Category: Cooperative Design

Posted on

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.

 

 

 

 

 

 

 

 

 

 

 

 

Posted on

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.”

 

 

Posted on

Powerful Member Stories Show a Credit Union’s Heart and Soul

Translating the credit union difference into an effective message is hard.  When done with stories of members serving their communities, the messages can be inspiring.

Whitefish Credit Union in Whitefish, MT has created a series of imaginative, colorful, “hometown” videos of their members’ special efforts.

These personal examples would cause almost any viewer to consider  1. moving to Montana and 2. joining the credit union.

The first example features skateboarding enthusiasts in Whitefish and the people who use and support it.  A story for younger members and those forever young.

https://www.whitefishcu.com/Members-like-Whitefish-Skatepark-Association

(https://www.whitefishcu.com/Members-like-Whitefish-Skatepark-Association)

This second video is how a veteran with a military injury found his meaning in life in Plains, MT. “Life doesn’t always go in the direction we think it will go.”

(https://www.whitefishcu.com/Members-Like-David)

https://www.whitefishcu.com/Members-Like-David

This is the cooperative difference portrayed as a form of art.  The theme: What we do, pays dividends. 

Enjoy.

Posted on

The Fruits of the Spirit: A Credit Union’s 74th Anniversary Celebration

The cooperative spirit is a financial super-power.  It is a passion that enables even small firms to have enormous impact.  Affinity Credit Union in Des Moines, IA is example of this capability  in action.

Chartered in 1949, its annual meeting is a celebration with members even as the required business items are covered.

This year’s meeting highlighted three vital Affinity success factors enabled by this spirit:

  • Respect for the member-owner;
  • Pride in the Affinity’s legacy and mission;
  • Exceptional leadership in the board and senior management.

All Are Invited

The credit union made special efforts to draw members to their annual meeting:

  • A reminder email was sent to all on the day of the meeting: “The 2023 Affinity annual meeting is tonight. We look forward to seeing you there!”
  • The announcement in the Members’ May Newsletter by the CEO: “Thank you to all who registered to attend our Annual Membership Meeting on May 9th at the Top of the Tower Ballroom. . .you can still register to attend.”
  • The sign taped to the front door of the main office when members came to be served:

When members arrived at the meeting they were given a 10-page Annual Report that included a 14 item agenda; the board’s “promises” and biographies; committee reports; financials for 2022: and pictures describing Affinity’s role in the community.

Each Report included two raffle tickets for the post- meeting drawing for cash prizes.  To kick off the event there was a free, full buffet meal for attendees before the speeches and business began.

I talked with members who had joined as far back as 1963 and an older couple, retired from state government, who joined just two years ago.   Several families brought their children.  One member brought a date, even though she was not yet a member.

The Speakers’ Messages

Outside speakers offered different aspects of Affinity’s impact.  Michelle Bock, President of the Food Bank of Iowa, presented the challenge of food insecurity that  10% of Iowans face each year.  Affinity’s CEO Jim Dean sits on the Bank’s board.

Katie Averill, Superintendent of Iowa Credit Unions, affirmed  the strength of the Iowa system in the wake of recent, large bank failures.  Of the 80 Iowa credit unions and $33 billion in assets, 72 are state charters holding 97% of the state’s total.  The system has grown by double digits over the past five years.

Five Iowa charters are over a billion dollars in assets.  Affinity at $145 million ranks number 22.  Averill summarized Affinity’s evolution since its 1949 chartering as  USW Local 301. Her listing of regulatory actions including FOM expansions, name changes, and mergers was a tribute to the credit union’s longterm standing in the community.

The respect for owners was shown when the Chair opened the meeting, under new business, for comments from members.  Multiple questions were raised from the floor.  Some were minor–will free movie tickets be restarted?  A number were substantive about the financials–unrealized losses on investments and loss reserves for loans shown in the  Report each attendee received.  All were answered openly.

Pride in the Cooperative’s Contributions

At the check-in desk for the meeting, the credit union’s founding story was shown in a display case. A lunch pail used in the early years to collect funds and make loans during shifts at the Firestone tire plant was included with the founding story:  “Here is a resource created by workers for workers that feeds families, futures and trust.”

A brief  video testimonial of long-time member James Reasoner was shown. His financial journey recovering from near bankruptcy two decades earlier was highlighted. He was also one of four  members elected to the board that evening.

Pride  is evident in the credit union’s physical presence.  The main office is still less than a half mile from the Firestone plant.  Photos of the Firestone facility are mounted throughout offices that have been remodeled surrounded by careful landscaping.

The board’s “promises” start with employee education. Wednesday mornings are late openings to accommodate training.  Three employees who had worked over 25 years for the credit union were recognized at the meeting.  Misty is the person who helped new board member James Reasoner in the video twenty years ago.

“Enrich our communities” is another board promise. Six seniors from different high schools were awarded  scholarships to further their eduction. Here’s one.

The program included multiple examples of Affinity volunteers in action.

Leadership by the Board and CEO

Few organizations can thrive, let alone survive, without dedicated leadership.

The four board members elected this meeting have  leadership responsibilities in their professional lives.  James Reasoner’s story is told in the video link above.  Bridget Neely is the CEO of Big Brothers, Big Sisters of Central Iowa.  Cara Harris is the Administrative Coordinator of Cortiva Agriscience in Johnston, Iowa.

Webster Kranto is a small business owner who was born in Liberia. It took three years as a refugee to gain immigration to the US where he graduated from Iowa State University.  In 2019 he was appointed by the governor to a 4-year term on the Iowa Board of Corrections.

Two continuing board members have worked at the Firestone plant for 22 and 23 years.  Both are members of USW Local 301L.  The board chair Cindi Summers is the Chief HR Officer at Baker Group. She earned  a Master’s Degree in Business Leadership, as well as a B.A. in Management and A.S. for Paralegal Studies.

Christian Quijano, Vice Chair, works  in Environmental Risk Management and was board President for the Environmental Professionals of Iowa from 2012-2018.

Their leadership terms begin with an oath administered to all directors at the annual meeting.  Standing and facing the members, they commit  to “faithfully, honestly and impartially perform the duties imposed upon me. . .”

The board’s most critical role is selecting the CEO.   Jim Dean came to the credit union after a long career in multiple leadership responsibilities in Illinois.   He has implemented the credit union’s vision of “building better lives” by demonstrating that small can have a big impact: “small but mighty.” He initiated a suit against Apple Pay’s  restrictions and joined in a program to lend $10 billion to facilitate  home ownership for  minorities in Iowa.

He asked that I come to the meeting to learn about the credit union.  I saw a genuine dedication to resolving  members’ financial challenges from those still in high school to retirees.  Over 50% of the 13,786 members live in low income areas. The credit union teaches the basics of savings and borrowing so members have skills to manage in any economy.

Jim’s view of success is more than increasing the volume of financial transactions. He  united the credit union’s financial capabilities with partners to support the  community’s overall health and well being. The Iowa Food Bank is just one example of this outreach.

With the board he has instilled a timeless evolution of values and principles.  This special coop spirit can extend success forever, beyond generations lived and to be lived.  He honors the traditions that created the credit union.  He gave renewed meaning to the founders’ goal of an organization that “feeds families, futures and trust.”

Jim believes that the strongest credit union advantage is member loyalty.   This is not contingent on size, but service.  The only size criteria is to be big enough to care about members.

When a decision was made to end Saturday branch hours  because of low transaction volume, Jim called each of the members who used this service the most, to let them know of the change and other transaction options.

My Message

When speaking  to the annual meeting, I said the most precious gift each  has is our time.  This evening members gave several hours to learn about the credit union and participate in another anniversary.

My hope was that every member-attendee would expand their involvement to become owner-volunteers, sharing in the promotion, service and financial support of their credit union’s mission.

Affinity’s stability  is rooted in and led by community leaders.  These volunteers and professional staff demonstrate the potential from democratic  member ownership.  The Coop spirit enables members to serve the financial needs of others, not just one’s own.

The Importance of Leadership

Affinity is an example of what numerous other credit union leaders do to help members become who they aspire to be. Their coops invest time, energy, and resources supporting members’ ambitions and enabling personal opportunities.

Leaders take risks with decisions when they make members’ needs and dreams their own. The impact of their support and dedication is immeasurable.  For it is the members’ who are the foundation of every credit union’s resilience.

Affinity’s leaders love what they do, who they do it with and who they do it for.   Is there any higher standard for a life or a profession?

 

 

 

Posted on

How a Black Barber in Little Rock, AR Started a Credit Union

The first new charter in Arkansas in over a quarter of a century is the focus of a new podcast.

Arlo Washington is a barber, a self-made man who turned his entrepreneurial instincts into helping his community.

The story of People Trust Community FCU, chartered in September 2022 is told in this 30 minute podcast by the reporter Oscar Abello from Next City and Arlo Washington the credit union’s founder.

Hearing the story in their own voices, brings to life the challenges and promise of a new credit union.

The context matters.  Payday lenders were shut down by Arkansas in 2010.  Arlo had started a barber college and by necessity and local tradition became a lender to his customers.

The reporter states there have been just 25 new charters in the last ten years. He points out in the 1970’s there were hundreds of new charters  granted per year.

Today Arlo describes the chartering effort as “intimidating, scary and tedious.”  The endgame was to have “local ownership in the banking system.”

“If we’re ever going to close the racial wealth gap, we need financial institutions that understand neighborhoods and can meet their community members where they are in the process of building their financial well-being,” says Washington.

This example of a small lending enterprise adding a credit union is a model that could be replicated many times in other underserved communities across the country.

 Seeds of Hope at the Grassroots

Planting seeds  whether in a garden or in our communities’ choices is the practice of hope.   Seeds that will grow and flourish to make lives more colorful and abundant.

There are more Arlo Washingtons throughout America who want to become gardeners for their community.  How do we reach out to them?  And grow our grassroots?

 

 

Posted on

Credit Union CEO Joins Iowa Bank Board

Iowa is home to a very  rambunctious  credit union system.  A total of 80 credit unions manage over $33 billion in assets growing at double digit rates.

Several larger Iowa coops have bought banks to expand their franchises faster.  63 are suing NCUA over the agency’s failure to honor the plain language on its Corporate Claims Certificates.

Then there is a relatively small credit union who is currently suing Apple for restrictions in its Apple Pay product.  This same CEO has joined the board of a local bank.

The bank has two major centers in Des Moines and Ottumwa from which it serves affiliates in 55 counties throughout the state.

The board director is Jim Dean. CEO of Affinity Credit Union.  The bank is Food Bank of Iowa, a 501 C 3.  It reaches over 300,000 children, seniors, veterans and persons who experience food insecurity during the year.  In 2022 it distributed over 1.2 million pounds of food per month through 700 frontline partners.

The administrative offices, warehouse, and distribution-delivery capabilities are supported by volunteers who come daily to prepare boxes for local delivery.  To carry out its mission, the Food Bank relies on almost 10,000 persons who freely give their time and labor.

A Common Cause

On factor in food insecurity is the inability of many to earn a living wage. The issue “comes and goes” for individuals as economic circumstances affect individuals’ opportunities.

When asked why the Food Bank  partnered with Affinity Credit Union, Vice President  Bergetta Beardsley, who is responsible for fund raising, replied simply, “There is a natural relationship with those we both serve.”

Why Is Affinity Involved?

Food banks have been an important part of Jim’s volunteer work during his credit union career. In addition to the overlaps of those facing financial and/or food insecurity, these two organizations share the same values.

Volunteer activity is part of Affinity’s culture. The credit union provides employees with two days paid leave per year to serve their community. The CEO’s participation raises awareness with staff about the Food Bank’s multiple roles.

The credit union promotes the Food Bank with special 30 second radio spots and ads on their delivery  trucks.  In some instances, the credit union has assisted with food pantries for schools in their communities.

Even more strategic isAffinity’s example.  It connects the financial reach and capacity of the coop system to this critical organization serving over 10% (300,000) of Iowa residents with food.

An Ever-Expanding Effort

Credit unions, like individuals, are known by the company they keep.  Two nonprofits, Affinity and Food Bank of Iowa, are joined in a common purpose of service and personal well being.

Across the country today, many families help their local communities with food drives.  Schools arrange canned food collections for holidays; there are special hunger offerings and food drop-offs at churches and community centers.

But experiencing the scale and scope of this central wholesale operation  (55,000 square feet) is an eye opener.  It provides food to schools, day care centers, senior and community commons, church pantries and other institutions.  The operating budget is approximately $30 million.

A Visit in Photos

Here are some of the pictures from my visit to the Food Bank’s Des Moines’ office, volunteer center and warehouse.  Our guide was Bergetta.

The volunteer reception area with mission, vision and values:

A wholesale delivery of potatoes to be repackaged.

Converted to individual sized quantities..

Just one of several volunteer groups for the day who helped pack boxes for delivery.

Pallet being loaded for delivery to a Day Care.

Bergetta showing pasta provided in bulk from a corporate donor.

Another pallet ready for delivery.

Part of the massive warehouse.  Storage racks with supplies and  shrink-wrapped deliveries.

Food delivery trucks backed into loading dock.

Affinity Credit Unions adds its support on the back of the delivery trucks.

Even if an individual stops by the head office needing  food, a box is always ready.

Organizations write thanking Affinity volunteers.

Isn’t this a Bank we all might like to join?

Posted on

Why an Oath for Credit Union Directors and Officers is Desirable

Boy Scouts have a pledge.  Couples exchange wedding vows.  Deacons, elders and lay ministers all affirm belief before the laying on of hands and becoming church officers. Naturalized American citizens take an oath-even agreeing to bear arms.

These ceremonies signify individual commitment in a public setting for the people they serve or community they join.  There are responsibilities in an oath, whether occasioned by election, by appointment or by personal choice.

Faithfully Discharge the Duties:NCUA’s Oath for Employees

All NCUA employees are required to take an oath upon accepting their positions.

This oath is administered by an NCUA employee, usually in the HR division, during new employee orientation on an employee’s first official day. Here is the text:

I, [state your name] do solemnly swear (or affirm) that I will support and defend the Constitution of the United States against all enemies, foreign and domestic; that I will bear true faith and allegiance to the same;  that I take this obligation freely, without any mental reservation or purpose of evasion; and that I will well and faithfully discharge the duties of the office on which I am about to enter. So help me God.  (emphasis added)

Duties, faithfully carried out.  Faithful performance is itself one aspect of the standard liability bond for credit union coverage.

A State Example:  OATH OF A CREDIT UNION DIRECTOR

Pursuant to Revised Code 1733.10, I, the undersigned director of NAME Credit Union, located in City, Ohio, do solemnly swear/affirm that I will diligently and honestly administer the duties of the office of director and that I will not knowingly violate, or permit to be violated, any law applicable to the Credit Union.

As a director, I have a legal responsibility and a fiduciary duty to credit union members to administer the Credit Union’s affairs faithfully and to oversee its management.  In carrying out my duties and responsibilities, I shall exercise reasonable care and place the interests of the Credit Union before my own interests.  I shall fulfill my duties of loyalty and care to the above named Credit Union.

I shall ensure that I learn of changes in statutes, regulations and policies of the Division of Financial Institutions and other applicable regulatory agencies affecting the Credit Union which affect my duties, responsibilities or obligations as a director and regulated person of the Credit Union.

I understand it is my responsibility to attend meetings of the Board of Directors and participate fully on all committees of the Board to which I am appointed.  I understand it is my responsibility to review the examination reports of the supervisory authorities at the next succeeding board meeting after the receipt of the reports.

Signed and notarized by each director.

The Current Status of an FCU Oath

The following was the response when I asked NCUA if FCU directors were required to have an oath:

The answer is no. There isn’t a required oath of office for federal credit union boards of directors in the Federal Credit Union Act or Federal Credit Union Bylaws.

Our legal team reviewed the current bylaws, the previous version (Timeframe of the mid to late 1990s, with amendments), and even earlier versions of the Bylaws from the 1930s to 1940s. None of these documents require an oath of office.

Also, an oath of office is not something we track in regulatory reporting like the Call Report or Profiles. As such, I don’t have any information on which federal credit unions, if any, administer an oath of office.

While we don’t have specific rules on this topic, the NCUA has received and considered the question of an oath of office before. The attached 1985 NCUA legal opinion says an oath of office is allowed because it would not conflict with the Federal Credit Union Act or Bylaws for a federal credit union to require directors to take an oath of office. 

Why An Oath is Desirable

Leadership of a credit union is a responsibility to  members, the community and those who in generations past created the cooperative as an enduring organization to pass forward its legacy of wealth and service.

Sometimes the concept of a “volunteer” has connotations of a position that can be taken or left at will.   Duty is voluntary.  Anyone can step up.  The responsibility is institutional and collective, not individual.   Except for a number of state charters, directors are not paid, which is sometimes interpreted as an absence of individual accountability.

Cooperative board leadership now involves oversight of trillions of dollars member-owned assets.  The directors’ roles are becoming more consequential for members and communities.

Moreover there are unique aspects in cooperative leadership:

  • Awareness and implementation of cooperative principles;
  • Recognition and respect for democratic member governance;
  • Adherence to bylaws and numerous regulations specific to credit unions;
  • The absence of any federal tax liability.

Moreover, the traditional director duties also still pertain including the standards of loyalty, care and the fiduciary obligation to act in good faith.

An Oath as Promise

An oath ideally in public at the annual meeting would be an act of honor and commitment.  It signifies both responsibility and accountability even as volunteers.

Credit unions are a part of a society that at times has differences about the priorities of their leaders.   Oaths remind all of our common obligations.

An oath is a promise.  In the NCUA’s example it comes with a sacred commitment-so help me God.  It would elevate the moral and communal character of cooperatives.

A person when taking an oath acknowledges the responsibility, not merely the public honor,  of their role.  The commitment is elevated beyond the routine director tasks of attendance and oversight.

All oaths remind us of who we are and what we want to be.

They show a solemn undertaking with commitments to the past and future, not just today’s agenda.  It is another way to show how the cooperative model stands apart from for-profits.

Posted on

Two Trends Deserving Debate

At the NCUA’s May board meeting, one trend jumped out at me.  Not new, but accelerating and read without comment.

In the first 90 days of 2023 there were 59 NCUSIF charter cancellations.  That is a rate of almost 5 per week, one every business day.  Without exception these charters are decades old, some surviving and most thriving.   Why?

These charters are the handiwork of generations of volunteers, whose current leadership have decided to give up.  It is a morale and ethical problem.   For it undercuts the coop premise that pays forward the members’ collective legacy for which the present leaders are  now the steward.

Many will suggest that the credit unions members are in better hands.  However these hands are not the leaders they know or elected, nor the organization that created their collective reserves.  Every charter cancellation eliminates an example of economic self help, self finance and self governance.

In most cases these are locally focused institutions which created unique relationships with their communities.   Financial services may continue, but not from the same roots.   Another civic organization so essential to a vibrant democratic political economy is no more.

What Can Be Done

Regulators should put the same time and effort into requests to cancel charters that  they extend to new charters.  If a merger is the strategy, show us the plan.  If the volunteer leadership is giving up, ask members for new volunteers.  If the sponsor has moved away, then seek a new group for re-energizing the charter.

Today the regulators have endorsed an exit strategy that benefits only the senior leaders who leave the membership in the lurch.  And retiring CEO’s especially, are taking advantage by transferring their legacy to another credit union, often for just a few more silver coins.

When quitting a business or long standing effort is easier than getting in, the movement will continue to close future growth options, create higher concentrations of risk, and remove financial services away from their local connections and knowledge.

No charter should be cancelled without an effort to find others who are willing to pick up the opportunity.

A Second Trend to Be Re-energized

No brand, business or opportunity can continue without the support of the next generation of consumers.

Student run and led credit unions have been part of the educational and financial services of cooperatives from the beginning.

Yesterday I learned about a scholarship program to identify young persons often from disadvantaged backgrounds (poverty, refugees, disabled) who are given the opportunity to become part of a special education effort.

The premise is that brilliance is equally distributed in persons,  but opportunity is not.  The focus is on 15-17 years old.  This is an age when  “ideation,” the willingness to consider new ideas and become doers is formed.

This educational support is for four years.   The time frame for measuring success is in decades.  It may take ten years or more to see if those chosen in the program will become leaders in their chosen professions.

The program called Rise recognizes that leadership will be manifested in many different ways but over time.  But the investment in this generation must be made now.

The cooperative model is designed to attract this kind of self starter.  But today again, the regulatory community discourages new charters.  The application has become a compliance drill, not support for people with passion to serve a community.  The next student chartered credit union will be the first since the 1980’s.

In the meantime these young change makers are engaging their start up  fervor elsewhere sometimes in other innovative finance-related endeavors.

The Common Thread

Credit union leaders, regulators and professional staffs, have become captured by the short term focus that drives most performance reporting.   What are the latest quarterly numbers?  How will we expand the market reach of our FOM?   What Fintech partner will give us short erm lead on innovation?

All these efforts while necessary overlook the longer term outcomes.   Without  this awareness, the movement will become just another increasingly concentrated, and limited,  financial service option in ten years.  The number of active charters will be halved.

Tomorrow’s  innovative financial models will have been created by the high school and college generation outside the movement. Credit unions will be seen as  old fashioned “banking” firms just tending to their own, stand alone, self interests.

Both of these trends today are shaping what the movement will be a decade from now. There will be other cooperative solutions designed to serve consumers’ financial needs; however they may not be called credit unions.

 

Posted on

A Disturbing Slide in May’s NCUA Board Meeting

If the CFO came to your May board  with a forecast that the credit union’s retained earnings margin would fall by 50% in the first six months of this year, it would get your attention.

That is what CFO Schied presented in the slide below showing a decline in the NOL from December’s 1.3% to 1.25% by the end of this June.  That would be halfway to the 1.20 NOL floor at which the NCUA must come up with a restoration plan.

As summarized in my earlier report, all of the actual credit union CAMELS data, the NCUSIF financial position and other accompanying information was good news.  Especially in the context of the first quarter banking failures and the continuing risk in interest rates.

Board members acknowledged the actual resilience of the cooperative system but then picked up the forecasted alarm.

Chairman Harper suggested the actual data was just “the calm before the storm.”

Vice Chair Hauptman opened his comments stating his objective was to protect “the taxpayers” from NCUSIF failure.

Only board member Hood attempted to get behind the numbers.  He asked how the $12 million  loss reserves expense was determined and the status of proper presentation of the 1% true up.  The answers were a polite stonewall.

Similar to a credit union’s net worth, the NCUSIF’s reserve ratio is an easy shorthand for its financial position.  The calculation is straight forward.   The ratio is simply retained earnings divided by the insured shares at the same date.

This ratio was 29.1 basis points or .291% of insured shares at December 2022.  As of March 2023 the ratio was 28.8 basis points. This .3 of one basis point minimal decline in the first 90 days is a far cry from the 5 basis points projected above.

The projected ratio in slide 8 is a made-up number. Its relevance depends on the assumptions used.  The estimated growth of insured shares to $1.75 trillion is a 7.2% twelve month increase from 2022.  The actual rate of increase as of March 2023 from the year earlier was 2.2%.

The addition to retained earnings for the quarter ending June is just $6 million versus a net income of $41.7 million in the NCUSIF’s just reported March quarter.

The final number in the numerator is the 1% deposit.  The calculation above reverts back to the six-month-old December 31, 2022 total deposits. By using this out-of-date number this invented ratio understates the actual 1% deposit total due from credit unions.  Including this six-month-old deposit liability misstates  the actual ratio and cash due.

The slide’s 1.25%  manufactured outcome became the lead in several press reports. It misinforms about the trend in the NCUSIF’s financial position. The ratio’s assumptions were not explained even though they were significantly different from actual trends through March.

Monitoring an accurate Fund equity ratio matters.

Per stature, the actual NOL is calculated at yearend to determine whether a dividend must be paid should the fund’s reserves exceed the NOL cap. The number is also the floor from which a potential premium could be assessed to increase the NOL to a maximum of 1.3% of insured shares.  Getting this NOL right is vital for every credit union.

More critically the use of a number from an earlier accounting period to compare with a current period’s insured risk total does not align with standard GAAP accounting practice.

Two Accounting Examples

There are direct accounting precedents with GAAP for how the 1% true up should be reported.  They show that the concurrent presentation of insured risk and the legally required true up of the capital deposit base is standard industry practice.

The first example is Deloitt & Touche’s audit of  ASI’s required deposit an identical structure to the NCUSIF.  From the December 2022 ASI audited financials:

In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company as of

December 31, 2022 and 2021, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.   Deloitte & Touche, LLP April 11, 2023

And regarding the deposit requirement:

Participants’ capital contributions that are receivable or payable as of December 31, 2022 and 2021, are presented on a gross basis in the accompanying consolidated financial statements. Included in participants’ equity at December 31, 2022, is a receivable for capital contributions of Primary-insureds of $2,530,000 (no payable). The receivable and payable balances result from annual growth or shrinkage in participating credit union shares and the receivables were substantially collected subsequent to December 31, 2022.

Included in participants’ equity at December31, 2021, is a receivable for net capital contributions of Primary-insureds of $25,200,000. The receivable and payable balances result from annual growth or shrinkage in participating credit union shares and the receivables were substantially collected subsequent to December 31, 2021.  (page 13, Notes to the Consolidated Financial Statements)

The second example is the recognition in the NCUA’s Operating Fund of an “account receivable,” on the balance sheet and the income statement in its monthly statements postings.

From the January 30, 2023 NCUA Operating Funds monthly financial statements:

The cash position is considered sufficient to cover current and future budgetary obligations of the Fund through April 2023, at which time the Fund will collect the 2023 operating fees from its credit union members. . . Operating fee revenue reflects one twelfth of the 2023 Operating Fees.

A longer explanation of this accounting presentation for the expense receivable in the January 2022 statement:

Other accounts receivable, net had a month-end balance of approximately $10.5 million. Its balance increased by approximately $10.2 million from prior month primarily due to the unbilled receivable for the 2022 Operating Fee. The Operating Fee will be invoiced in March and collected in April.

In other words the Operating Fund recognizes a net receivable and records one twelfth of the total operating fee as income each month even though the fee is not invoiced till March and collected in April.

In these instances the amounts legally due are presented as receivables in ASI and NCUA’s    respective audited financial statements and monthly financial presentations.

The 1% True Up Topic Raised Again

Board member Hood asked again about the status of the external assessment of accounting options the NCUA board requested in 2021. CFO’s Schied characterized this external memo saying:  “Each option was “non-optimal.”  An unusual accounting conclusion.

NCUA has refused to publicly release this expert review under FOIA.  What options were reviewed, what data or precedents referenced, and how were the pros and cons presented?

The current practice leads users of the information astray. It potentially shortchanges credit unions’ dividends. NCUA self-interest is keeping the status quo.  The memo should be published for all to evaluate.

The credibility of NCA’s oversight of the insurance fund is a function of the legitimacy of the numbers and explanations it provides. If NCUA is not able to present the Fund’s position accurately, at a minimum it leads to misleading conversations.

How an Inaccurate Number Distorts Discussion

The fabricated 1.25 NOL ratio forecast as of the end of next month led to several illusory discussions and unfortunate public headlines.

One board member commented how the Fund’s “margin was narrowing” before “taxpayers will have to pay.”  That unfortunate characterization shows the importance of knowing real numbers.  In the first 90 days of 2023 the ratio had changed by just .03 of one basis point.

Moreover the only “taxpayers” who are legally bound to support the NCUSIF are members of credit unions. Each sends 1 cent of every savings dollar in their credit union’s 1% deposit in the Fund.

The board member’s observation that “there is not a lot of room between 1.2 to 1.3 equity” unfortunately mischaracterizes the fund’s actual operating performance since 1984.  The long term insured loss rate for the fund is just over 1 basis point.   Even in the 2008-2010 the net cash losses from natural person credit unions were 3.5, 2.0 and 3.0 basis points of insured shares.  The highest cash losses in the three years was $228 million, nowhere close to the “billions” response in the meeting.

In the most recent four years (2019- 2022) which includes the Covid crisis, the economy’s total shutdown and a rising rate cycle, the highest loss from “old school failures” was .3 of one basis point.  In 2021 the Fund reported actual net cash recoveries.

An accurate presentation of past and current NCUSIF performance is important in understanding the unique design and resilience of the NCUSIF.  Because of this collaborative resource, the credit union cooperative system is much more stable than FDIC insured bank premiums.

The Fund’s relative size to insured risks remains stable in all circumstances.   The 10 basis point guardrails (the 1.20-1.30 operating ratio range) today equates to almost $1.8 billion. For comparison, the NCUSIF’s entire total insured losses from 2008 through 2022 were $1.9 billion.   The operating expenses in this same period were over $2.4 billion.

The legislative guardrails were put in for a reason.  Credit unions feared that open ended funding would just lead to unchecked spending by NCUA.  This is what has occurred through increasing the Overhead Transfer Rate allocation to shore up the agency’s ever increasing budgets.

Constantly rising expenses, not insured losses, are the Fund’s largest drain on reserves.

Everyone Can Project NCUSIF Yearend Outcome

Forecasting the NCUSIF’s yearend NOL ratio is simple.  Here is the link to a spreadsheet anyone can use. If any difficulty using, please email.

The inputs are portfolio yield, share growth, NCUSIF net income, insured loss and whatever assumptions a user believes are consistent with present trends.  The current numbers include the latest actual NCUSIF updates through March 2023. It projects a yearend NOL of 1.2917.

Tomorrow I will review one other slide that is vital to understanding the Fund’s management.

Posted on

Credit Union Leaders and Bravery-A Rare Combination

What does it mean to be brave?   Many people consider bravery an act of courage, often in the face of physical  danger.

At some point almost all credit union leaders will confront financial, personnel and political challenges.  Facing up to these, in most cases, is just part of the job.  Cooperative bravery I believe entails a very different character.

Aristotle believed that bravery was the highest of all virtues because it guaranteed all the others.  “I count him braver who overcomes his desires than him who conquers his enemies; for the hardest victory is over self. You will never do anything in this world without courage.”

Following the “Path of Least Resistance”

Bravery is rarely cited in conjunction with credit union activities.  For cooperative culture is based on  relationships.  Differences of opinion, whether major or minor, are resolved by following the path of least resistance.

That path in awkward situations may entail quietly resigning from  a position of responsibility.  Other times one may voice dissent but not formally oppose in deference to the “majority” view.

In cooperatives, it just makes life easier to get along, by going along.

Two Examples of Bravery

Courage can be especially important at critical decision points in an organization’s direction.  It is a “call” that can motivate after one’s formal professional role has ended.  A person responds, drawing from their life’s experiences and values, to a summons that others do not feel.

Two individuals of unusual bravery are retired CEO’s that took public and extended efforts to oppose the decisions of their successors.

These two people are David Keffer who retired from Cornerstone FCU in 2014  and Steve Post who retired from Vermont State Employees (VSE) in 2013.  In their executive roles. Dave was CEO for thirty-three years and Steve for twenty-four.

Their successor CEO’s were in their responsibility for two and six years respectively before initiating actions with their boards to end their credit unions’ independence.

Both retired CEO’s sought out family, former directors and officers, longtime members and community organizations to oppose the effort to cancel their credit unions’ charters.  Both organizations had served and earned the loyalty of over  three generations of members

The Vermont State Employees example is described in several posts written at the end of 2022.  The first describes the closest vote ever in a merger contest.  The follow up stories highlight the issues involved.

Votes Counted: Closes Election Ever

The Tragedy of the Commons: The End of a Movement?

If George Bailey were a Credit Union Member

The VSE Merger:  Will “Potters” Take Over the Movement?

 

The outcome of the Cornerstone merger contest in 2017 can be read here: Credit Unions As  a “Cornerstone” Of Freedom

This blog includes a link to The Committee for Cornerstone Indpendence, a Facebook page which contains a running record including videos from members opposing the merger. The vote took place  less than four weeks from the mailing of the member notice following NCUA rules at that time.

Both men and many of their supporters had devoted decades of their personal and professional lives to these local cooperatives.  The institutions successfully served their members through multiple economic cycles and business innovations.  As noted in the articles, both institutions were leaders in their communities achieving financial success whatever measure of performance one used.

What Bravery Looks Like

Both former CEO’s efforts to prevent the mergers by urging members to vote NO, lost.  One on a margin of less than 1% of votes cast.  At Cornerstone, the mail in ballots were in favor even though over two-thirds of members voted against at the required members’ meeting.

Why single out these retired individuals  as “brave” in openly opposing the merger plans of their immediate successors?

All of the odds for defeating the merger were stacked against them.  The current credit union rulers control all the financial resources, the members’ media channels and enticed employees  with future promises to support their plans.  They even claim to have received the regulator’s blessing.

The time to mobilize opposition before Cornerstone’s vote was very limited. In VSE’s situation the debate extended over several months.  The merger opponents had only their personal not institutional resources to draw upon.

Still working professional colleagues would stay distant at best, or be critical of their taking a stand abut the credit union “in retirement.”

So what motivated them to  to speak out, to organize and ask their fellow members reject these proposals?

Both men strongly believed the merger’s rhetorical statements misled members about any possible future benefits.  From their professional perspective, they understood that ending the charters was not in the members’ best interests.

The members received no merger benefit.  Their generations of loyalty and accumulated resources passed totally to the control of a firm with a different business plan and leaders with no connection to the existing credit union.  Or even a role in creating the accumulated wealth.

They saw the trust and goodwill of the members being taken advantage of. There was no immediate gain except for the leaders, who initiated the change.

Bravery: a Latent Capability

In life we will sooner or later encounter a situation where bravery is required.  We may risk reputation and resources to do what we believe is right.

These moments are rarely scripted, let alone anticipated.  There may not even be time to think about all the implications of taking a stand. Reaction can be as much intuitive as logical.

This “call” can arise from a lifetime of practiced belief. Or from witnessing the bravery of others responding to another of life’s ever unfolding equity challenges.

The motivation  emerges from one’s deepest beliefs, spoken or not.  It is the feeling that, “while ships are safe when in harbor, that is not why they were built.”

These two men took a stand when they perceived the values of the credit union members they served to be at a moment of maximum danger.  They were right.

Their point of view was formed from serving  members honorably for decades, not for just the length of a first employment contract.

Success In a Loss?

But they lost, so what kind of a “brave” example is this?   By circumstance bravery often requires confronting  superior power, a majority public opinion or even accepted protocols of behavior.

By opposing the merger plans, these individuals pointed to values much more vital than arguments for scale.  They believed that members’ best interests should be criteria for all decisions. Management’s ambitions are not the purpose of a credit union—that is the cooperative difference versus for profit options.

There is growing awareness that events such as these mergers are compromising the future of the movement and members’ trust.

These examples of principled opposition will inspire others.  Those who are now silent in the face of happenings with which they do not agree may take a stand: directors, employees, retirees or even those in regulatory roles.

What is the advantage of a cooperative charter if its supporters are not willing to pursue their democratic duty to speak up?

This capability is a learned skill, not one found in any person’s position description.

David Keffer and Steve Post retired from their jobs, not their principles.

Their standing up for their life’s work by opposing these mergers may be the cooperative example for which they will be most honored in years to come.