Category: Cooperative Design

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An Annual Meeting Experience

The formal invitation came by mail and read as follows:

TowneBank

Cordially invites you to attend the:

Annual Meeting of Shareholders

Wednesday May 14, 2025  at 9:30 AM

The address for the meeting was the Richmond Convention Center. The invite closed:

Lunch will be served immediately after the meeting

Kindly reply by returning the enclosed card only if you plan to attend

The reply card asked if the attendees would stay for the luncheon.   The only required information was first and last name of those attending.  There was an addressed stamped envelope to mail the response.

TowneBank is $17 billion in assets with  2,800 employees in 51 branches throughout the greater Richmond, VA area.   TowneBank  converted from a mutual charter several decades earlier.  In that process depositors could buy  newly issued shares if interested.   My wife converted her  savings to stock.

TowneBank’s mission is:

Serving Our Community

Throughout our growth, we’ve never lost sight of our true mission: to continue to be a community asset by serving others and enriching lives.

Respect for the Owners

As a shareholder-owned financial institution, their board’s  goal is to provide its owners an acceptable return and ensure trust and confidence in the firm’s leadership.   Its invitation is gracious, formal in style and intended to encourage owner participation.  It feels welcoming.

A Credit Union’s Annual Meeting

The annual meeting of many credit unions conveys just the opposite impression.  Member-owners must register in advance to attend the meeting.  The event is often virtual only, with no member attendance permitted. The agenda may state as mine did: 

Matters requiring a vote

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 2024 Annual Meeting minutes.

There is no voting for directors as the board nominated candidates equal the vacancies. No new items or old business will be permitted. There will be a Q & A for questions submitted in advance, and sometimes those added during the meeting.

This was the setup for Patelco’s 2025 virtual annual meeting last Friday.  There was much material a member-owner might download at this site.   The State of the Credit Union included 46 slides with much information both financial and operational efforts. The 2024 Annual Report is 18 pages of high level summaries, a financial statement (unaudited) and pictures of staff and board.

Patelco’s annual report and CEO meeting update met the letter of the law, but the Friday event lacked any hint of spirit. No celebration, no thank yous to members and carefully scripted to create an impression of a required exercise versus a shared experience with member-owners.

The Q&A Portion

The only section not prepared and sent in advance were member questions. Some were submitted prior and some during the meeting.

The cyber ransom attack was a major disruption in 2024.  It was discussed in the CEO’s summary and in the Q & A.  New information included an estimated total cost of $64 million of which  $37 million was fraud losses caused by some 6,000  members during the outage.  Their accounts were subsequently closed.  The sale of Visa shares in January resulted in a $35 million gain which helped offset part of the cyber attack expense.

The Annual Meeting’s Intent

Is the Annual meeting a mere administrative formality to be closely controlled by the organizers?  Or, is it an opportunity to enhance member confidence and support for their cooperative?

The meeting ritual can be much more than publishing required data and information. It  communicates leadership’s attitude toward their member-owners. Patelco’s approach signals control not mutual responsibility.  There were two examples that illustrate this approach.

Democratic Governance

When asked about the closed election process Chairman Rivera read the formal steps. He said there were no limits to board terms. Two board members’ service began in 1996. As of the next meeting, five more will have served for over two decades. Longevity is certainly an attraction for those in power.

The Chairman carefully avoided addressing the issue of democratic governance for topics such as: When was the last meeting in which there was a contested vote?  Ever? Why does the board encourage members submit proxies, thus surrendering their right to vote in board elections?  Why are no members allowed to attend in person?  How meaningful is the member’s meeting  in which all business is conducted with only employees present?

At a time when every segment of the country’s democratic processes seem to be under direct or implied threat, why is Patelco shutting down the democratic practice meant to be the hallmark of cooperative design?

This was a missed opportunity to highlight  fundamental cooperative governance.

Questions About Threats from Without

The second reason for engaging members is that this is the source of the movement’s political power.  Credit unions cannot out spend political funds or have enough lobbyists to rely on traditional forms of political influence. It is members voting their self interest that will secure credit union success in DC.

Three questions touched on  national topics. One was whether Patelco was safe and sound at this moment, referring to bank problems. A second asked about possible threats from a government agency. The CEO’s response interpreted the question as referring to credit unions’ tax exemption.

And the last question of the evening: After President Trump fired two of the three NCUA board members—does this threaten our deposit insurance?  CEO’s answer paraphrased: Your deposit insurance is not threatened, the NCUA board is reduced from three to one member but can continue to take the actions it needs to;  your insurance is federally backed. 

These questions referencing the external environment (taxation, NCUA board firings, bank uncertainties) were an opportunity to educate and prepare members for their critical role in countering these threats.  It was the moment to rally the members with straight talk.  Instead general assurances that everything is OK were given.

To suggest taxation is a just another banker’s campaign is to overlook the entire current context.  True as always, but that is not what is going on that makes this a potential opening now. The response that the firing of two NCUA board members means “business as usual” at NCUA and the NCUSIF, is ill informed or naïve.

Both questions were an opportunity to remind members about credit union uniqueness and why there is a federal tax exemption—the purpose and role of cooperatives in a capitalistic market place.   More vital, this purpose is regulated by a unique dual chartering framework. That system includes insurance fund options that require 1 cent of every member’s savings dollar be sent to capitalize their special cooperative fund.

To blithely assure members their fund and NCUA  function like “business as usual” is to misstate the whole intent behind the board’s two removals.  Moreover, the question of NCUA’s single member board authority is anything but settled.

If this is indeed the view of Patelco’s leadership about DC events, they need to do some homework.  More importantly, their power to address these topics will rely on member awareness and the ability to rally their engagement when needed.

The Bottom Line

Credit unions are different by design until those who lead them cease to believe in that difference.

TowneBank believes in courting and encouraging shareholder engagement. They talk the same language as credit unions about community and customer support.  But they back that community spirit up with invitations and hospitality.

Patelco’s actions speak much louder than the many pages of charts, numbers and operational activity in prepared reports. The annual meeting is not a member’s final exam for the prior year. It should be a celebration of mutual progress.

There has never been a time when acting to support democratic values and practice has been more vital.  Credit unions should be leaders in this affirmation of member-ownership and governance.  Without this effort, credit unions will increasingly be perceived as just another example of self-perpetuating oligarchy at work.

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“Take Action Now”

That was the request of O Bee Credit Union President Andrew Downin’s recent letter to his members.

Dated April 18, two days after the Trump administration fired the two democratic board members at NCUA, I thought this was fast action.

The immediacy of the situation was different however:

We need your help. 

A proposed change in Olympia (WA) could directly impact O Bee Credit Union and the services we provide to you and our community. A last-minute amendment was added to Senate Bill 5794 that would impose a new tax on not-for-profit, Member-owned credit unions like O Bee. This amendment was introduced without any public input and ignores the real value credit unions provide. 

This new tax would reduce our ability to offer affordable loans, low fees, and financial support to our Members. It’s not just a tax on O Bee – it’s a tax on you, our Member-owners.

The email closes with this request:

TAKE ACTION NOW*
* This link takes you to a trusted website from our partners at GoWest Credit Union Association.

The letter ends with: Thank you for being a part of O Bee Credit Union. Together, let’s stand up for what makes credit unions special.

What Makes Credit Unions Special?

In this event, the credit union threat is from a change in the state’s tax exempt status. There is direct parallel at the federal level.

But threats to credit unions are more than taxation. Last week the Trump administration took over NCUA.  With a single board member whose term expires in four months, the agency will either bow to Caesar or navigate to keep member-owners’ interest first.

If the latter course is followed, it will need the support and engagement of the members. This existential threat may be harder to rally for member action versus opposing taxation,  No one is for taxes.

But it is critical to point out the NCUSIF logo on the credit union’s marketing materials represents a uniquely credit union designed and dedicated cooperative fund.  Even this email includes the words:  Federally Insured by NCUA.

During the Silver State banking crisis in 2023, the credit union community promoted their separate insurance fund as well as the differences in institutional structure and risk versus banks.

Many factors make credit unions special.   For me the most important takeaway from this communication is not the issue of a tax change or  the current Agency takeover in DC, but rather the request for members to act.

It is member involvement that will separate the credit union issues from the transactional lobbying circus in Washington.   O Bee does an excellent job communicating their credit union’s uniqueness in their monthly messages.

This corporate discipline to stay connected with members is a potent power.  This was the first but not the last time members will be asked to take action in the months ahead.

 

 

 

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Our Moral Moments

When Jim Blaine was CEO of SECU(NC) he was sceptical of his peer’s elaborate strategic plans.   Instead he offered his mimalist version as follows:

Vision:  Send us your Moma.

Mission: Do the right thing.

These were guiding principles for how to serve members as well as evaluate tactical business options.

I was reminded of this simple guidance when reading the following “bettter deal” story from a CEO’s update for the staff and board:

Another member, Jessie, was set on purchasing a vehicle from Carvana for $19,880, even though its actual value was $15,300. While he was still willing to proceed, I wanted to ensure he got the best deal.

After a quick search, I found the same vehicle, in the same color and trim, but two years newer at a local franchise dealer for the same price. The vehicle was priced at its actual value, making it a far better investment. Jessie ended up purchasing the newer vehicle and closing through CUDL, securing a much smarter deal.

These are Not Normal Times

Yesterday another administration error was corrected by the Supreme Court which ordered that a migrant mistakenly sent to El Salvador be returned to the US.  The administration denied it had the power to do so.

Senator Cory Booker recently spoke:

“These are not normal times in America, and they should not be treated as such. This is our moral moment. This is when the most precious ideas of our country are being tested….”

As DOGE has now moved into NCUA, it is important to remember Booker’s assertion that,  “In this democracy the power of people is greater than the people in power.”

The Wrong Part

While resignations on principle, the dismissal of career federal employess and wholesale demolition of federal government departments may  seem remote or even necessary to some, the continued destruction of government services will ultimately negatively affect every American.

But we need look no further than credit unions to see how hard it is to follow Jim Blaine’s simple maxim to do the right thing.

CUDaily founder Frank Diekmann recently wrote an opinion piece Lots of Questions About Mergers. He .summarizing the multiple motives given members including examples of questionable accuracy:

The vague claims about “more products and services” and “better rates.” The big payouts for some management teams and nothing for the members. Whopping amounts of net worth just being transferred to the acquiring CU. And relatedly, a question that is never answered: if you’re lamenting you just couldn’t offer certain products and services, why didn’t you tap into some of your deep pile of capital? 

Also related, and a question I wish I could ask of many CUs: where in the world has the board been over the last few years or decade?

Our Moral Moments

What we are seeing in our public and professional lives show the inevitable challenge every person encounters at some point.  Perhaps more than once as we grow through stages of increased responsibility and accountability.

We all believe in our hearts we will do the right thing when necessary.  Unfortunately many others rely on a reality that “everyone has a price” with which they can be induced to go along.

Author and spiritual leader Richard Rohr described this human circumstance as follows:

It may not be in our power to determine how things will unfold, but it is in our power to decide how we respond. It is in our power to hold on to the practices that nourish us, inform us, and give us courage. It is in our power to remain in integrity, to choose nonviolence and noncooperation in the face of all the wrongs we are seeing. 

The beginning of a way out is to honestly see what we are doing. The price we’ll pay is that we will no longer comfortably fit in the dominant group!

Doing the Right Thing may not put you in the dominant group.  Remember that your ability to resist is because others gave you the personal wherewithal to both see and chose another way forward.  That is the individual foundation which all institutions require to survive.   We call that personal responsibility democracy.  It is how we achieved the freedom we share today.

 

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With Whom Do You Share Your Brand?

One of the truisms about branding is that grreat companies create great brands.  Brands do not build great companies.

Tim Calkins is a markeing professor at The Kellogg School of Northwestern University.  He publishes a monthly newsletter, Strong Brands,  providing contemporary  examples from his classroom.

The latest edition includes an update on Tesla, a brand he has written about before.

Tesla
In my last post I wrote about Tesla’s brand repositioning. Things seem to only be getting worse and sales were sharply down in the first quarter. News that the Proud Boys are now showing up at Tesla dealers to show their support will only further polarize the brand.

Driving a Tesla has always been about making a statement. I suspect supporting the Proud Boys wasn’t the statement most Tesla buyers were trying to make. 

Credit unions have both individual identities as well as the generic reputation of being a different kind of financial institution.   What one credit union does well or becomes a front page story,  affects the cooperative system’s brand.

Just as important the individuals and organizations a credit union decides to work with or to support affects their reputation with their members and the communities they serve.

As credit unions decide their NIL relationships, the business partners they seek to serve, and the community events they support, they are creating a reputation much greater than a financial service option.

As boards consider whether to facilitate digital currency options, the sale of marijuana or vape products, or finance options such as interval vacation  ownership, consider the impact on the “brand” the credit union is presenting  members.

When a credit union offers  a special financial product or specific business loans, it endorses that activity.

For example is now the moment to promote a special financing option for the purchase of Teslas?

As in life, what credit unions do with members; money always speak louder than the latest PR or messaging  campaign.

 

 

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It’s the Members Who Have the Power to Bring Change

Uncertainty reigns in Washington DC about the future of federal government agencies and their traditional roles versus the public.

CDFI grants are threatened; minority (democratic) board members of the FTC are fired; agency personnel are asked to submit weekly updates to DOGE on their work. Credit union taxation is on some agendas. NCUA board members spar over OD fees, versus uniting to support the agency’s mission to serve credit unions.

As the political and constitutional events evolve, the outcome will depend on political power.  For credit unions, this is the voting and lobbying efforts of their members.  Every industry “walks the hill.”  Every paid lobbying group makes PAC donations.

But few groups would claim the potential clout of member-owners acting to protect their democratic institutions.

All Politics Is Local

Despite the news from Washington, all voting is done locally.

However, this member constituent power is latent.  Asking for action requires informed  awakening and clear messaging.

An immediate way to activate this process is to engage the members at the annual meeting.  That is where their attention as owners and their role in governance is exercised.

The required annual baord election is the opportunity to affirm their potential political role by making this a real meeting, not a pro forma event.  It starts, as shown in the example below, by showing how their board members are nominated and then voted on as part of the meeting.

The Chair and CEO’s reports should illustrate  their credit union’s special role in members’ lives and in their communities.  When presenting threats to the cooperative model, the members will know what is at stake.  Finally, specific actions they may be called upon to  support their  member-owned financial cooperatives  should be discussed and feedback sought.

Activating Member Empowerment at the Annual Meeting

Here is the lead story in the March 13, 2025 email to members by O BEE credit union.

Transparency and Trust

The link at the end of the article lists the duties of the board, includes an application to be a nominee, and details of the board’s compensation.

Transparency is vital to a credible election process.  This strengthens  members’ awareness of their governance role. When the credit union then asks them to a act as citizens in a democracy, you have already “walked the talk.”  They can trust that you have their best interets in mind.

 

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Videos Empowering Members and their Credit Union

Putting members at the center of a credit union’s story is an art.  When done well, it reinforces the fundamental cooperative difference, especially when an integral part of the public message.

One credit union that does this with great skill  is Whitefish Credit Union in Whitefish, MT.

“God’s Country”

Below is a recent example of their unique video series.  These member centered short films portray individuals’ special interests, the natural landscape of the area, and a broad community purpose being served.

Following is a story by a founder of the Back Country Horsemen on this non-profit’s 50th anniversary.  Their example has extended across the country.  As one person remarks, every state has its own “back country,” even Delaware.

The video makes you want to saddle up and be a part of this ride with this credit union.

(https://www.youtube.com/watch?v=wodQNsu5fSQ)

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

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

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

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

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

Influencing Political Outcomes

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

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

Consultant and former OCC examiner Ancin Cooley offers this assessment:

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

Activating Member-Owners

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

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

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

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

1998-The Year of Member Action

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

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

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

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

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

The Status Quo Is No Longer

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

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

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

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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The Source of Credit Union Power: Members Rally to Rebut Banker’s “Hit” Article

“You will pry my credit union from my cold middle class dead hands.”   Words of defiance from a credit union believer. One of hundreds of comments posted last week.(source below)

A leader’s ultimate success much depends on how the person manages the instruments of power.  For some in authority, the point of power is to use it to expand one’s dominion.  Using requires building up an institution’s size, scope of activity and resources to control or dominate.

However, there is another leadership model.These individuals believe that the role of authority is empowering others.  Credit unions at their most effective are subversive of status quo structures. They organize from the bottom up.  By the grass roots, not by investors hoping to make money.  No capital, just personal sweat equity, time and collaborative effort to accomplish common purpose.

This counter-cultural, not-for-profit cooperative design is also the key to  credit unions’ latent political power.  Here is a case study from last week of what this looks like in practice.

Responding to a Newspaper Opinion

Last week the Washington Post published an Opinion article by the former chair of the FDIC, Sheila Bair, titled:   Tax-free credit unions are thriving at public expense.  Her bank in Chesterton, MD, The Peoples Bank, accepted a purchase offer from a Massachusetts credit union “using some of their untaxed income.”

Her article referenced other examples of credit union branding and expansion.  Her recommendation was to level the playing field with community banks by taxing credit unions.  Otherwise, she warned, ““Give them an inch and they’ll take a mile.”

I had used the credit union’s purchase of “her” bank as an example in a blog Time to Ask WHY.  My p;oint was to illustrate the bigger public stage on which credit union actions are now viewed.

I did not foresee the  Post’s readers’ reaction to her article.   When the postings were stopped 253 comments had been submitted, almost all from credit union members.

The members universally defended their credit unions, called the article a “hit” piece, and provided hundreds of firsthand examples of how credit unions provide special member value.

Following are a few examples of the readers’ responses unleashed by this former banking regulator’s critique of credit union’s tax status.

From a bank customer and credit union member:

I have business both with a major bank and a credit union-right now the rate on my major bank credit card is 27.99% (they cut my rate a whopping 2% from 29.99% a few months ago!)

Right now, the rate on my credit union credit card is 8.99%

 You can probably surmise from the above anecdote who gets most of my business… 

From a 30 year member::

I have been a credit union member for 30 years. No hidden fees, low interest credit card, interest on my checking and savings, no service charges, talking to real people, great service, the list goes on and on. I would prefer to never have to deal with a bank again. I’m sure big banks would love to crush credit unions.(Reader comment ratings:  Provocative/Thoughtful 61)

From a member with mortgage loans for 37 years;

I’ve had a mortgage since 1988 on my successive residences, usually with an escrow account to pay property tax and homeowners insurance. Refinancing in 2012 with a credit union was the first time I managed to persuade my lender to include California Earthquake Authority premiums in the escrow account associated with my mortgage.

I’ve been much more satisfied with the service I’ve received from a credit union than from any of the big banks I’ve patronized over the years…. 

A Question posed: The difference, who cares more about you?

Ask yourself a simple question. WHO cares more about YOU as an individual? A big bank or the credit union where you are a member?

Notice that YOU are a member of the credit union – not just a customer. With banks – YOU are just another income source.

A question: Why the article?

Of all the non-profits that exist (and ALL credit unions are non-profit) – why attack the one group that actually takes care of their members instead of pushing propaganda as part of a political agenda?

 Attacking the for-profit Washington Post:

Wow, taking a shot at non-profit banking!?!? Proof once again that the Post is in the bag for corporate interests. Where is the guest opinion on the mis-deeds of for profit banks? Instead of recommending that credit unions return to stricter membership rules, or limit their ability to purchase commercial banks, you go right for their non-profit status. I have not used a for profit bank in 25 years. Thankfully almost everyone on Capitol Hill banks with the Congressional Federal Credit Union (as do I) so they understand the value of a credit union. 

A comment on the Opinion author:

As others have pointed out, Shelia Bair was chair of FDIC during the 2008 financial meltdown. She was a major architect of the TARP bailout of Chase, Bank of America, Wells Fargo, and the other big banks. 

This is an unadulterated hit piece against Navy Federal Credit Union, which is competing with the big banks directly in their consumer banking business. 

How and When Is Member Power Mobilized?

The comments extend for another 240+ reader reactions.   These words are not lobbying jargon, irrelevant numbers or cliches.   They are from lived experience motivated by personal feelings.

Implicit in these words is a readiness for action.  This potential  is the real source of credit union power, not the amount of PAC dollars donated.  It is the member-owner-voter’s relationship with their credit union.

This foundation of the movement is a latent,  “sleeping giant”-a phrase used by Ed Callahan during the 50th anniversary of the FCU Act in 1984 and afterwards.  Deregulation had placed  the responsibility for the future of credit unions back where it started, in the hands of boards and members, not the federal government.

The Immediate Challenge

America is in an era of political disruption. The issue of taxation will undoubtedly arise in several contexts.  But the real challenge of crafting a new beginning, a rethinking of who we want to be, is much greater.  And it may be beyond the grasp of those who seek only to defend the existing co-op status quo.

What is necessary are new models to tackle critical opportunities for clarity about credit unions’ future role in the American economy and members’ lives.

The country is hungry to reset foundations, recommit to fundamental values and for new generations of leaders who can innovate with cooperative design.

We should avoid marketing our fear of change to garner internal support, but rather take this fluid moment to rally our members for a renewed vision of what we can be.

And like the initial founders, or the change makers who led deregulation, this new era can be both frightening and enlightening.  This redesign may involve both government/regulatory relationships and new realities for industry participants taking  responsibility for our future.  It may entail new organizational relationships and partnerships.

If one looks closely the seeds for a new future are already there.  Some have been planted by those seemingly old school; others are in the enthusiasm of a generation that seeks to change the world.  Our skill will be to identify those whose directions empower others with their vision, versus those intent on enhancing their existing legacy returns.

Let the conversations begin.   If you have any doubts about what members value, just go the article and read some of the several hundred more comments.   The members’ voice is there if we really listen.

 

 

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Time to ask WHY?

On December 31, Credit Union Times reported the $1.8 billion Hanscom FCU’s (Littleton, MA) intent to  purchase the $306 million Peoples Bank of Chesterton, MD.

The Peoples Bank, founded in 1910, operates seven branches with 78 employees serving approximately 20,000 customers.

The Times article stated this was the 21st proposed bank purchase in 2024.  It seemed like just another example of a credit union buying bank customers to demonstrate the advantages of being part of a cooperative.

But then this announcement became the lead example in a Washington Post February  3, 2025 opinion piece written by Sheila Bair, the former Chair of the FDIC.  The title tells the article’s purpose:  Tax-free credit unions are thriving at public expense.

To illustrate her thesis that “many credit unions have been abusing their nonprofit and tax-exempt status to expand beyond their mandate,” Bair provides a personal example.  “I will soon become the customer of a Massachusetts credit union that is using some of its untaxed income to buy my Maryland community bank.”  Note the use of “my” turning the credit union ownership idea upside down.

She asks:  What does a credit union 20 miles outside Boston know about the needs of our small, rural Eastern Shore communities nearly 400 miles away? 

A Hit Piece 

Bair’s opinion article is a professionally written “attack piece”  using her prior FDIC role to give it a professional aura. It references multiple  credit union public shortcomings covered by the press in the past six months.   There is no analysis of the transaction.  Using her  FDIC credential and the  personal reference to  “my bank” she  adds a credible face to a bank lobbying position in DC.  She implies, without evidence, her community is losing an  important  local asset, when it is those owners themselves who must approve the sale.

In both size and example, credit unions are more and more in the public’s eye.  When coop  boards and CEOs believe their actions are merely private transactions, they miss the reputational impact on the entire system.   As one observer has said:  The “Bigger Picture”?… there is one even if you don’t understand it.

This Transaction’s Explanation

The parties’ joint press release was sparse on specifics and long on rhetoric:  

“Hanscom and Peoples Bank share similar values, placing our members, customers and people first,” said Peter Rice, CEO of Hanscom. “Through this combination, we expect to expand Peoples Bank’s ability to invest in its communities across Kent, Queen Anne’s and Talbot Counties. Additionally, with this enhanced geographic reach, and proximity to Washington D.C., we expect to further support our founding mission by bettering our ability to serve all individuals that serve our nation. We are proud to honor Peoples Bank’s legacy and look forward to welcoming its talented team and nearly 20,000 customers to Hanscom. Together, we will bring expanded financial opportunities to a region rich with potential.”

This explanation does not address Bair’s obvious question how a Massachusetts credit union located 20 miles outside Boston will better serve Maryland’s Eastern Shore counties.  The area is a peninsula that stretches from the Chesapeake Bay to the Atlantic Ocean.  The region’s economy is dominated by three industrial sectors: fishing along the coasts, especially for shellfish such as blue crab; farming, especially large-scale chicken farms; and tourism, centered on the Atlantic coast and beach resort of Ocean City.

Hanscom says nothing about  any connection to the area or how it will serve this very different, distant region. Peoples Bank chairman states: Hanscom is the ideal partner to carry forward our 114-year legacy. Its commitment to community investment, our nation’s service members and innovation matches the values that our employees and customers hold dear. This combination ensures our customers and business partners gain access to a broader range of resources and innovative solutions. . .which we expect will redefine banking in our region. 

What About the Financials?

The full 2024 results for both organizations are now available.  Each firm seems stable but neither has shown balance sheet growth for a number of years.  Hanscom’s total shares, loans and assets at yearend 2024 have declined from December 2022.  Delinquency has gone from .25% of loans to  1.56% in the same period.   Net income for 2024 was $2.3  million a steep decline from $23.2 million in 2023.  Net worth is 11.8% and it reports three fewer branches compared to a year earlier.

From 2020 through 2024, Peoples Bank deposits are virtually the same at $268 million. Loans have grown from $174 to $187 million while total assets are static at $305 million.  In these five years, total shareholder capital  has increased from $30.2 to $35.5 million. The bank’s 2024 net income was $3.3 million, or $1.0 million greater than Hanscom’s.

Both financial institutions’ balance sheets have flat lined.  Earnings are down from the prior year. Peoples Bank relies on its wholly owned insurance subsidiary for a significant portion of its non interest revenue which  flows through to the bottom line.

So why would Hanscom decide to purchase this financial institution distant in both miles and market environment from its home base?  The question becomes especially critical when no price is provided in the announcement.

At yesterday’s closing, Peoples Bank has a market capitalization of $37.9 million at a price of $52.11 and 728,918 shares outstanding.  This is just above the bank’s book value of $35.6 million at yearend 2024.   The price is also about 60% above the per share trading range of $31-$33 during 2024 prior to the December purchase offer.

If the purchase is similar to other transactions at 1.25-1.5 times book value, Hanscom’s total cash outlay would be approximately $50 million.  It is clear why Peoples Bank’s owners would be interested in this sale.  However the critical question  is how are Hanscom’s current members and traditional communities benefiting from this purchase?

The distance between the two markets means there are no traditional “network effects.”  The announcement says Hanscom intends to retain the branches, staff and name Peoples Bank and operate with a regional manager. Is this just a cash injection in a new area to revive a static franchise?   If there is to be a new brand at some point to combine operations, will both market legacies be lost?

Sheila Bair’s personal reference to this proposed transaction placed it in the public spotlight.  It raises a fundamental question: Why did Hanscom do this?   There is no business case presented.  Is this just a serendipitous response to a broker shopping a bank looking for a buyer with lots of cash?

The circumstances of this example are used to reinforce the intent of her article that credit unions are just another form of financial choice with no special purpose.  And their actions are no different from community banks, except they  pay no taxes.

Hanscom’s announced intent to purchase Peoples Bank may have a more studied plan. But at the moment, the only reason seems to be, because it has the money. If that is the case, it just proves Bair’s thesis and becomes part of the bigger picture, even if you don’t at first see it.

 

 

 

 

 

 

 

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The Vital Difference: Member Voting for Directors

Member-owner governance is primarily exercised through the annual election of directors to the Board.  One person, one vote.

The problem is this “democracy” by members is too infrequently practiced to have impact.  In most credit unions there is no election contest-just approval by acclamation.

Below is an excerpt from Frontwave Credit Union’s monthly newsletter about this year’s board election.  Six nominees for three seats.  A month long voting period.  Votes can be cast by ballot, on line or in person at any of the 13 branches in a special ten-day span.

The candidates’ biographies and statements of interest are linked to the voting information.

The process is transparent, widely communicated, and easy for members to exercise over the month long voting period.

A Center of Public Attention

What makes this very transparent contest even more remarkable is that Frontwave has been at the center of attacks for its courtesy pay (overdraft fees).

It began with a March 2024 KPBS investigative report: Frontwave Creit Union reaps millions in fees when young marines run out of money.  Senator Elizabeth Warren with senators on both sides continued the attacks.

Prior to these assaults, Frontwave was the object of a class action suit several years earlier for its overdraft practices.  The suit was settled in October 2024.

During this public criticism of Frontwave, the CEO Bill Birnie engaged in frequent conversations with the media and critics.  He responded to the issues with why the credit union believed this was an appropriate practice.

This year’s election is taking place against this background of debate over fees. The members have their say.  Incumbent directors and new nominees can put their views to the owners.  That is what member governance means.

Just as important, when the credit union seeks  member participation for supporting special needs or contacting a political representative, the leadership has  established the routine  of member participation.

Voting is the ultimate test of democracy. It creates an environment of trust and accountability.  It is an essential part of cooperative design, but much underutilized and unappreciated.

 

Shape the Future of Frontwave Credit Union

Member,

Your voice matters! Voting in the 2025 Board of Directors Election is your opportunity to help guide Frontwave’s future. With three open positions on the Board and six candidates running, it’s time to get involved.

We’ve partnered with Survey & Ballot Systems (SBS) to ensure a secure and efficient election. Ballots will be distributed to eligible members starting in February, and the election results will be announced at the Annual Meeting of the Membership on March 26.

To read the latest Candidate Statements, click below!

Election Dates: February 20 – March 20

Eligibility: Active members as of December 31, 2024 (primary membership with at least $50 on deposit or an active loan).*

How to Vote:

  • Electronic Ballot: Sent via email by February 20.
  • Mail-in Ballot: Request by February 24; return by March 15.
  • In-Person Voting: Available at all 13 branches from March 3–15.

We’ll share more details about the voting process soon. In the meantime, meet the 6 candidates running to represent you and get ready to make your voice heard!

Dream Big. We Got You.

Frontwave Credit Union