Category: Cooperative Design

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An Initial Reaction to the NAFCU-CUNA Merger

I have just read the general announcement.  But am looking forward to learning the details, plans and benefits as these become available.

Here are my first thoughts.  The members of both organizations will vote on the mergers.  This is a good precedent for all coop mergers.   That way the details and commitments are explained to both constituencies.   When only the merging entity votes, the acquiring firm is exempted from commenting, or even committing, to what the intended benefits will be.

The Loss of Competing Views

Competition in ideas can result in more and better options for credit unions.   NAFCU as the # 2 trade association had to always “try harder.”   This was especially important in critical moments of legislative and regulatory change when there were different “proffers” or options presented by each trade group responding to congressional or administration views.    One need only recall the give and take in passing the CUMAA in 1998.

NAFCU’s origin story in the early 1970’s was to advocate for a federal insurance option, a  position on which CUNA was extremely skeptical.   CUNA feared federal insurance would mean the dual chartering system and cooperative solutions would be subjugated to federal control and uniformity.   Both trade groups were right.

As any CEO who has merged their credit union will testify, mergers are acquisitions, not “marriages of equals,” or other PR pseudonyms.  CUNA’s culture, priorities and politics will be, absent explicit goals, the continuing model.

The Importance of Details and Plans

This first step of mobilizing political consensus at the board and CEO level for a merger is the easy lift.  Most mergers defer the messy details until after the deed is done and the surviving leadership takes over both organizations.

Intentions, promises of shared goals, enhanced capabilities, reduced costs-in sum better value for the members-are never identified or stated.  Just rhetorical promises, sometimes sugar coated by adding several directors from the old organization to the new.

Details matter when change of this magnitude and circumstance occur.  What I will be seeking in this process is how the merger will address the top two or three strategic issues facing credit unions and the future of the cooperative option in America’s financial markets.

Every party serving the cooperative system will have a different vantage point from which to provide their priority.   In my view, this strategic assessment should be the number 1 task for this most consequential change in how America’s credit unions will be represented going forward.

Some strategic issues might include:

  • What should be the role and voice of the member-owner, now largely absent, in the evolving credit union model? NCUA prefers consumer protection not member rights.  Credit unions have removed members from any meaningful role in the governance process.
  • How will the continued trends in consolidation and absence of new charters be addressed?
  • Can the unilateral and “me-first” approach of NCUA be transformed to a more collaborative, cooperative effort for oversight and project priority?
  • How can the credit union system be more engaged in addressing the key challenges members face in their communities from affordable housing, student debt overload and fair financial options?

Priorities may vary across the numerous cooperative organizations.  However, without identifying these issues, the merger outcome could be samo-samo.

Ed Callahan used to observe, people will do what they know.  Meaning they revert to the actions with which they are comfortable.   In this case a single national trade association could result is just more resources devoted to political lobbying, PAC’s and PR tacking with each change in the political and economic winds.

Without a plan for what the system should strive to be, a CUNA-NAFCU merger could just perpetuate the status quo but absent an important forum for dissenting views.

 

 

 

 

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Reporting Coop Success In the Glare of Live Market Updates

This is the season for reporting quarterly earnings by all public companies.  Even credit unions must file their 5300 financial updates with the regulator which are then open to the public.

These many forms of quarterly financial reports are required by law and regulation.   For stock companies, shareholders, traders, investment funds and market analysts, the daily news is dominated by the ups, or downs, in company performance. Here is one example of this reporting frenzy:

Earnings season marches on

This week brings another busy slate of quarterly earnings reports, from tech giants to restaurant stocks. Apple and Amazon are the biggest names due up, along with Starbucks and CVS Health. Earnings this season have so far defied expectations and have been somewhat stronger than expected. Here are the big names on deck . . .

None of those big names will be credit unions.  Credit unions are required in their bylaws to post a monthly financial report in a conspicuous place in the credit union and file the quarterly 5300, but few will provide a public description of these results.

Credit union have shareholders, as do all public companies.  The members’ interest in the performance of their firm is the same as the owners of a bank or any other firm.   How is my ownership benefitting me versus other options?

For stock companies, the market readily evaluates this performance as documented by changes in the daily stock price.   Analysts evaluate the current results and make their “calls” about whether a stock is a buy, hold or sell.  Explaining a firm’s quarterly performance to all market participants is an important skill for CFO’s and CEO’s of all companies, even the smallest.

Credit unions generally provide no such reports or future forecasts (guidance). There is no stock price to provide market feedback.   But is the interest of the member-owners any less deserving than those of public companies?  Is the responsibility to coop shareholders by the credit union’s professional staff any less than to a publicly traded or even a private firm?

When Credit Unions Did Speak Up

In the March-April closures of three banks led by Silicon Valley’s failure, credit unions launched major PR campaigns to assure their members that they were sound.  CEO’s stated there were no parallel circumstances in the coop industry.  Some credit unions devoted a major part of the Annual Meeting to this public concern.  Some of these updates highlighted the credit union’s percentage of insured shares, or capital levels, or liquidity.  The message was to assure members the credit unions were able and willing to continue meeting their needs.

I believe each quarter’s financial filing is another opportunity for credit unions to tell their special story.

What Do the Numbers Mean For Me?

Numbers matter and presenting the credit union’s financial position and key trends is a beginning.   The most important message, just like a public company, is to tell what the numbers mean to the individual owner.

How has the credit union enhanced the value it brings to members?  What investments has the credit union made and what was the member benefit?  As the interest rate environment remains high, what changes has the credit union made to its rates?

Members will assume their credit union is safe and sound, or they would have left.  Credit unions will often announce events, such as branch openings, sponsorship with a local sports team or venue, and even the comings and goings of senior management.  These PR events and community engagements matter, but are not the same as the quarterly status report.  At this time everyone presents their financial results-so how did our members specifically benefit?

The Radical Cooperative Model

Since the 2008-2009 financial crisis, there has been a singular focus within financial systems on stability.  Financial outcomes are all that matter.  The more capital the better.  The only equity that matters is net worth, not social responsibility.

Financial performance is evaluated by the money made, not by the people served.  The relevance of a coop is becomes  its size, its growth and its superior numbers.   A credit union that focuses on what it helped members accomplish becomes a radical act.

Transparency is the key to member-owner confidence and trust.  And competitive advantage.  It is as important for coop leaders as it is for those whose performance is judged daily by the fluctuation of share price in the market.

However credit union’s quarterly numbers are not merely about financial outcomes but for how the performance aligned with the aspirations of members.  Coops should be presenting the values and partnerships that demonstrate their role in communities beyond the conventional financial success measures.

We should be holding up a model that is better for individuals, especially those often unaware of better opportunities.  The quarterly updates should show how a credit union’s purpose is more than making money.   It is a report on the difference made for the members.

A Renewed Commitment to Using Numbers to Say Who We Are

As all three major U.S. stock indices closed higher for July, the S&P 500 and the Nasdaq mark their fifth consecutive months of gains, and the Dow is riding a 14-day winning streak, its longest since 1987; however  cooperatives have a different benchmark to report.

Our momentum is not market driven, but member focused.  There will be a big new batch of corporate earnings the rest of this week not to mention the July jobs report due Friday.

Instead of  live market updates, we should be offering our reports of improved member lives and opportunity.   That is the difference coops should make.

 

 

 

 

 

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How This Story Ends May Show the Future of a Unique Coop System

Oscar Abello, economic editor at the non-profit reporting site Next City, finds instances where credit unions provide “solutions for liberated cities.”  In his latest coverage, the event is a six plus years effort to charter a new credit union for North Minneapolis.

However the end of the story is not clear.   Will there be a new community financial institution, or will the process be stillborn?

Abello poses this fundamental question:  The travails of Arise Community Credit Union, set to be Minnesota’s first Black led-credit union, raise the question: How hard should it be for communities to have their own financial institutions?

The link to his analysis posted on July 11th can be read here.  While recent events are promising, the charter has yet to be granted.

I have three takeaways from his description of this new chartering effort.

Three Lessons

  1. New charters require people with passion and commitment, that is entrepreneurs who believe in their cause. His article profiles Daniel Johnson the CEO-designate who left a successful financial career to serve a clear community need where businesses have been “disinvesting” for years.

Johnson’s motive for leaving his career security: “The community said,(after George Floyd’s death) ‘We don’t want another park. We don’t want another place just to throw flowers. We want something more tangible, something that we can have as an institution that will be around long after we’re gone.’”

  1. In addition to the community’s decline, the market timing was right as Minnesota had just capped payday lenders at 50% APR: One fact: “The average borrower took out nine payday loans, at an average loan amount of $365, and was charged an average of 197% interest per loan.”

The process is not easy as Abello describes:  But chartering a new credit union today is like traversing a long-lost trail through the woods, one that used to be well-traveled but is now overgrown or littered with fallen trees or other obstacles no one has had to navigate previously.

Prior to 1970, there were 500 to 600 new credit unions chartered across the country every year. After a steep decline to near zero, the numbers have never recovered. Over the past ten years, fewer than 30 new credit unions have been chartered across the country.

Changes of leadership, loss of local funding from foundations, the challenges from Covid have led to stops and restarts.   The  Minnesota Credit Union Network and AAUC have stepped up to help.  Credit unions have contributed to a $1.0 capital fund and pledged deposits of several million when up and running.

NCUA is apparently requiring $3.0 million in committed capital based on the credit union’s projections to be $10 million in assets in three years-or a 30% net worth ratio.  This capital base would equate to 50% of the first year’s asset goal of a $6 million balance sheet.  This is an amount not required by law, regulation, or common sense.

In addition to this enormous fundraising barrier, the requirement distorts the fundamental dynamics of self-help for a new charter.   Raising capital encourages investments in fixed assets and operational capabilities that may not be required for years.  It discourages the boot-strapping and learning that must occur when a new  charter reaches out to find the best ways to serve their community.

  1. The chartering process is failing the communities which most need credit union support. Abello points out that “out of 4,700 credit unions across the country, only 500 are self-designated minority credit unions.”

The executive director of the Minnesota Credit union foundation has a new goal from this effort: “One thing that we’re working on right now is coming up with a playbook because the chartering process is quite complex, and really trying to take the learnings that that we’ve had working with Arise and trying to come up with a resource that’s going to be helpful for additional groups going forward.”

Abello tentatively answers the question he posted at the beginning with this observation:

“If a community wants it, if it can prove there is a market for such services that no one else is meeting, and if it can marshall the necessary financial, professional, technological and other resources necessary to pass regulators’ muster, then for now, any community has the right to try and answer the question for itself.”

The obvious answer is few would want to navigate this obstacle course before even entering the market’s fray.

Why did CEO-designate Johnson decide to join a startup in this context of financial consolidation, established competitors and bureaucratic barriers:  “It’s important for people to be able to see that an institution has planted a flag that really represents them and isn’t driven by stockholders.”

In other words:  You own it.  But will that motive be enough to overcome a process that discourages new coop charters?

How this story ends may be a harbinger for the future of the unique credit union financial system.

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Trego Montana, Population 805: Where Members are on Center Stage

If credit unions are about the members, then it follows that members are the best way of telling a cooperative’s story.

This short video is credit union storytelling at its best.  It captures the viewer’s attention for it shows members serving their community.

(https://www.youtube.com/watch?v=D-53C6_2Tsc)

I asked Elizabeth Kozar, marketing manager at Whitefish how this approach was developed.  Here’s her thoughts on why this media is so effective.

Authenticity and Connection

Short-form documentaries provide an opportunity to capture the authentic experiences and lives of Whitefish Credit Union members. By showcasing real people and their personal narratives, the Credit Union aims to establish a strong emotional connection with the audience.

These stories humanize the Credit Union, allowing current and potential members to relate to the circumstances and challenges faced by others in their community. 

Engaging Visual Format

Documentaries, even in a short form, offer a visually compelling way to present narratives (especially being in beautiful NW Montana). By combining interviews, real-life footage, and relevant visuals, the Credit Union can create a captivating storytelling experience. The medium helps to engage viewers and hold their attention, allowing them to immerse in the stories being told. 

Storytelling’s Impact

Humans have an innate inclination towards stories, as it helps us make sense of the world and creates emotional connections. Good stories inspire, motivate, and educate an audience. By using short-form videos, we can effectively convey the triumphs, challenges, and values of our members.

Building Trust and Credibility

In an era of increasing skepticism and mistrust, transparency and authenticity are crucial for financial institutions. Short-form documentaries enable the Credit Union to showcase our continued commitment to our members by highlighting real experiences. By sharing these narratives, the Credit Union demonstrates their dedication to serving their community and building trust.

Differentiation and Branding

In a competitive financial landscape, Whitefish Credit Union aims to distinguish itself by leveraging storytelling. The use of this form stands out from traditional marketing approaches.  It delivers content that resonates with our audience. The videos create a distinct identity and position the credit union as an institution that values its members’ experiences.

 How Did You Identify Members to Profile?

To find members for the videos, I reached out to Whitefish Credit Union’s branch staff to gather information about individuals with compelling or unique experiences. By leveraging the staff’s personal connections, I identified potential candidates who had faced challenges or benefited from the credit union’s services.  

Respecting privacy and obtaining consent, the team collaborated to select the most diverse and relatable stories.  This collaborative effort resulted in a collection of authentic videos that highlight the positive role of the Credit Union on its members’ lives. 

The reach and impact of the Member Story videos is magnified with a multifaceted approach.  

For each video, a dedicated webpage is created that features a story write-up, accommodating those who prefer reading over watching.  We leverage :30 and :15 second clips from each story for various platforms, including broadcast TV, YouTube ads, and social media channels which expands our audience reach. 

Members also promote their stories allowing greater depth of use. Bob Marshall Wilderness Foundation played their story at the beginning of their film festival this year reaching an audience far beyond our traditional marketing channels. Ninepipes Museum has their Member Story on their homepage. 

The Future

Whitefish intends to continuously explore for new examples of inspiring narratives of members in their communities.

These stories document a larger reality.  When members’ lives are the center of a credit union’s messaging, the unique and unmatchable power of cooperative design is celebrated.

Members’ stories mirror our lives, the ups and downs.  This couple’s story captures the spirit of Montana and life’s challenges: Working with their hands: the farrier and his wife.

(https://www.youtube.com/watch?v=UaaiAne8Vz4&list=PLnh8CdRSC2lh353cuh6lb2WyLL94XW6uu&index=13)

Credit unions exist to foster community through trust and engagement.  These short-form documentaries are an art, portraying humanity at its many crossroads and living life with passion.

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Fanfares for the Common Man on July 4

One of the most frequently played musical tributes in July 4th concerts is Aaron Copland’s Fanfare for the Common Man. 

He wrote Fanfare in response to a 1942 request from  the conductor of the Cincinnati Symphony Orchestra as the US became became fully involved in World War II.

As a musical form, a fanfare is usually a brief, musical introduction to some  noteworthy person, ceremony or event.  Fanfares announce the appearance of Royalty in Europe, open the  Olympic games, precede important national or military occasions and celebrate events such as the dedication of a memorial or new public space.

By this time Copland had  composed a wide variety of scores for orchestra, dance, film and drama that portrayed uniquely American sounds. Compositions such as Rodeo, Billy the Kid, Appalachian Spring evoke scenes of our country from the expansive West to the modern city.

Here is an example of Copland conducting Hoedown from the ballet Rodeo.  Get ready to dance along with him on the podium!

Copland considered multiple names for his new composition including “Fanfare for the Day of Victory,” “Fanfare for Our Heroes,” “Fanfare for the Spirit of Democracy,” “Fanfare for the Paratroops” before Fanfare for the Common Man.   The phrase had been used by Vice President Henry Wallace who called the 20th century the Century for the Common Man.

The music is martial, dramatic, easy to follow and heroic in feeling.  He wanted to honor the ordinary people who were doing the fighting and dying in the war.   It is still the most popular piece in patriotic concerts.

One person upon hearing the music wrote:  I would love this as the anthem of humanity, the song of farmers, cobblers, men who were raised from the land, staring into the night sky at the fat moon and saying, “I am going there,” and never once doubting his words.

The version which follows is the one that you will hear across the country today.

(https://www.youtube.com/watch?v=h_V-rqckzFg&t=10s)

Another Salute to the Common Man

Few of us will compose music to communicate a vision.  Most will use the spoken or written word.   What follows is from a life dedicated to Copland’s Common Man:

“My life has been centered around my family, my wife Jean, and credit unions. Why credit unions? Because I could never accept that in America those who had the least and knew the least should always pay the most for financial services.

“I believe that credit unions were created to correct that injustice. In the words of Thomas Paine – a true revolutionary in all respects –“I have always objected to wealth achieved through the misery and misfortune of others”.

“That economic injustice continues to thrive in our financial system today. Credit unions remain the alternative, the best hope, the answer.

“We all confront an uncertain future, and many folks would like to rewrite the past. You and I know we cannot change the past. But if we have credit union leaders with integrity, courage and character; we most certainly can reshape the future…but changing the future is very hard work.

“Arthur Ashe, the great American tennis player, described the credit union leaders we need. Ashe said: “ True leadership is not the urge to surpass all others at whatever cost, true leadership is the urge to serve all others at whatever cost.”. . .

(The words by Jim Blaine, former CEO of State Employees NC,  to the African American Credit Union Coalition upon his induction to its Hall of Fame)

Two tributes on July 4th  to celebrate liberty for all and especially the contributions of the Common Man.

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What Does America Mean to You?

The 4th of July is every person’s chance to celebrate the nation’s birthday.  The occasion is a fun day for most, often marked with words about the special country which we share together.  And once again to honor our collective vision.

The Declaration of Independence is the focus of many speeches. Its opening words remind us of our founding ideals: We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.

Since 1776 we must acknowledge that the words are still aspirational, never fully realized.  America’s freedom is an unfinished project.  The fundamental challenge is ever present:  Are ordinary people capable of governing themselves?

The Commercial Appropriation

This spirit of the pursuit of happiness has also become entwined with  America’s commerce. In the post WWII federal highway infrastructure project, the car became a symbol of this open ended personal possibility.

In 1976, Chevrolet was the most popular car in the USA. General Motors crafted a slogan with video declaring that Chevy and the USA were one and the same: “Baseball, hot dogs, apple pie, and Chevrolet.”  The company even tried to appropriate baseball’s 7th inning stretch to celebrate its brand leadership.

Today, crowds stand to sing God Bless America. Perhaps a triumph of ideals over markets?

The Declaration and Credit Unions

I believe credit unions are themselves an expression of America’s founding document.  They also represent what makes American enterprise so powerful.

Credit unions embody more than the Declaration’s opening words about life and liberty.  Cooperatives exemplify how the document’s intent is to be realized.  The very last sentence reads:

And for the support of this Declaration, with a firm reliance on the protection of divine Providence, we mutually pledge to each other our Lives, our Fortunes and our sacred Honor.

This mutual pledge of lives, fortune and sacred honor is every credit union’s founding ethos. Moreover, like America’s political democracy, the cooperative system depends on individuals committed to the principle of citizen self-rule.

The first generation of credit union pioneers. like the founding fathers. understood both the ideals and challenges of self-government.   Credit unions are started and sustained by volunteers.   They shared funds and a commitment to address common needs.

The initial dimes and quarters may have been small, but their impact on lives was real.   Like the political colonies, these economic revolutionaries knew each other.  They joined to spread their vision of financial self-help across America.

The Challenge

While the Declaration’s truths may seem self-evident, the democratic process is an ongoing experiment.  Today almost all credit union founders have passed on—will their basic principles be sustained?

The phrase of people helping people is repeated. But the practice of cooperative democracy is often missing.   Voting is the most important lever of a free people.

As Americans progress through each life’s varied experiences, we add to our understanding of what American means-individually and collectively.

In my mind, credit unions show how the Declaration became a reality.    While America’s political and economic justice are ever-present challenges, America would be much the poorer without the power of the cooperative example.

Have a fun and grateful 4th with family, friends, and colleagues to honor America, the greatest cooperative enterprise on earth.

 

 

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The Source for Credit Unions’ Greatest Peril

When concerns are raised about risks to credit unions’ future, the most common threats  are perceived to be “out there.”   The potential for recession,  a continuing rise in rates, cyber threats, technology innovations, or other external marketplace disruptions.

However the greatest challenges may not be external, but closer to home.   In a speech to a major credit union conference, a former NCUA Chairman described his five greatest concerns as:

  1. The combining of the deposit insurance funds;
  2. The possibility of merging the federal regulatory agencies;
  3. Doing away with credit union’s tax exemption;
  4. Abolishing the CLF and having credit unions go into the Federal Reserve bank;
  5. The FFIEC requiring expanding its regulatory disclosures for credit unions comparable to banks.

The concerns are from a speech by Chairman Ed Callahan to the 49th Annual Meeting of CUNA in 1983.  (Source Credit Union Magazine, June 1983, pg 10)

Two lessons.   What Ed describes is exactly the sequence of events that led to the demise of the S&L industry as an independent  financial system.  While the tax exemption was ended in the early 1950’s, the later changes occurred in just ten years beginning in the mid 1980’s due to the system’s inability to transform when facing deregulation.

Secondly,  the five  concerns were being considered  by  entities in Washington D.C.   These included commissions on governmental efficiency and reform,  congressional proposals following deregulation, and both Treasury and opponent’s questioning cooperative’s tax exemption.

These winds are still blowing in DC.   They blow harder every time  terms such as “level playing field” and “parity” are used.

Credit unions can continue to excel in members’ eyes. However, they could  lose in the  political marketplace if their primary goal is to have the same regulatory options as their banking competitors.

Why some in Washington will ask, do we need a separate agency to oversee the same activities?

 

 

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The Top 100 Banks and Credit Unions: Risk, Opportunity, and Future Evolution

What do numbers mean?  We often interpret data to support what we believe the future will look like.  This is especially true when the debate is around scale, asset size and sustainability.  What do the largest 100 banks and credit unions suggest about the evolution of both systems?

At December 30, 2022, the largest 100 banks in the U.S. hold a combined $18.8 trillion in consolidated assets with the largest five having half that value.  The industry’s total assets were $23.6 trillion in 4,706 banks.  The top 100 are 80% of total assets. Here are the top five.

Rank Bank / Holding Co Name Consolidated Assets ($ Millions)
#1 JP Morgan Chase Bank $3,267,963
#2 Bank of America $2,518,290
#3 Citibank $1,721,547
#4 Wells Fargo $1,687,507
#5 US Bancorp $590,460

 

Typically, big banks are have more access to liquidity, greater asset diversity and in many cases are viewed as “too big to fail.” Smaller or  regional banks have narrower margins for error.

Recent bank failures have reinforced both the regulatory and public perception that larger institutions are more secure.

I believe it is important to note that all of the top ten banks were the result  of significant mergers, not organic growth.  These institutions are creations of financial markets and ambitious leaders who are driven to be a dominant force in their markets.   This is not an aspiration limited to financial firms in capitalist markets.

A Forty Year History of the Top 100 Credit Unions

A perspective on today’s largest credit unions is helpful when forecasting how the ongoing consolidation might evolve.  Will the same market forces shape the credit union system similar to banking?

At yearend December 1982 there were 5,036 state and 11,631 federal credit unions in operation.  The top 100 (.5% of the 19,788 total) had total assets of $17.01 billion, or 18.9% of all credit unions.  Only Navy Federal was over $1 billion.

Public employment dominated the fields of membership.  Defense credit unions totaled 28, other federal government were 7, and three served state and three municipal employees.  Educational employees (teachers) were the primary focus of 15 charters.  The total of FOM’s serving public employees was 56.

The complete list of the largest  100 with additional financial data and growth rates is from the June 1983 Credit Union Magazine and can be found here.

Four decades later the largest 100 credit unions (2% of the 4,863) held $1.0 trillion in total assets, or 46% of the industry’s total $2.190 trillion.  The listing can be found in Callahans’ State of the Credit Union Industry report for 2022.

Concentration: The opportunities and the Risks

Does this four decade increase of asset concentration  from 19% to 46% in the top 100  mean  the cooperative system is going the way of banking with its 80% concentration in the top 100?

Most data show that larger credit unions tend to grow faster, have broader service and product profiles, and develop larger average member relationships.  In some instances, their size supports a market profile that results in naming rights or public partnerships with local sports teams.  To the extent that size also enlarges community roles and political impact, this can be a plus.

In banking, the drive for market dominance through scale is a constant ambition.  Growth increases earnings and a bank’s stock price.  While the FDIC- labelled community banks ($4.3 trillion in 4,258 firms or 90%) dominate by number, their share of total banking assets hovers between 15-20%. Their role focuses on commercial clients that align in financial size with the banks.

A Cooperative Difference

A significant difference  with banking’s top 100 is that  except for First Tech ($16.7 billion) almost all of the other credit unions have relied primarily on organic growth.  Many larger credit unions have had mergers, albeit small.   PenFed has completed over two dozen in the past decade.  But in most instances these have not been a significant factor in recent growth.  A number of the largest credit unions-SECU, Alliant. BECU, Navy, Vystar have had no mergers—all growth has come through internal expansion.

Comparing the two credit union top 100 lists forty years apart, the evolution in fields of membership is clear. Marketplace identity with a local sponsor has disappeared.  Most credit unions today have community (open) charters. Many have moved away from their legacy affiliation name to a generic identity, eg from Teachers to Everwise, or Telephone Employees to Wescom.

The Member Impact

What does this transition to larger firms with expanding market goals mean for the credit union member-owner?

The major downside is the distancing from local knowledge, identity and personal-member affiliation. The goodwill and community support in times of uncertainty becomes attenuated.

As credit unions expand their market footprints, the transition to open membership puts them increasingly on  a par, in members’ eyes, with other financial options.  Credit unions position themselves as full alternatives to their banking competitors.

This transition from member to customer is often accelerated via indirect lending models where credit unions compete for loan via third party originators.

Cooperative Destiny or Fate? Forensic Analysis Helps

Are cooperatives  destined to follow the banking  system’s increased concentration?

The value of the two credit union listings can perhaps shed some insights about this future evolution.

As I review the 1982 listing I find only seven that have merged and no longer exist, and one IBM Mid America, that converted to a mutual savings bank in the 2007.  Most have changed their names reflecting their expanding market reach.  Some have dropped out of the top 100 but are still operating.

A 93% success factor for individual institutions after 40 years of deregulation is a significant achievement. Especially as almost three quarters of the charters active in 1982 no longer exist.

A detail that readers may wish to pursue is how a credit union’s standing has changed within in this top flight. For example Patelco ranked 98th in 1982 and is 28th in size forty years later.  Identifying major changes within the top 100 can lead to examples of superior leadership or a loss of momentum.

A second analysis that may contribute to understanding the cooperative design’s dynamics is who is new to the top 100 in 2022 from decades earlier?  And how did they get there?  For example Apple FCU,  Canvas CU, NASA FCU or American Heritage.

How did these newcomers rise to the top of the industry?   What do their business models suggest for other credit unions?

I would encourage detailed analysis of the two listings and the changes that have taken place as a first step in thinking about how financial cooperatives succeed.

What strikes me is the stability of the largest credit unions especially compared with the banking system over these four decades.  When management’s loyalty is primarily to stockholders return and/or their own personal rewards, these priorities tend to drive one set of outcomes.   When the focus is on the member-owner’s well-being, there seems to be greater continuity in strategy.

The listings also show a wider diversity of business models. For example, Alliant’s one branch, all digital model has evolved into a financial intermediary for credit unions.  While Wright-Patt’s  traditional focus serving members living paycheck to paycheck has led to sustained growth.

This diversity can offer case studies for credit unions seeking options or even just sticking close to their knitting.

One other observation.  If a consumer were to choose from the top 100 credit unions or top 100 banks, which listing would seem more relevant?

 

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Asking Questions

According to Credit Union Magazine the top 1982 news story was the Penn Square Bank failure that involved more than 130 credit unions. (March 1983, pg 19)

The FDIC closing was over the 4th of July weekend.  NCUA had planned its second on-the-road board meeting for Chicago the following week.  The open board meeting was to coincide with NAFCU’s Annual convention.  For Ed, Bucky and me it was also a homecoming as Illinois was where we had been responsible for regulation of state credit union activity from 1977 until going to NCUA in late 1981.

As NCUA Chair, Ed had always held a post board meeting news conference.

This time the three of us were at the table.  The first question from a reporter was to me,  I think from Larry Blanchard. “With  all the CD exposure from investments over the $100,000 FDIC insurance, would NCUA now propose a rule limiting investments to the insured  amount?”

I had prepared for lots of “what-are-you-doing now?” kinds of questions, but not his one.  I instinctively said no.  Bucky and Ed were quick to describe how the agency would respond with both examiner on site reviews plus the CLF’s lending capacity.

Questions and Democracy

For anyone in authority, whether public or private positions, answering unscripted questions is part of the job.   It is how shareholders, the press, and interested stakeholders hold leaders accountable.

Questions are not always comfortable for the recipient.  They often challenge current happenings.  But the give and take is necessary.  They are part of a leader’s responsibility to a constituency. They help make democracy possible.

Many leaders, not in a public setting (press conference), will ignore these voices, hoping they will go away or grow tired.  Meanwhile the organization’s PR machine fills the airwaves with success stories, announcements and social media posts of positive activity.  Leaders will seek a friendly setting to put out their point of view rather than engage in a public dialogue.

Just Asking

Since February of this year, Jim Blaine the former CEO of State Employees NC has published a daily website challenging the leadership and direction of country’s second largest credit union.

Six initial questions about the credit union’s direction were posed at the 2022 Annual Meeting under new business.   The three motions requesting action  were passed by voice vote of all members.  Jim started his blog when the responses became increasingly different from the reality he was hearing from current and former employees, directors and members.

The Monday, June 26th  post describes his slow conversion to action after six years of retirement growing daffodils and chickens.  He describes his awakening as a matter of trust.

I know of no current CEO or credit union professional who openly supports Jim’s return to the fray.  Their criticisms come down to one principle:  he had his turn, now it is other’s responsibility.  Or specific defenses for the changes underway.

But this is not the Navy where when the officer of the deck takes the con, he alone is in control, unless relieved by the Captain.

Democracy is not just the careful selection of new leadership until they fill out their term and move on.  It is also a system of checks and balances on the exercise of power.   In credit unions, these checks and balances supposedly reside primarily in the board, elected by the members at every annual meeting.

However today most boards are in practice unelected.  The nomination process is controlled by incumbents.   So if a Chairman, as Jim asserts, is trying to implant a new strategic direction for the credit union, how is this plan to be presented to members for their support?

Credit union boards are not places comfortable for minority points of view.   I recall when the chair of the supervisory committee opposed the board’s vote to merge their $350 million firm, she resigned rather than make her position public. When the Chair of Cornerstone FCU overseeing the CEO selection committee nominated himself, no one objected.  Within the year this former chair, now CEO, was seeking a merger of this iconic credit union.

Credit union boards are more and more like country club elections-directors choose their friends and acquaintances to what should be a position of accountability. Marketplace competition while present, is not limiting as it is for a stock traded financial firms where performance affects price.

So when the democratic process is lacking, the one option is revolt, the public raising of questions that challenge both individual actions and direction.  For example Jim in his June 19th post asked about a $6,568,261 payment to Andrews FCU when their former CEO Jim Hayes was selected to run SECU.

The Almost 200 Credit Union Failures

NCUA’s first quarter 2023 data shows 191 fewer charters than one year earlier.   These are charter failures.  But not from the safety and soundness events most frequently believed to be the cause.  These are failures of morale.  Leaders are putting their comfort and well being ahead of responsibility to members.   One need only look at the list of mergers of sound well run credit unions with capital in double digits.

SECU’s situation is an example of leadership shortcomings, not yet a financial problem. It is a situation where democratic accountability was set aside and is now being resurrected in response.

Cooperative democracy is both a process for accountability and respect for member-owners. This public challenge  isn’t the first time this has occurred; it won’t be the last.

 

 

 

 

 

 

 

 

 

 

 

 

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A Baby’s Cry

The following is a lightly edited story from the Imaginative Conservative on June 15, by John Horvat.

This is a shared  experience of hearing a baby’s non stop crying during the frantic period while boarding an airplane.   It shows how one person’s voice can change the outcome of an unsettling event.

Bringing out the Humanity in US

“Air travel today might be considered the triumph of individualism. It involves people in their own bubbles rushing to destinations with little human contact. . .

“This inward self-absorption turns airports and planes into sensitive places where delays can cause outbursts. The slightest disruption can give rise to nasty incidents that add to the stress of air travel.

Rare Moments of Relief

“However, something extraordinary occasionally breaks the isolation, and people come out of their worlds and communicate with others. Such rare moments give a glimpse into how interesting people can be.

“The particular incident related here is hardly extraordinary. It involved a normal boarding process with its mad rush to secure seats and overhead bin space. Each person was absorbed in finding a bubble inside the crowded economy section of the plane.

“During this routine process, something human happened that lifted everyone out of their self-concern.

A Desperate Situation

“The main character in this drama was an unassuming baby at the back of the plane. For a full ten minutes during the boarding process, the poor terrified infant could not stop crying at the top of his lungs despite the mother’s desperate attempts to calm him.

“As the time came to close the cabin door, the flight attendant in charge was worried. He had seen situations like this degenerate into unruly incidents with loud, complaining passengers. He had to make a call quickly. If the crying did not stop, the mother and child would have to leave the aircraft.

“He discussed this option openly with another flight attendant. She tried to convince him that perhaps the baby would eventually stop and asked for some time to try to calm him down. Her motherly efforts failed miserably; the baby only cried louder.

“As the two flight attendants discussed the matter, those in the section front heard the dramatic debate unfold. The passengers were silent in their isolation, wondering what would happen. Yet none dared intervene. Meanwhile, tension mounted inside the cabin as the crying and schedule clashed.

An Unlikely Rescue

“It seemed all but certain that the mother and child would be expelled as the minutes ticked by when something unexpected happened.

“About a dozen rows from the front, a voice rang out.

“Miss, give the poor baby a break! We can take it! It’s no problem.”

“That first lone voice unleashed a chorus of support from all over the plane. The cabin erupted in cries to let the baby stay. Everyone offered to put up with the crying. There was a certain joy in their offers of sacrifice.

“We can take it, don’t expel them,” said one. “If there are those in the back with problems, let them come up here where there are empty seats.”

Humanity Triumphs

“Even the most introverted person seemed to awaken and get involved in the rescue mission. . . For five short minutes, the plane was abuzz with interaction. It became interesting.

“The outpouring of support for the small child ended all vacillation. The flight attendant perceived he had the backing of the passengers. If anyone caused an incident, the unruly traveler, not the baby, would be the target of hostility.

“The cabin door was closed, and the plane pushed away from the terminal. As the aircraft positioned itself on the runway, the baby stopped crying. Peace returned to the cabin, and all returned to the isolation of their bubbles. Humanity had triumphed over the rigid mechanical rules.

Self-Interest Destroys Human Solutions

“There is a lesson in all this. The disappearance of the human element in daily interactions makes life sterile. Everything is designed to minimize human contact and lock people into mechanical processes. No one is disposed to sacrifice.

“The self-service mania ensures that people stay in their self-imposed bubbles. This isolation creates a mentality that tends to disregard and resent anyone who interferes with one’s life. It does not allow the human element to act . .” (End)

My take: A baby’s cry.  One voice spoke up.  The community’s goodwill is awakened.  That is how I understand the credit union spirit–offering “human solutions” to everyday needs.  “We can take it! It’s no problem.”