

Once eliminated via merger, there is no going back to resuscitate a vital legacy over 75 years in the making.  When reporting on the outcome I described the losses that occurred not only for VSE members, but the state credit union system and its citizens.

New England FCU’s acquisition  not only eliminated its principal competitor, it also created one credit union controlling  47% of the state’s credit union assets and 40% of members at the merger date.   A big egg for one basket.

Tomorrow I will look at the results of the merger one year out.  How are members responding?  What are the financial trends?  It is especially important for a look back while the events and points of view are still remembered.

We can change the future if we are willing to learn from the past.  And then take seriously the differing judgments about the event’s consequences. One group lost an election about a credit union’s future role.

However everyone loses when the event is merely another successful example of the power of propaganda, or marketing, whichever interpretation best fits this recounting.

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Three Examples of Credit Union Success

Credit unions can be inventive when communicating their special nature.  Here are three different approaches.

A Few Great Numbers (KPI’s)

This traditional view of success is from the yearend numbers of an exceptional coop. This CEO’s team focuses on the 5 key performance indicators (KPI’s) in 2023 as shown below.

metrics goal actual
member growth 5.10% 4.10%
net earnings 1.00% 1.23%
service quality 82.25 83.3
P&S per member 4.64 4.61
deposit growth 10.00% 12.80%

These along with many others not shown (net worth, loan growth etc.) would be outstanding in any year.  However in this year of flat to down trends overall, they are extraordinary.   How was it accomplished?

This credit union implements the most traditional and important strategic advantage credit unions enjoy–“relationship banking.”  It provides stable deposits, long term members and intense focus on their community and its well being.

The organization does this by putting people first. The CEO tells employee and member care stories as a central part of his monthly updates.  Not words, but deeds, sometimes confessing honest shortcomings.

The credit union leadership has set boundaries, what to do well and what not to attempt.  No mergers, no bank buys.  They are in a market dominated by a super coop competitor ten times their size.

For those who believe scale is necessary for success, this credit union grew to over $700 million in 2023. It did so while recording the fifth consecutive year of lowering its operating expense to average assets ratio. In this five years the ratio has fallen every year going from 3.08% to 2.55%.

That result  is lower than the majority of credit unions over $5 billion.  It is because they know who they are as a credit union.

Celebrating a Community That Cares

For any credit union striving to communicate its role in the communities served, I would urge you to look at this latest video from Whitefish Credit Union in Montana.

It is from Josh Wilson, Senior Vice President for Marketing.  The video centers around people in all walks of life serving their community in local food banks.

It is a moving documentary.  So powerful it should be entered in the Sundance film festival. The stories honor those who serve and are being served.  It is a tribute to the small rural towns and the natural environment in which the credit union operates.

Watching it makes you feel good about this example of caring for others.  There is not a word about Whitefish’s financial services, which says everything you need to know about the credit union.  Enjoy.

(https://youtu.be/9t7xl3IQRw4)

The Special Opportunity for Credit Union Leaders- I Feel Like Makin’ Love

Yesterday I linked to a song by the rock group Green Day.  A fan, Bob Bianchini, sent me their latest video from two weeks ago.  It is a real picker-upper to start your day.

You might ask who is Bob Bianchini?  He is the only League President who simultaneously served in the state legislature.  That was in an era when credit union leaders knew how to get things done.

This video reminded me of Rex Johnson’s exhortation to the credit union audiences who attended his many lending symposiums.   He would close by telling them, “your job is to treat your members so well that they become fans for your credit union.”

Here is what genuine fandom looks like-in a New York subway station from Bob and Green Day.

https://www.youtube.com/watch?v=EiF28zBaOlI

(https://www.youtube.com/watch?v=EiF28zBaOlI)

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Are Credit Union Members “American Idiots’?

Do some credit union leaders, the general press and those charged with overseeing the public good believe the member-owners of cooperatives are idiots?  I believe those that think and act that way will soon be standing in front of a revolution if the behavior in mergers and other acquisitions continues as described below.

In the first decade of this century a punk rock group, Green Day, wrote a political protest song called American Idiot.   The song was a loud screed against the fear and xenophobia which they believed the public media promoted after the Bush administration’s invasion of Irag.

The chorus of this complaint is:

Welcome to a new kind of tension
All across the alienation
Where everything isn’t meant to be okay
In television dreams of tomorrow
We’re not the ones who’re meant to follow
For that’s enough to argue

Abraham Lincoln was gentler when he said,  ‘You can fool all people some of the time and some people all the time. But you can never fool all people all the time.”

Today a few hundred of the 4,700 credit unions are led by persons testing Lincoln’s assertion that you can’t fool all the people all the time.  Just insert the word member for people.

The ongoing spectacle of credit unions eating their own with the enablers stuffing their pockets to carry out this cooperative cannibalism continues.  The examples are piling up.  This continued mutual destruction could end up destroying the whole cooperative enterprise.  The latest example is the merger of 121 Financial CU with VyStar both headquartered in Jacksonville, FL.

The Setup

Some 90 years ago a group of telephone workers put their nickels, dimes, and quarters into a desk drawer to organize a credit union.  It was 1935, the middle of the Great Depression.  Over the years this telco-based group effort grew and grew.  As it became too large for self-management, the board hired full time professional staff to continue the purpose of building a “home-grown” cooperative serving the greater Jacksonville community.

At December 2023 this nickels and dimes startup had reached $710 million in assets, serving 50,000 members.  Its financial performance was strong, continuing to grow loans at 11% and achieving a net worth of 9.05% or well capitalized.   Delinquency had ticked up a bit to .64%, but the loss reserve was 140% of all past due loans.

However in November 2023, the current board and senior management decided to end this nine-decade record of member-centered community service.

As reported by CU Today in November 2023, “the credit union told members the merger will provide enhanced services, meet the evolving needs of members and employees, and make a “profound positive impact on its communities.”

It did not identify what those enhanced services would be . . .

In addition, 121 Financial . . .said the merger will further its mission to “Do Good.”

The “doing good” that was disclosed were payouts to the five senior managers of over $900,000 for additional bonuses and salaries detailed at the end of this blog.

The 50,000 members who had built and owned the credit union received nothing.  Just vague promises in return for giving away their $485 million in loans, $177 million in investments, all $25 million in fixed assets, and $63 million in equity, for free.

Who wouldn’t want such a deal?  A successful nine decade long ongoing business with a local reputation and loyalty, not sold, but handed over to a local competitor.  And the former member-owners get a new set of leaders who have nothing to do with their history or success.

One can understand why 121 Financial’s senior management wants to ensure their future.  The recipient of this largesse, VyStar, has 925,000 members, 91 branches and 2,300 employees. It doesn’t need another CEO (whatever the former CEO’s new title-legacy ambassador?) COO, CFO, Sr Lending officer, let alone another Executive Assistant. Their additional compensation was stated as over $900,000 and that does not include significant other benefits in written form from benefit plan terminations and new SERPS.

The leaders claimed that they had contacted a number of other credit unions and this was the best deal.  Whether true or not (the shopping part) it does suggest that a number of credit unions passed on this freebee and were not willing to pay the grift.

Or perhaps VyStar thought it was worthwhile to eliminate a local competitor which was outperforming them with the traditional credit union strategic advantage of “relationship banking.”  Consider how VyStar would have reacted if PenFed took the bait.

The  Members Saw Through the Scam Immediately

When the merger was announced the members immediately set up a website Stop the Merge.   The purpose was clear: We need you, The Members of 121 FCU, to help us save our Hometown Credit Union.

On the site are a number of articles describing their concerns and urging members to vote to stop this giveaway.  Their most pointed critique was on November 21, 2023, Outrageous Bonus for Top Merger Pushers.

Speaking of “Take-Over” in the merger package, it clearly states that all things 121FCU will go away….Name, Branding, etc. and more community engagement…..What that means is that Vystar will use more of the assets and value of 121 FCU to buy naming rights for sports stadiums and silly promotions. I, for one, just need to be able to trust my financial institution…And I think the 2022 Vystar debacle shows we can’t do that, at least with them. 

The bottom line is that 121’sleadership team by closing down this cooperative has broken trust with the owners.

The VyStar Connection-It Takes Two to Tango

CEO Brian Wolfburg has enunciated a clear growth strategy for his tenure.   The credit union at one point attempted to purchase the $1.6 billion Heritage Southeast Bancorporation (HSBI)with  its 22 branch locations across Southeast Georgia, through Savannah and into the Greater Atlanta Metro area.  The effort was called off after a 2022 very public failure of a home banking conversion caused a member uproar.

Even though not completed, this example is  relevant to see through this merger.  One can understand why Wolfburg wants to eliminate this very successful local competitor which is a burr under his saddle.

Mergers of strong independent firms are anti-competitive. In this case 121 Financial has stronger loan performance, long-established member loyalty and a niche nurtured over decades.  When offering to buy HSBI, VyStar offered the bank’s owners a price of 1.80 times book equity. It was also  a significant premium over the recent stock price, pre-merger announcement.

However the owners of 121 Financial were  offered $0.  Instead they were asked to give away their total capital to an entity that had nothing to do with its creation.

Treating credit union member-owners as idiots in an economy that promotes private property is a huge political and business mistake.   Members would be treated with more respect if they were bank shareholders.

CEO Wolfburg’s expansion efforts at VyStar depend on two growth hormones:  renting capital via subordinated debt (currently $200 million) and acquiring other firms’ assets versus organic growth.

Both of these efforts can work for a while, especially when the cost of funds for years as at or near zero.  Now the tide is going out, and as Warren Buffet famously quipped, “we can see who is swimming without any trunks.”  Organic growth is hard, but it also is more stable and builds a fortress foundation know as goodwill, but not the intangible financial kind.

For a market indicator of VyStar’s performance this past five years, here are two benchmarks:

The credit union’s return on equity has gone from 7.9% in 2019 to 2.6% in 2023, a CAGR decline of -24% per year. In only 2021 did performance near the longterm  market average of 11.8%.

Return on assets in the same five years has gone from .68% to .18% or a negative CAGR of -28.%.  In none of the five has ROA reached 1%.

In a market traded firm, this five year record would have triggered calls for changes of leadership or strategy.

The $13.6 billion VyStar needs the financial strengths of 121 Financial to shore up its downtrends. This merger helps VyStar and offers nothing 121’s members cannot have from their credit union.

Where is NCUA?

Every challenged CEO’s defense of this rapacious behavior is excused with two points:

  • NCUA approved it;
  • The Members Voted for it.

I won’t go into the faux-voting process required by NCUA.  Rather the failure to see reality is much deeper especially at the board level.  Recall that it was staff that presented multiple examples of self-dealing in proposing the merger reg in 2017.

Chairman Harper does not believe in member-owner rights.  He sees members as just consumers.  He will protect them with a veneer of enhanced compliance exams.  Cooperatives are nothing more than another financial option.

Vice Chairman Hauptman is vague on any philosophy, but sometimes will refer to the free market.  His inferred stance is that NCUA can’t run credit unions.  However in public pronouncements he makes constant reference to the importance of crypto/blockchain innovation and paying attention to fintechs.

This month will test new board member Otsuka’s ability to bring a fresh eye to both internal and external events. Will she fall back on broad policy statements independent of data.  That is the traditional pattern of board newcomers. Or might she challenge the status quo?

CU Today reported the merger had been approved.   But neither credit union gave the details of the vote-which is unusual in a contested election.  A later story said a member wanted to continue to oppose the combination.  One has the feeling there is another shoe to drop here—or will this straw just be one more addition to the CAMELS load at VyStar.

End note: The Payoffs to 121 Financial’s Four Senior Managers and an Executive Assistant

As first reported in November 2023 by CU Today the following are the disclosures of reported  benefits:

More Than $900,000 Being Paid in Bonuses, Plus Additional Funds in SERPs, Being Paid Out to 5 Executives

A credit union that is paying more than $900,000 in merger-related compensation to five top execs—plus undisclosed amounts in SERPS—is saying it was “very important to highlight that the board of directors conducted a thorough evaluation of multiple credit  unions lasting more than a year before selecting VyStar as the ideal merger partner,” 121 Financial told members.

The $709-million credit union told members the merger will provide enhanced services, meet the evolving needs of members and employees, and make a “profound positive impact on its communities.”

It did not identify what those enhanced services would be. . .

In addition, . . .said the merger will further its mission to “Do Good,” 121 Financial added.

Payout to Senior Executives

The merger related compensation each 121 Financial executive will receive is shown in part below:

  • CEO David Marovich, who will continue for five years as SVP-Northeast Community President, with a salary increase of $15,000, two retention bonuses of $122,500 each at six and 12 months after the merger; and who will receive a supplemental executive retirement plan that will pay him 40% of his annual salary of year five upon retirement in year six for a period of five years.
  • COO Paul Blackstone, who will continue on for five years and be named SVP-special projects with a salary increase of $95,000, two retention bonuses of $126,250 to be paid six and 12 months after the merger; and the establishment of a SERP that will pay him 35% of his annual salary of year five upon retirement in year six for a period of five years.
  • CFO Cyndi Koan, who will continue on for three years as SVP-financial special projects and who will be paid retention bonuses of $35,000 six and 12 months after the merger closes.
  • SVP-Lending Cathy Hufstetler, who will retire and receive a year’s severance of $273,000, and retention bonuses of $28,000 at six and 12 months after the merger closes.
  • Executive Assistant Nichole LeBlanc, who will continue on for five years as senior executive assistant with a salary increase of $5,000 and with retention bonuses of $9,500 at six and 12 months after the merger.