Category: Cooperative Design

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From the Field: Credit Unions Empowering Members and Communities

A critical distinction of the cooperative model is its local advantage.  News commentators assert “all politics is local.”  Military leaders call this capacity “boots on the ground.”  Credit unions described this organizing concept as their field of membership.

When events and institutions affect where and how one lives, that makes their impact personal for individuals.  The capability of credit unions to be seen as a long standing participant of the community they serve, creates generations of loyalty. And in the examples below, superior performance.

Member Feedback at Day Air Credit Union, Dayton Ohio

As part of the net promoter score process, the credit union invites member comments on their experience.  Here are two member notes the CEO recently shared with his team:

Reenetry

1.Day Air Credit Union met me where I was in my walk after being a returning citizen through the Montgomery County reentry community. I was full of fear and didn’t know anything about handling finances or money or getting to where I needed to be in order to be able to get loans and start a business.

Day Air Credit Union along with several individuals from the Montgomery County reentry community helped me succeed in my walk and in my business. Thank you so very much.

Don’t Sell Out

2.You guys help me through a situation, that even though you knew how I got there, you knew it wasn’t my fault (100% my fault) … You guys knew it was technically fraud against me. You did not have to help me, but you did, so that deserves a 10 in my book.

It shows the character of the people in your organization. You guys really are there for your members, it’s kind of like what families and friends are supposed to be, no judgment just being there when someone needs them to be and just doing the right thing. even if that right thing is to just be there to listen about someone’s life that has turned into a freaking dumpster fire… really you guys have been great. You’ve got a customer for life. Unless you sellout; other than that, a 10 in my book.

Through August 2024, the $847 million Day Air reports an ROA of 1.47%, share growth of 7.54%, net worth of 13% and an operating expense/asset ratio of 2.43%.

Creating a Statewide Collection Effort for Food Banks

The following is a release from First Harvest  describing a New Jersey wide effort in which  credit unions will collect canned food donations for local food banks.  This ad hoc network effort relies on the dozens of local branches as drop off and collection centers.   Another example of the advantage of a local presence and personal interaction with members.

First Harvest Credit Union, Affinity Federal Credit Union, and EdiFi Credit Union have come together to launch the New Jersey Credit Unions Food Cooperative and have engaged 27 New Jersey credit unions to participate in the initiative and help address the growing hunger crisis in New Jersey.

All participating credit unions and their select branches will serve as collection locations, allowing for broader geographic coverage across New Jersey, which will support dozens of food pantries and organizations throughout the state.

The program runs from October 1 through November

To donate, credit union members and residents throughout New Jersey can find a participating credit union listed below, and its nearest branch to drop off non-perishable food items. Each credit union branch will directly support a food pantry or organization within the community it serves. 

First Harvest President & CEO Mike Dinneen notes: “As credit unions, we are always stronger when we partner together. New Jersey has over 130 credit unions, serving a wide variety of rural, urban and suburban communities. One thing that is consistent is the food and affordability crisis that is impacting all of our residents.

Credit unions have an inherent mission and proven ability to take the reins when there is a need to help those who are underserved or in need, and I am proud to stand with these amazing New Jersey credit union leaders and implement this important member-driven mission.”

 The twenty-seven participating credit unions are then listed.  Local matters. That is how most of us ground our lives and cooperate with others in community.

 

 

 

 

 

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Voting Closes Tomorrow in Critical North Carolina Election

On Tuesday Oct 1, remote virtual voting for SECU’s (NC) 2.8 million members’ annual director’s election will end.  Mail ballots must be postmarked by then, but in-person votes can still be cast at the Annual Meeting on October 8th in Greensboro.

I summarized several issues between the two slates of four candidates a week ago.  For I believe the significance of this unique event extends far beyond SECU’s members, North Carolina and into the entire credit union system.

Member-owner voting on anything, except a credit union’s demise via merger, is extraordinarily rare. This example of the member franchise being conducted  demonstrates that elections in large credit unions are feasible.

Members now have a say via voting about the credit union’s future.  It challenges the current routine practice of self-perpetuating board oversight with no member-owner input.  This latter approach is, unfortunately,  the process followed by most credit union at the moment.

Campaign Updates

Facebook posts with social media ads are being run by both sides.   The four member nominated  SECUforALL site includes dozens upon dozens of member comments and videos.  It is updated daily.  For example, it now includes “links to local news outlets providing lists of trusted charities and relief organization accepting donations”  for North Carolina victims of hurricane Helene.

These members and many former employees have criticized the announced annual meeting rules which limit member participation and comments compared with prior practice.   Their posts also pointed out that the credit union is paying for the incumbents slate’s ads on social media.

I believe both sides would agree with Chairman Moon’s video election comment that  “The power of your vote cannot be overstated. Let your voice be heard.”  That’s why this election is about more than choosing between two slates of candidates.  It illustrates what the member-owners’ role in a credit union is supposed to be.

Two Contrasting Views of Credit Union Leadership

Cooperative design inverts the traditional structure of financial services leadership.   In long-established and certainly modern day financial firms, power is concentrated, either in the hands of those at the top or those who contribute the most capital (ownership stake).

In credit unions power flows up from the bottom, from the member-owners.  This was the intent of the democratic one-person-one vote election for directors at the required annual meeting.

This grass roots, member-driven founding became so successful, credit unions began hiring full time managers.  Growth and expansion accelerated after deregulation.  Successive leaders grew increasingly distant from their credit union’s founding generations and motivations.

This ever widening scope of operations separated management and  boards from routine interaction with members. Today’s leadership teams who benefit from the legacy of hundreds of millions in assets, believe it is now their sole prerogative  to  configure the organization apart from any prior commitments—even to the point of merger and charter dissolution.

The boards of large credit unions have become insulated, like a private group who amplify and reinforce the instincts of this self-selected few.  It is their authority to alone  shape the future. The unique coop design is now turned upside down mirroring the current structure of for-profit financial organizations.  Here is a comment from another credit union’s member on the SECUforAll  site:

Recasting the Coop Model

Credit unions were created to  break from the traditional way financial services were practiced: for example, paying interest on share draft accounts; offering skip-a-pay and loan rebates; permitting cosigners as “collateral” for loan limits.   Or to use the biblical phrase, “overturning the tables of the money changers” providing consumer financial options.

As credit union’s market ambitions grew, the prevailing ethos became “to beat the competition, a credit had to become the competition.”  And their leadership and advice was increasingly drawn from that perspective, not from the legacy culture that built the system’s present financial standing.

SECU’s Election and the Stakeholders Watching

SECU’s election choice is between two visions of what a credit union is.  Most large credit union leaders believe the power of the organization rests at the top.  Success entails unfettered growth, seeking mergers and/or buying assets such as banks, and using all the tools of financial leverage such as subordinated debt, third party originations and borrowing, should shares fall short.

However, credit unions were founded on the principle that power was created by empowering others.   Credit union pioneers believed the wealth of an organization was measured by how much it was shared, not how much the firm accumulated. That the strength of a  coop was in trusted relationships, not superior financial ratios.  Member service and values is how to attract committed employees. not bonuses.

The outcome of this year’s vote will likely resonate far beyond Greensboro and North Carolina.  If ten thousand, a hundred thousand or even more members see their democratic ownership role more clearly, every SECU meeting going forward will have a more engaged participation.   And the credit union system will have an example of what modern day cooperative governance can be.

I will publish the link to the October 8 SECU Annual Meeting when it is available.

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How Mergers Tear Down the Credit Union System

The front page headline in the June 18, 2003 American Banker was “Pentagon Continues Merger Binge.”

The opening paragraph provided the details:

Pentagon FCU was approved to acquire its third credit union in the past six months, the $26 million Fort Hood Military FCU, in Fort Hood Texas, NCUA said Tuesday. That follows two December acquisitions for the $5.8billion credit union, those of $46 million Fort Shafter FCU in Hawaii and $13 million Coast Guard Employees FCU in Maryland.

This twenty year old description was before mergers of sound, long serving independent credit unions became much more widespread. A decade later credit union system CEO’s, consultants and regulators openly promoted these acquisitions as a quick and easy alternative to internal organic growth.  After all isn’t success just a factor of size?

This industry competition for acquisitions was based on offering private personal inducements for CEO’s and senior managers.  The practice became so blatant that in 2017 NCUA passed a rule to bring more transparency to the process.   The rule didn’t slow the wheeling and dealing.   It may have even legitimized these payoffs.

Now credit unions could routinely add wording to the required Notice and Disclosures of these payments and state that the regulators have approved the merger subject only to the member vote.

A Case Study Lookback

Two weeks ago I described the final step in PenFed’s 2021 merger with the $36 million Post Office Credit union in Madison, WI.  In August 2024 PenFed announced the closing of its only office in Madison. Since the 1934 chartering, Post Office’s 3,153 members (at time of merger) had received personal service.  No more.

I called this closure the final step in “asset stripping.” This is the practice in a takeover acquisition to maximize the profit and eliminate any future investment or expenses. All of Post Office’s resources, reserves, member accounts were transferred to the control of the Virginia based PenFed.  There is no longer any local presence, nuance or leadership roles in the community. With this branch closure, all member relationships are now virtual and remote.

The Final Cashout

Last week the land and building of the former Post Office location were put up for sale.

An internal view.

When the merger occurred, Post Office’s call report showed these assets with a book value of $589,222.  The real estate listing on September 17, 2024 had a list price of $1,260,000.  This is an increase of $671,000 (113%) in the three and one half years since the merger.   The net gain on sale all goes to PenFed as “other operating income.”   This is the final liquidation step of this 90-year old credit union which had 22% net worth at the merger date.

All Gain, No Risks, Members Left Behind

Paying nothing in these acquisitions for total control of  all of another credit union’s members’ net worth and reserves makes these takeovers a very profitable practice.  Systematically  stripping out all of the most valuable assets for maximum cash value puts the icing on the cake.  No worry about local commitments or member and community relationships.

Such takeovers are a common strategy in for-profit companies.   However in credit unions there is no acquisition cost, just a few crucial payouts to the CEO and perhaps,  other senior executives whose approval and pitch to the Board is required. It is literally free assets for the taking.

This practice is becoming more widespread.  It is  self-immolation, a systematic  institutional dismantling of the credit union system driven by greed and personal ambition, not member benefit.

In many situations today, the merger destroys the local advantages, loyalties and relationships that are the foundation for credit union’s success. The acquiring credit union’s field of membership, or market focus, has no center or rationale. There are no “network effects” for branding or service delivery that would create operational efficiencies.  Most critically the headquarters and leadership is  hundreds or thousands of miles away.  Local familiarity is all lost.

The consequence of credit unions preying and suborning their fellow CEO’s and boards is systematically demolishing the credit union advantage at both a market level and in the public’s eye.  The coop model is seen as no different from other financial options.  Especially in an era when virtual relationships are available from all financial providers.

And a credit union’s values are the same as every other market participant.  The winner takes all.

The rationale is that growth and size will guarantee success, an assumption frequently at odds with the facts and members’ experience.  Size does not automatically correlate with efficiency, growth or other financial metrics let alone operational excellence.

The PenFed Merger Demolition Derby Takes Off Again

Penfed pulled back from the American Banker’s “binge” strategy during the initial years of this century.  It should be noted that the three mergers listed in the article were all military bases.  One could argue that these were natural affiliations consistent with with PenFed’s focus and traditional brand.  In 2010 there was a single merger with the $11.6 million Tripler FCU in Hawaii.  And then a lull until 2015.

The Merger Frenzy Begins

In 2015 PenFed undertook an aggressive acquisition campaign that lasted until 4Q 2022.  They took over 25 credit unions located in 14 different states in under eight years.  The majority had no military affiliation, such as Post Office, McGraw Hill, Sperry Associates and Progressive.

Progressive, a New York state charter with a single office focused on taxi medallion lending.  This merger of a “troubled” institution resulted in a gain in the year acquired; more importantly it gave PenFed a field of membership open to anyone in America (the old Progressive state charter’s FOM).

The combined  assets of these 25 acquisitions at the time of merger was almost $3.0 billion.    As in Post Office’s example, control over all the assets, reserves, allowances and  member relationships were transferred to PenFed’s head office.  In some instances such as the very successful $265 million  Perry Associates single office credit union, the office was closed immediately after the merger. The employees  were let go, and all members forced into a virtual, remote service model.

Dismantling the Coop System

This systematic dismantling of credit unions and their successful local market positions is being emulated by other credit unions.  The hunt is  supported by a host of hanger’s on who benefit by facilitating this organized tear down of the cooperative alternative.

In many of the combinations below, the members, if a merger were really necessary, would have been better off with a local option familiar with their market and bringing real operational synergies.  But  in these private deal makings, the largest payoff to the CEO wins.  And besides no one ever looks back to see what happened.  Except for the members who begin to vote with their feet.

PenFed’s Eight Year Acquisition Spree

But  Does It Work?

One could still ask however if the strategy works as a growth enhancement to normal organic tactics. When PenFed completed the final Allus acquisition in 4Q 2022, it reported total assets of $35.9 billion.

At June 2024, PenFed’s total assets were $33.5 billion.   It would take more time to calculate all the other merger downsides such as local branches closed, the employees laid off and the number of members who left after being turned over to an organization with which they have no connection.   In its initial merger frenzy, PenFed’s growth looked easy and free of any cost or risks.

However members soon see the asset stripping and the absence of local leadership. Moreover, PenFed lost every credit union’s most important strategic advantage: the hard earned, unique value of long lasting member relationships.

When CEO’s care more about themselves then they do for members’ well being, the difference that makes cooperatives successful is gone.

PenFed is not alone in its disruptive wasting of long standing successful cooperative charters.  The question for those who believe in the unique role and purpose of cooperative design, is whether this faux capitalistic model becomes the norm for the system.  Or  like all false idols, will be defeated by the example of those who think the credit union model is first and foremost for members’ benefit, not managers or boards’ personal ambitions.

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Can Democracy Work? An Historical Election Enters the Final Phase

As important as this November’s Presidential and congressional contests are, an even more critical election for the democratic credit union system is underway at SECU North Carolina.

For the second year, there is a contested election to the board of directors.   At SECU’s October 2023 annual meeting three member-nominated candidates won seats from three incumbents.  This year four seats are open.  The four board selected incumbents are opposed by a four member-nominated slate that includes three former SECU senior employees.

This event is historical for SECU and the credit union system.

  • It is highly unusual for any credit union,  especially the second largest in America, to have an election the provides members  a real choice of who will  represent them.
  • SECU’s size demonstrates the feasibility of this  cooperative voting process. At an estimated 2.8 million members, all eligible voters received a mail-in ballot; or, they can vote virtually by going online; or finally, vote in person , at the October 8th annual meeting.
  • The election demonstrates that democratic governance, versus self-nominated perpetual director selections by boards, is a viable credit union member oversight process.  One member, one vote, not weighted by the percentage of ownership as in most corporations.

Entering the Final Weeks

Absentee online virtual voting ends October 1.   Both sides are promoting get out the vote campaigns.   The credit union has added a webpage with descriptions of the  election   steps.  Linking to the Learn More tab presents a two minute video from SECU Chair Mona Moon explaining the board’s nomination process and the virtues of their four incumbent candidates.  There is a second video with brief profiles and statements of these  four,  but not videos for  the competing slate.

In addition to the four  incumbents’ use of this “home court advantage” in presenting themselves , the credit union appears to be buying ads supporting their election on social media.  Here is an example with the SECU logo:

The Opposition’s Campaign

The member nominated slate is also active with a Facebook social media site SECU for All.

The site’s purpose is:

The member-nominated candidates are the underdogs in this race—up against a $50 billion SECU led by a board & administration that’s spending your money to suppress members’ voices and prop up these incumbents.

Help us spread the word! EVERY SINGLE VOTE MATTERS!

This Facebook landing page shows widespread grass roots participation as well as material for supporters’ use with their friends.  An additional site is a SECU for All resource with links to bios, letters sent to local news outlets and other campaign material.

The over a dozen letters to local newspapers are first hand member testimonies of support.  This effort has prompted local press coverage as appears in this excerpt below.

The SECU for All site includes multiple single and joint video statements from the four candidates explaining why they are running and their top priorities.   Many direct endorsements from former employees and/or current members are posted.

Other credit union CEO’s sent endorsements such as a video from Latino Credit Union’s co-founder with this intro:

The SECU member-nominated Board candidates are honored to have the endorsement of John Herrera, a true leader for the credit union cause. In addition to being a 31-year SECU member, Mr. Herrera co-founded the Latino Community Credit Union as well as serving on the NC Credit Union Commission and the National Credit Union Administration. 

Real Differences In Candidates’ Positions?

The four incumbents speak in general terms about “serving all the members,” but do not offer any specific changes or priorities that members might relate to.  It is certainly expected that incumbents would support the status quo.

The challengers have published five priorities: 

1) End Risk Based Lending. Restore the same, best rate for every member.

2) Restore competitive savings rates for every member.

3) Restore the commitment to “Do the Right Thing” for every member.

4) Restore the local focus. Local communities, local jobs, local decisions for every member.

5) Restore the employees’ faith in fairness, equal opportunity, and quality service for every member.

In addition, they question several areas of financial performance  including low share growth, the need for competitive rates, rising delinquencies and growing loan charge offs.  Some of these critiques are presented in the former CEO Jim Blaine’s blog SECU-Just Asking.

A Real Choice on Real Issues

The members’ choice between the status quo versus the challengers’ positions should certainly generate more owner interest in their credit union.  Who knew we could vote on the direction of our credit union?

Most importantly the election process will help clarify fundamental questions for SECU’s volunteers and senior management.

How does the leadership of a cooperative differ from traditional financial organizations?   What are the candidates’ views of a credit union’s fundamental purpose and unique role, if any?

Should members have to “earn”  their worth  to have an equal  standing for services?

Is the primary objective to serve the members’ needs or to promote the institution’s  market success?   As  one candidate remarked in his video, “to take care of the members, we have to take care of the organization.”  Are these duties separate or one?

For decades America’s competitive market dynamics for both individuals and organizations have promoted a culture of  “always wanting more.”  Greater growth, higher income , increased prestige and enhanced political and social power.  Outcomes that often come at the expense of others.

Both candidate groups want SECU to succeed.   The question the members will be able to address is how this greatness is going to  be defined.

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The Cooperative Way to Manage an Isolated Branch

Last week I described the abrupt closing of the Madison WI branch of PenFed FCU  which it acquired via  the merger of Post Office Credit Union (POCU) in 2020.

There was no public announcement.  Some members were alerted, but many weren’t.  The employees lost their jobs.  The members no longer had a physical presence for this coop operation begun in 1935.

I described this as an example of “asset stripping” in which the continuing credit union takes the most valuable parts of a organization and then disposes of the rest.  While this approach is not unique to PenFed, it is routine in many of their  post-merger operations.

Other credit unions sometimes acquire new branches via mergers outside their home state, often hundreds of miles away.  There is no synergy or “network effects” with the continuing credit union’s primary market. Closing these “under performing” locations is seen as an acceptable management decision.

But is this the best option for members?  As credit unions point out bank branch closures to defend their FOM expansion requests, are some coops guilty of the same activity?

A Better Way: The Branch Transfer

As PenFed’s August shutdown of its Madison location was finished, two credit unions demonstrated a better way. First Harvest in New Jersey and Members 1st in Pennsylvania, announced the  completion of a cooperative approach to the challenge of an isolated member service location.

This past month, the spin off of the Williamsport, PA branch of First Harvest, acquired in a merger in 2016, was finalized. The transfer of First Harvest’s local branch members, employees and  resources to Members 1st, which operates over 60 branches, in Pennsylvania became official.

Mike Wilson, CEO of Members 1st and Mike Dinneen, CEO of First Harvest had both begun their leadership roles at the same time in mid 2023.  They knew each other from working together in different Pennsylvania credit unions.  They discussed their joint efforts in an interview ten days ago.

Upon taking over at First Harvest, Mike began evaluating his business and strategic priorities.  The Williamsport PA branch  was over three hours away from the Deptford, N.J. head office.   The distance from his primary South Jersey market focus made it difficult to support fully the employees and over 1,000 members using this location.

Closing the branch was not an option.  What solution could be  in the best interests of the members, staff and community?

In discussions with his counterpart at Members 1st in late 2023 the two CEO’s agreed to a joint  project to assess whether  a transfer of the entire operation would make sense for everyone.

Members 1st had 7,000 members in the greater Williamsport area but no location in the county. This branch with its experienced staff offered an opportunity to build out this new market area with  an in place local presence.

The two CEOs established a process to involve the local employees and members in the evaluation.  NCUA required that  a transfer of branch be done following steps similar to a merger:  the members would be given notice, vote on the option, and a third party monitor  results. The final decision  would be by the members.

Following NCUA approval in February of 2024 both credit unions held meetings with employees and  in multiple member open forums.  Both credit unions’ leaders attended, including evening sessions so all could ask questions.

The voting took place in April.   The transfer was overwhelmingly supported  with between 20-25 % voting  participation, a much higher rate than for a traditional merger.

Mike Wilson stressed that the key  success factor was staff retention and their support.  Mike Dinneen noted that the “spin off” was not a performance  issue but a proximity one.   In his view the critical factor was finding the best cultural fit for staff and members.

An Example of Cooperative Values and Collaboration

These two credit union CEOs were guided by values that put their members’ and employees’ well-being foremost.  There were also institutional advantages for both firms if the transfer was thoughtfully conducted.

The members were deeply involved in the process.   The two credit unions took almost a year to evaluate how the spinoff might best work and to develop and communicate the advantages of this change.

By this effort they maintained the goodwill and reputation of not only their individual  institutions, but also for the member-centric public reputation  of credit unions.

PenFed cut and ran when closing their Madison branch.  This operational presence  had  been in the community for over 89 years.  Consider what a different impression these 3,000 or so members would have if there had been an effort to transfer the operations to a local  cooperative willing to continue  service for the community.

But that choice would have required PenFed to put members’ interests first.  Instead they took all the “free” capital and other valuable resources from this previously independent credit union.  The members were forced into a remote, digital-first service model.  The local commitment and presence of nine decades was over.

This contrasting approach is a  reminder to credit unions enraptured by a credit union’s rhetorical promises during courtship, that the marriage rarely lives up to the hype.  Especially for the member offspring.

 

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From the Field: A CEO, a Member and a Retired CEO Speak

It has been said, “Where nothing is forbidden, nothing is required.” Impulse control is certainly a valuable skill for all adolescents to learn.

But for a leader with fiduciary responsibility for common wealth, held for tens of thousands of members to benefit their financial futures, it is essential for sound judgment. Sometimes this responsibility underwrites actions that suggest little accountability to the member-owners.

Yesterday REV FCU, Charleston SC, announced the purchase of the 110 year old First Neighborhood Bank, a $152 million, three-branch firm headquartered in Spenser West Virginia.  The privately owned bank reported $556,000 in 2023 net income and $12 million in total capital.

REV CEO Jason Lee in a CU Today article said ”I’m excited to bring this mission of growth with purpose to West Virginia and enhance our ability to serve the financial needs of this region.”   The article pointed out the two institutions are 520 miles apart.  No terms were announced.

How this unknown cash outlay of tens of millions of member reserves to the bank’s owners will benefit REV members is not stated.  The rhetoric and unrelated information provided in the article, leads one to be skeptical that this action benefits them in any way.  With 14.5% net worth, REV has accumulated member reserves almost 50% greater than required.  Is this surplus  just burning a hole in this CEO’s pocket?

A Retired CEO’s Message

The strained rhetorical justifications of these serendipitous credit union purchases of bank has led some former leaders to question whether there is any meaningful belief in cooperative design.  Have some of today’s coops just become private, tax-exempt firms using their growing financial resources to fulfill personal ambition?

Following is one lament, from a very successful former CEO who recently wrote:

“I mentioned to you once a quote that “all symphonies remain unfinished.” I have moved on to the second movement of mine, so to speak. 

“Some folks in community banking have asked for my assistance in taking on credit unions, head-to-head, nose to nose. I have enthusiastically accepted. I have been scheduled for some webinars and convention sessions in the next few months.

It was my privilege to walk among giants; you, Bucky, Jim Blaine, and many others. Thank you. Sadly, Camelot is dead and the movement is no more. Members are a means to an end, that end being feeding the cash flows of executive compensation, vendors, consultants, CUNA/ NAFCU and the NCUA.”

A Member Reacts to the Merger of His Credit Union

A member wrote of his disappointment following the merger of the credit union he had joined as an employee of the sponsor.  This comment from over a year ago, and the examples he describes, have only multiplied since.

“You likely already know if this is true or not.  I wonder if national banks are aware of all the CU mergers and trying to lure disgruntled credit union member away from the new Continuing Credit Union that the member has no relationship with.  I just got an email from M&T Bank about a $250 new account offer.  The web must be tracking my bank/credit union shopping and my data is being sold like everything else we do online.  

If all the mergers are similar to Xceed/Kinecta’s, then there are a lot of officers in small CUs that are getting big paydays.  It looks like all these smaller CU executive teams must do is sell their members on the idea that a merger with a larger CU benefits each of them somehow.   I’d imagine the smaller credit union leaders are seeing their peers who are part of mergers getting big raises, bonuses or severances for a comfy retirement and want the same. 

Xceed’s President/CEO is eligible to received $1,500,000 possible maximum compensation for 3 years after the merger my notice states.  She gets an immediate raise of $71,403. The if she is terminated for “good reason” within 3 years she is eligible for a prorated severance in a max potential of $1,500,000. The others  (senior executives) all stand to gain between roughly $250,000-$600,000 under different but similar conditions. 

Possibly the word is out among the CU community that Big credit unions are looking for Small prey credit unions and if you’re lucky enough to get caught, simply agree to be eaten and those at the top of the small credit union get rich at the expense of the membership. 

You made me happy sharing my feelings if this helps others impacted by these mergers. Maybe if enough members leave after their credit unions merge, the remaining small credit union Presidents/CEOs will think twice and keep the community or employer-based CU in place.  

Sorry Chip for running on with my “It’s a wonderful life” like email.   I read back my email and laughed at myself.  Anyway, have a great rest of the day. ”  

Three separate examples.  These people are saying “Without vision the people perish,”  or more accurately, the cooperative system in America.

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Game On: The Voting Begins

Today, September 3, voting begins in the most important election affecting credit unions in over 100 years.  This is not the presidential election-as important as that is for national policy direction.

Rather this is the second consecutive year that the members of SECU NC can choose between two slates of candidates to fill four board openings. Ballots will be mailed to all members.  Voting can be by mail-in ballot, on line (absentee) or in person at the annual meeting on October 8, 2024 in Greensboro, NC.

In 2023 the first year of contested board elections, three member-nominated candidates won their seats over the three-board nominated incumbents.

A Gigantic Precedent

SECU’s North Carolina operations are vast. From the President’s June 2024 Fiscal Year update:

The Credit Union, with 7,700 full-time and 500 part-time team members, serves members via 275 branch locations, ncsecu.org, our SECU Mobile App, ASK SECU (our automated voice response system), our 24/7/365 Member Services Support team, and nearly 1,100 CashPoints® ATMs.

SECU is America’s second largest credit union at $56 billion in assets and 2.8 million members.  Its long term track record for over five decades includes a history of iconic and innovative service decisions founded on a singular vision of cooperative design.

This example of owners having a real choice of directors will have a significant impact on SECU’s members, the credit unions of North Carolina and perhaps public perceptions of how credit union leadership should be selected.

No other credit union, of which I am aware, has had back-to-back member voting in contested board elections.   Just the opposite is the case.  Board openings are routinely filled by nominating committees approving only the number of candidates as there are vacancies.  These individuals are normally incumbents or internally sponsored. No elections are held.  The chosen few are  approved by acclamation at the annual meeting.  The member franchise and democratic selection, the foundation of credit union governance, hardly ever occurs.

The Competing Slates

The two competing groups for the four open seats are the board-nominated candidates and the member-nominated group.  In short, the Ins versus the Outs.

Brief profiles of all eight can be read at this link.   The Ins are all current SECU board members who list multiple volunteer roles.   The member-nominated are long standing SECU members including three former SECU employees. The 4th Jean Blaine did not work at SECU but lived with someone who did.  She was a teacher in the public school systems in four different counties while raising five children.  She has been active in the last two years at multiple public forums raising concerns about SECU’s direction.

A general statement of the four incumbents’ recent decisions is presented in this excerpt from the  CEO’s August 2024 Fiscal Year update:

Our volunteer Board of Directors (composed of current, past, and former state employees representing your best interests (the interests of state employees)) took action to eliminate numerous fees at SECU. The Credit Union no longer charges a stop payment fee, NSF representment fee, overdraft transfer fee, verification of deposit fee, or a returned item fee! SECU’s fees are among the lowest in the country among our credit union peers.  

To better serve all 2.8 million members, the SECU Board also made some changes to our tier-based pricing model (where loan rates are determined by a member’s credit score) on auto and consumer loan products. In April of 2024, the Board reduced SECU’s 5-tier model to 3 tiers, with A credit score borrowers receiving an A rate, B borrowers receiving a B rate, and C, D, and E borrowers, as well as borrowers with no score, receiving a C rate.

Before the introduction of tier-based pricing, SECU provided “one rate for all” that was a B- to C+ rate. The move to a 3-tier model also complemented the August 2023 rollout of a Board-approved 0.50% discount program1 on closed-end consumer loans for certain qualified current or retired State of North Carolina employees, adding even more value for SECU’s base membership.

The primary issues raised by the member- nominated candidates have been much covered in Jim Blaine’s daily blog SECU-Just Asking!  These topics include the credit unions embrace of risk based pricing for consumer lending.  More recently the decline in financial performance trends including growing delinquency/charge-offs, stalled share growth, and an increasing expense ratio.

Blaine has also been an ardent critic of bylaw and other process changes which make it more difficult for members to exercise their role at the annual meeting.  For example this is his response to the restrictions announced for the upcoming 2024 Meeting: SECU Board Election Cycle-How Can It Get Any Worse?

Jim’s writing is blunt and pointed.  He uses memes to reinforce his message.  For example his recent blog supporting the four member nominated candidates, lists five priorities under the general headline SECU Employees Need a Change at the Top.

The Campaigns

The Ins are certainly using the power and resources of incumbency to prepare and spread their point of view.  The Outs have the passion and enthusiasm of volunteers committed to making a  difference.

Both sides use social media.  Ads and videos featuring their candidates are up or in the works.   SECU For All is the campaign theme and the member-nominated web presence.  The site has candidate videos, event updates, articles and statements from supporters. The group has also created a Facebook page:  https://www.facebook.com/SECUforAll/

More SECU institutional updates are in the works to provide  the positive points for the current board candidates priorities and accomplishments.

A Unicorn Credit Union

SECU’s position in credit unions combined with two contested elections makes it a true unicorn in the cooperative system.   Member-owners have the unique opportunity to see how their candidates present themselves and their visions for the credit union’s future.

Although integral to cooperative design, members at no other credit union will have this distinctive experience of seeing contrasting positions from competing board candidates.

But the learning will be more than a debate about risk-based lending, financial priorities, or convenience upgrades. This voting choice  demonstrates to these member-owners, and maybe others who read about it,  the true nature of cooperative democratic governance.

If we are honest about the state of credit union governance today, most leadership teams (boards and CEO’s) view the members as customers.  They are primarily inputs (profit centers) for their institution’s growth and financial success.  The members are only a means to  building public renown and rewards for the organization’s leaders.

In extreme cases this attitude results in the exploitation of the members’ trust when these leaders chose to transfer their institution’s resources and members to a third party for self-gain via mergers.  It happens every week in plain sight.  This is a recent example where five board members and the CEO chose to lead their 58,000 members and $1.3 billion institution into a merger (The Valley of Dry Bones).  There was no rhyme nor reason, except the CEO’s retirement.  And the members are led to believe their approval is just an administrative check the box exercise.

Following Future Events

SECU’s board election is about much more than a final vote tally in October.  In my view it could be the one event that demonstrates the potential for cooperative design to fulfill its unique destiny.

I plan to follow events and the positions with more posts before the October 8th annual meeting.  I believe illustrating both the tactics and substance of this campaign could be a turning point for other credit unions who wish to reinvigorate their institution’s distinct cooperative spirit.

For the full pdf package for SECU’s 2024 Annual Member meeting notice, click here.  Per Sandra Jones, Senior Vice President for Communications, the October 8 Annual meeting will be broadcast live as in 2023.

 

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Are Members “Gaming” Their Credit Union?

From the field. A recent story by a colleague working on site with a client.

I just wrapped up a meeting with a $6 billion CU that does a lot of indirect lending.

  1. Used car values are falling.
  2. Manufacturers are providing strong incentives for new vehicle purchases.
  3. Some credit unions are desperate for income and are attracting business with below market rates via their indirect relationships.

The CFO shared that members with an expensive to own, drive, and insure car are going out and buying another car that is much cheaper to own, drive, and insure–both new and used models.   But from a different funding source. For example,  another credit union who will extend credit because the member’s credit score is still good, but about to take a nosedive.

The member knows they can’t afford to keep their existing vehicle.  Then after they purchase the “cheaper to own” car, they bring the “expensive to own” vehicle to the credit union and hand over the keys.

The result is that the credit union is experiencing higher than expected losses because used car values are falling, and the cars being turned in are more expensive to own.

Long Story Short

The  member lowers monthly payments and the cost to own a vehicle.  The old car is turned back to the credit union.  The member is unconcerned about how it impacts their credit score going forward.

The credit union has limited recourse because the “member” has just a “$5 savings account” required to join the credit union.  (This is an indirect relationship only)

I am hopeful for a soft landing from this financial substitution scheme, but not everyone is on the same flight.

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Credit Unions and the Presidential Contest

Presidential candidates Trump and Harris are unlikely to engage in any dialogue that directly address credit union issues.

Nonetheless,  one’s voting preference  from a purely credit union perspective may be influenced  by reference to more generic policy positions such as regulatory burdens, affordable housing plans or even commitments to community development.

At this point I know of only one datapoint from either candidate that may be relevant.

In his new book, Community Capital Race, Equity, and the Credit Union Movement author Clifford Rosenthal tells of the decades of efforts to secure political support and government funding for community development institutions.   In 1980 he joined the National Federation of Community Development Credit unions.  It is the cause to which he has dedicated the rest of his professional life.

He would later spend two years at the CFPB trying to supporting these instituions.  His successor in 2012 was Cathie Mahon who in 2019 would rename the organization as Inclusiv and expand to an even  more ambitious role funding community development efforts.

In the final chapter of his book, Rosenthal brings the government’s funding  up to the recent covid driven programs in the Biden administration.  On page 249 he describes inaugural grants totaling $1.73 billion from the US Treasury’s CDFI Fund for the Equitable Recovery Program (ERP).

Vice President Harris in the April 23, 2023 Treasury press announcement is quoted as follows:

“When we invest in community lenders, we help build a future where all people—no matter who they are or where they start—have the resources they need not only to succeed but to thrive.

“These grants—representing the largest CDFI grant program in history – will enable hundreds of community lenders to invest in small businesses and entrepreneurs, and also provide home loans for families, financial services for local nonprofits, and capital for community organizations.” 

The press release lists the number of grants and total dollars by CDFI sector.  The 203 credit unions recipients were awarded a total $590.3 million, or 34% of all funding.

This is the only specific reference I can find at this point from either side.  Obviously much bigger issues are at stake in this campaign about America’s future. However, I would welcome any further examples readers may discover about candidates’ awareness of credit union topics.

As for Cliff Rosenthal, to honor his pioneering role in supporting community development as a policy priority, on October 3 he will be inducted into the Cooperative Hall of Fame in Washington D.C.

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Two Leadership Departures:  What They Suggest About the Future of Credit Unions

 

(Text updated in PM of August 28 from initial posting)

Last week and approximately one year ago in 2023, two leaders announced their departure from senior positions of organizational responsibility.

CEO Susan Conjurski’s merger announcement  was in the now familiar language of the required merger Member Notice. In this case there were two disclosures due to  the simultaneous combinations of her dual oversight of both credit unions.  Here is the wording from the first member Notice:

NCUA Regulations require merging credit unions to disclose certain increases in compensation that any of the Merging Credit Union’s officials. . . (who) have received or will receive in connection with the merger above a certain threshold. The following individuals are eligible to receive such compensation, which is reasonable and commonplace in the financial services industry:

Susan Conjurski, President/CEO

  • Ms. Conjurski will continue employment as the Continuing Credit Union’s Vice President of Strategic Initiatives under a five-year employment agreement and will be eligible to receive a one-time retention bonus of (gross) $14,000 (less lawful deductions) if she remains with the Continuing Credit Union for at least 6 months after critical post-merger information technology systems integration.
  • Ms. Conjurski, President/CEO of Printing Industries Credit Union, serves simultaneously as the President/CEO of both Printing Industries Credit Union and Pacific Transportation Federal Credit Union. The members of Pacific Transportation Federal Credit Union are also voting on a merger with Credit Union of Southern California. Ms. Conjurski does not have a supplemental retirement plan with either Credit Union. To reward her meritorious service and to retain her services going forward, as part of our Credit Union’s merger, Ms. Conjurski will receive a Supplemental Executive Retirement Plan (SERP) with a maximum of $300,000 after five years of employment with Credit Union of Southern California.

While not connected to this merger, Ms. Conjurski will receive a SERP in connection with the merger of Pacific Transportation Federal Credit Union and Credit Union of Southern California with a maximum of $700,000 after five years of employment with Credit Union of Southern California. Ms. Conjurski would be eligible for a reduced benefit if her employment is terminated for Total Disability and she would forfeit benefits if she voluntarily resigns or is terminated for cause before reaching the final vesting date in 2028.

  • The total maximum potential amount Ms. Conjurski will be eligible to receive in connection with this Merger is (gross) $314,000 (approximately $188,400 after taxes assuming a 40% tax rate). After taxes, this equates to approximately $885 for each month of service from Ms. Conjurski’s first day of service with Printing Industries in July 2020, to the end of the plan, thereby recognizing Ms. Conjurski’s combined 17 years of meritorious service to the combined credit unions.

Prior to these concurrent CEO roles, Conjurski had been Executive Vice at Arrowhead Credit Union from 1979 – Jan 2009, 30 years and 1 month, where she presumably participated in their retirement benefit plans.

The Second Merger Notice

Following is the parallel disclosure required in the simultaneous merger of Pacific Transportation FCU:

“Ms. Conjurski will continue employment as the Continuing Credit Union’s Vice President of Strategic Initiatives under a five-year employment agreement and will be eligible to receive a one-time retention bonus of (gross) $8,000 (less lawful deductions) if she remains with the Continuing Credit Union for at least 6 months after critical post-merger information technology systems integration.

Ms. Conjurski, President/CEO of Pacific Transportation Federal Credit Union, serves simultaneously as the President/CEO of both Pacific Transportation Federal Credit Union and Printing Industries Credit Union. The members of Printing Industries Credit Union are also voting on a merger with Credit Union of Southern California. Ms. Conjurski does not have a supplemental retirement plan with either Credit Union. To reward her meritorious service and to retain her services going forward, as part of our Credit Union’s merger, Ms. Conjurski will receive a Supplemental Executive Retirement Plan (SERP) with a maximum of $700,000 after five years of employment with Credit Union of Southern California. . .

The total maximum potential amount Ms. Conjurski will be eligible to receive in connection with this Merger is (gross) $708,000 (approximately $424,800 after taxes assuming a 40% tax rate). After taxes, this equates to approximately $3,012 for each month of service from Ms. Conjurski’s first day of service with Union Pacific Federal Credit Union in July 2016 (Union Pacific FCU merged with Pacific Transportation in December 2019), to the end of the plan, thereby recognizing Ms. Conjurski’s combined approximately 12 years of meritorious service to the combined credit unions.”

The Financial Payments and Assets Transferred

In May 2023 the merger with Printing Industries was completed. Pacific Transportation FCU’s merger was finalized in September 2023, both with the Credit Union of Southern California (CUSoCal).

If the reported start dates as CEO are accurate, I calculate she served less than 3 years as CEO of Printing, and seven years at Pacific, for a total of ten years. The combined bonuses and SERP funding are $1.022 million.  In addition she is given a guaranteed employment contract for five years at an undisclosed salary, presumably with ongoing benefits.

In return for this payment and five year salary, CuSoCal gains $97 million in assets ($67 million in loans), 11,000 members an $15.2 million in net worth.  This free capital transfer is after the Pacific members received a special dividend not to exceed $2.2 million.  The $1.022 million and five year salary are a small fraction of the real financial value transferred to the Credit Union of Southern California.

NCUA’s Western Region Director Retires After 37 Years at NCUA

In last week’s retirement announcement, NCUA summarized Regional Director Cherie Freed’s nearly four decades of service.

After serving as an examiner, Freed took the position as a problem case officer in 1991 and later became a corporate examiner. Freed then became associate regional director for the Western Region before being selected as regional director in 2016.

Chairman Harper commented:  “Cherie’s dedication to public service and the NCUA has been nothing short of exemplary. . . She excelled at building internal and external coalitions, she was passionate about meeting organizational goals and customer expectations, and she produced results at the highest level. Cherie has exhibited sustained excellence throughout her career, inspired others, and made innumerable contributions to the NCUA.”

What Unites These Two Leadership Resignations

What is left out of NCUA’s description of Freed’s 37-year career is any specific involvements with credit union events or contributions as she progressed up  the listing of increased responsibilities.

There were significant industry and financial events during her regulatory roles.  When she joined the  agency in 1987, NCUA insured 14,520 natural person credit unions. The corporate network numbered 39 federally insured corporate credit unions.

Today there are just over 4,600 credit unions a decline of over 10,000.  NCUA’s liquidity lender, the CLF, is dormant.  New charters are as scarce as hen’s teeth.

In that first year when Freed joined NCUA, the S&L industry still had its own insurance fund, the FSLIC, overseen by its own federal regulator, the Office of Thrift Supervision.  The system’s liquidity lender, the FHLB, predominantly served the S&L’s, even though it had been expanded to include other financial real estate lenders.

Today the separate S&L system no longer exists.  All of the remaining 556 “Savings Institutions” with total assets of $1.2 trillion are FDIC insured.  Their regulation is divided between the FDIC, the OCC and the Federal Reserve.

Both persons in the NCUA announcements above began their final leadership roles in California about the same time 2016-17.   By rule, Freed oversaw the two mergers and payouts described in the Member Notices above.

In both Member Notices there is misinformation, disinformation, irrelevant data and omission of vital facts–eg. the total dollar value of Conjurski’s new five year employment contract.  The credit unions’ member-owners were ill-served by this required regulatory review and approval.

Losing the Cooperative Future

The coop industry, unlike the thrift sector is not consolidating because of safety and soundness concerns.  Rather many of these mergers are driven by personal greed and ambition.  Pacific Transportation FCU reported 21% capital at December 2022 prior to announcing its merger. Printing Industries’ net worth was 11%.

Conjurski’s windfall was not an isolated event under Freed’s administration.  Another CEO negotiated a $1.0 million merger bonus.  In a separate situation the Board Chair and CEO diverted $12 million of member equity to their recently established nonprofit.  The intent was to use these members reserves to continue their veneer of public philanthropy even though they had given up all leadership positions.

The merger examples show that credit union leaders are not immune from the “animal spirits” at the heart of market capitalism.  Cooperatives were supposed to be an alternative to the self-interest that drives “free enterprise.”

This disease of self-enrichment now infects the cooperative body.  The regulators have failed to enforce their own merger rule.   The NCUA board and senior staff board appear to lack either conviction and/or the courage to speak to this usurpation of the members’ collective wealth.

And the money being transferred has created a whole sponsoring eco-system of enablers including consultants, compensation advisors, former NCUA employees, accountants and lawyers who grease the paths and fill their own pockets.

The Increase in System Risk

The NCUA board and the regional administrators signing off on these events are mute about these examples of blatant self dealing.  They pretend not to notice as these privately arranged deals are announced followed by the asset stripping of long- standing sound credit unions after the combinations are complete.

To see the increased risk, one need only ask whether the future of the cooperative system is likely to be more sound with ten credit unions in the $500 million to $1.5 billion asset range or one $10 billion credit union with a generic brand operating over multiple states and markets?

The answer I believe is obvious.   If one doubts this, just revisit how the S&L system totally collapsed.  It was not because of small institution failures.  And the largest failures were all sold to banks.

Ultimately this pattern of corporate ambition could end up in the full conversion of the cooperative system to their exact opposite–for-profit banks.   Why should credit union leaders  buy banks at a premium when they can convert all this free reserves to private gain?

Freed oversaw and approved these self-dealing events firsthand.   The irony of her 37 years of service is that in all likelihood her professional opportunity no longer exists for someone entering the agency today.

For in the next four decades, the trends are clear—there will not be an independent NCUA.   Credit unions will have become too powerful, consolidated and independent in purpose for a separate  agency to oversee what was intended to be a cooperative, member-focused tax-exempt system.

If a system can’t learn from its past and that of its financial brethren, it has no future.