Category: Cooperative Design

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Credit Union’s Reputation In the 2008/09 Financial Crisis

This week’s blogs are video excerpts  from prior credit union events. (best seen in browser mode)

Today’s are brief CNN and CNBC news excerpts recommending credit unions as an option consumers should consider.

This short clips are during the 2010 financial crisis They tell why credit unions might be a better choice.

They highlight the system’s reputation earned during the 2008/2009 financial crisis as a reliable source for loans as banks were forced to draw back.

(https://www.youtube.com/watch?v=H0dNHDsFvuE)

The following CNN excerpt compares credit union and bank average rates as part of  Why Credit Unions are Better.

!https://www.youtube.com/watch?v=I_CaoDPGl7Y)

Credit unions described as an unusual source for home loans during the financial crisis.

(https://youtu.be/EwbLgsyWcjI)

What would the news report about credit unions today?

 

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Different by Design and CUSO’s

This blog series uses video excerpts with wisdom from prior credit union leaders. (best read in browser mode)

They still speak to our present circumstances as their core messages are timeless.  Both excerpts were in response to the regulatory “backlash” in response to the 2008-2009 financial crisis.

The first video is a very brief excerpt from Jim Blaine, CEO of SECU (NC) in 2010 reacting to the prospect of  increased regulation prompted by the financial crisis (37 seconds).  His view is then referenced in the second video.

(https://www.youtube.com/watch?v=E1tnDcE6Xjo)

In 2010 Dave Serlo PSCU President analyzes credit union performance during th 2009 financial crisis in a talk called Different by Design.  The context was PSCU’s annual users’ meeting.

In this 14-minute presentation he cites Jim Blaine’s remarks on regulation.  Most importantly he outlines opportunities for credit unions and the “credit union promise.”  He closes with four priorities for the CUSO.  Now is the time to be on offense, especially for expanded lending.

Dave was a remarkable speaker using no notes or other prompts.  Most importantly is his deep insight into the power and importance of the credit union model and CUSO collaboration.   His final words still resonate:  Carpe Diem, seize the promise of this day.

(https://www.youtube.com/watch?v=6uS7Zl3lROE)

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“If We Went Away. . .?”

This blog series uses video excerpts with bits of wisdom from prior credit union leaders.   (best read in browser mode)

I believe they still speak to our present circumstances.  For the core of these observations are timeless.

Doug Fecher (now retired) CEO of Wright-Patt Credit Union, Dayton, Ohio speaks to the ultimate mission of the cooperative.  (just over 1 minute)

(https://www.youtube.com/watch?v=tE_3-ipOiPE)

Later in the series, there will be an example of how the credit union implements his vision.

 

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Celebrating a CEO’s 48 Years at the Credit Union

On October 1 CEO Catherine Tierney  entered her 49th year with Community First Credit Union.  The Appleton, WI based coop is today  $5.8 billion in assets  serving 158,000 members with 29 branches and over 580 employees.

She posted this thank you on her LinkedIn page upon beginning her new year. I describe her post using her own words as, the gift of doing what you love:

“October 1st is a special day to me.

“Today marks a milestone of 48 incredible years at Community First Credit Union. It’s been a journey filled with growth, challenges, and countless memories that have shaped not only my professional life but my personal one too.

“From the early days of learning the business to now being part of this amazing organization’s transformation, I’m grateful for the opportunity to have worked alongside so many talented people who share the same dedication and passion for our members, our industry and our communities.

“Thank you to my colleagues, past and present, and to our loyal members for being part of this remarkable journey. Here’s to the gift of doing what you love and the joy that comes from making a difference together!”

From the archives I thought it would be helpful for people who may not met her to see how she and the credit union present their work.  Following are two examples of the joy making a difference together.

The first is a short excerpt of a Catherine interview from several decades ago about how the credit union employees are the first responders for identifying members in need:

(https://youtu.be/lzAN0HXXQBo)

This second video is a story how Community First helped a young couple get started in life when they didn’t think there was any way to adopt their son and then buy a home.

(https://www.youtube.com/watch?v=d6AQbDYSmpg)

Catherine’s long service of leadership with her team is an example of what credit unions do best for their members and communities.   All who believe in the difference credit unions can deliver, should be grateful for her two generations of professional member-centric commitment.

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Almost 100,000 Members Vote in SECU Election 

The largest member vote in a credit union board election resulted in the slate of four incumbents all winning by a wide margin.

The cumulative total vote for the four winners was 232,452 (67%).   The four member-nominated candidates total was 113,117 (33%).  The headline in Jim Blaine’s blog after the vote was announced:  Pretty Strong Thumping!

The outcome was the exact opposite of the 2023 vote where the three challengers to the board slate were all elected.   The vote was significant in other respects.   Adding the highest total votes for the leaders of each slate, suggests almost (62,392 and 31,203) 94,000 or more members voted.

This is an extraordinary level of participation.  It shows the interest and willingness of members to participated in the selection of their leaders.  Once awakened in their role, will they continue to follow credit union events as more than a customer?  Have  their ownership “genes” been activated?   Will next year’s election involve a choice?

The Substance of the Annual Meeting

The meeting was broadcast on YouTube.  SECU staff had posted the results later with the full recording.  Also posted are the financial summary for fiscal 2024 and links to the 54 page 2024 CPA audit.

While the vote was the main outcome, that announcement took just several minutes at the very end.  The meeting’s substance were reports read by the Board chair, the Foundation’s chair (with video summary) and nominating committee chair.

The most important parts of the agenda were CEO Leigh Brady’s report and then her response to dozens of member questions sent in advance.  Putting these two parts together a relevant title for the meeting’s substance might be the Leigh Brady Show.

The CEO’s Performance Report After Her First Year

After opening remarks on Helene’s devastation in Western Carolina and saying all employees were safe, Brady stated her personal vision as, “we work together to leave SECU better than we found it.” (1:03).   She provided a summary of major financial trends, both positive and not, showed a chart of an increase in SECU’s share of member loans (25.8%),  and compared its  loan charge-offs for the first six months of 2024 to the five largest credit unions.  SECU’s outcome (.74%) was between Navy FCU’s 2.54% and BECU’s .59%

She introduced a new SECU’s data point, its initial Net Promoter Score (63), as an indication of member loyalty.  Her closing was a listing of FY ’25 priorities including new member reward or cash back credit cards, a new mortgage servicing platform, voice authentication, selection of a new core data processing vendor, replacing branch ATM’s and a new digital platform.  She noted that several of these initiatives, especially the new core, will extend over multiple years.

Her presentation was well organized, detailed with graphs and comparisons, and with specific  priorities for the new year.  Her very full report could be a model for other CEO’s in disclosing their prior year’s results and future plans to the member-owners.

Members’ Q&A

The second part of Brady’s role was spending an hour answering 50-60 questions from members that were submitted prior to the meeting..   There were few “softballs” in these queries.  And while she may not have fully responded on some points, the questions were the most interesting part of this event for me,  and probably the members who submitted them.  Here is a small sample of some of the topics raised:

  • Why aren’t members able to speak at the annual meeting?
  • Will you post all these questions (and replies) on the web?
  • Why were members (running for the board) not able to gather signatures at the branches?
  • Why are all the board members from one region of the state?
  • Tiered base loan pricing had multiple questions such as: Is one member’s financial well-being more important than another’s?
  • Does tiered-base pricing exclude anyone? Can lending officers make exceptions to the process?
  • Why are savings and money market rates not competitive with other credit unions?
  • In the next five years what do you see as the greatest threats to the credit union?
  • Does the Board and President feel they are making decisions in the best interests of the members?
  • Please explain how the credit union lost $23 million in the CashApp member fraud.
  • All board nominations were for persons already on the board. Would setting term limits help with the perception that this (process) is a conflict of interest?
  • What is the status of the Local Government FCU’s separation and will it have an impact on the members?
  • \What do I have to do to become a member of the board?
  • Will the credit union offer digital currency?
  • What are SECU’s plans for the secondary (home loan) market?   etc, etc, . . Go to the video to learn her responses.

Brady (and Board) in Control

There are dozens more questions, all of which CEO Brady answered. She replied even in areas concerning board conduct and policy or in the case of the CashApp fraud loss, an internal issue.

This hour long Q&A was the most  extended explanation, an in-depth discussion I have seen in no other credit union’s annual meeting.  Even as it appeared most of the answers were being read from a script, she addressed each topic.  Some might feel she failed to see some of the underlying concerns; but no one could argue that  all the pointed, potentially embarrassing or even opposing views were not included.  She stood her ground.

That stance is the final takeaway.   The meeting was a very controlled event.  The camera never wavered from only showing the individual speaker.  Even when Brady was answering questions, the person asking them was heard but never appeared on camera.

Several times Brady acknowledged attendee’s responses to her remarks, but there was never an audience view.  Board members spoke on camera, but were never shown sitting together. The Foundation video and presenter’s slides were seamlessly woven side by side on the screen with the speaker.

This YouTube broadcast was a very well-produced and visually managed event showing only the four speakers and nothing else. No chance for any spontaneity or audience reaction.

Brady closed her CEO presentation by referencing this year’s meeting to include “another contested election” that will not impede our going forward.  One cannot help but come away with the feeling that this year’s event was a reaction to the two prior meetings where the board must have felt things moved out of their control.  This time the outcome which had some excellent content, especially the member questions, was an exercise in the power of incumbency.

Will that exercise in authority work to promote the members’ and SECU’s long term viability?   Or, will SECU just transform into another example of a large credit union similar in operations to its peers?

The Core Issue: Effective Strategy

My understanding of the last two plus years of public controversy about SECU is that the core issue is effective strategy.  While there were specific tactical topics such as risk-based lending, critics’ deep concern was whether SECU’s members would be as valued if the credit union offerings just looked like every other financial institution’s.

Aligning SECU’s products and services to conform with the majority ot its peers may certainly garner some low hanging fruit.  SECU’s response to critiques of its tiered lending was its intent to “serve all its eligible members,” especially the A credit score borrowers going elsewhere.

The previous cooperative vision of “send us your moma” was centered on members who may not have had A options readily available, and needed a fair and trusted institution to turn to.

Over time this member-centric focus extended to innovations in salary advance loans, broker dealer options, life insurance, a state-wide 529 insured college savings account and even how repossessed real estate was managed.  The SECU Foundation’s innovative funding model has made it  a marketing presence for the credit union throughout North Carolina.

These financial service expansions were based on a belief that to beat the competition, one cannot simply emulate them.  Hence when asked about offering 30-year fixed rate real estate loans conforming to Fannie/Freddie requirements, the response was, Why compete with the government’s product?

Time will tell how this most recent strategic overlay will mesh with the legacy elements on which the credit union was built: its branch structure, decentralized decisions, advisory board roles and unique partnerships within the industry.

The datapoint from the meeting that may be most  relevant in this ongoing transformation is the 33% who voted against the incumbents.   That number suggests a more studied understanding to integrate past success and current changes might be useful.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Results of Largest Credit Union Election Ever Revealed Today

At 1:00 pm the Annual Meeting for SECU NC will commence.  The meeting can be viewed virtually by going to the credit union’s homepage.

This is an unprecedented event in the history of America’s cooperative financial system. With an estimated 2.8 million ballots mailed or by voting online (or in person today), it will be the largest election for a cu board ever conducted.

SECU is the second largest credit union in America with $56 billion in assets. It is unusual for the member-owners of any credit union to have a choice in their directors. In this case, there are two competing slates of candidates with differing business priorities and strategies for the cooperative.

Most importantly everyone can watch this meeting live, virtually.  The Agenda includes the standard reports from the Chair, auditors CEO and the foundation.  This year’s meeting procedures have been changed to limit open interaction with members during the meeting.

Rule 5. Up to one hour will be set aside during the meeting for a question-and-answer session. Members must submit any questions in advance of the meeting. To permit as many members to ask questions as possible, we ask that you limit yourself to one question or topic.

The final agenda item is the announcement of the members’ votes to fill the four open director positions. Both sides have urged members to vote.  There were active social media campaigns by the incumbents and the member-nominated group.  These campaigns extended over 60 days once all nominees were known.

If the voting turnout is significant or should there be a split result, one probable outcome will be an energized, involved and aware group of member-owners.   Once engaged in their franchise role, it could change forever the governance dynamics of the credit union going forward.

A Cooperative Awakening?

SECU’s tagline on its website with the information about the member annual meeting is:

Your voice. Your right. Your vote.

While credit unions routinely cite their democratic one vote per member-owner design, it is rarely provided in board elections.  This example will demonstrate the ability of the election process for any credit union.  And just maybe, reawaken member-owner enthusiasm for their pivotal role  in their financial cooperative.

I plan to watch the event and report the outcome on Wednesday.

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Join or Die: Credit Unions, Social Capital and Democracy

A 2023 documentary film’s message puts credit unions right at the center of our current political angst.

The film is Join or Die. ( this is the 3 minute trailer) It is based on the work of social scientist Robert Putman who in 2000 published a book called Bowling Alone.   It documented the decline of local organizations that create the connections on which individuals built their trust in and sense of community.

The author calls this foundation of mutual confidence and relationships “Social Capital.”  In his analysis,  these organizational connections have real value.

The film updates this  decades long continuing trend of increasing social isolation.   He believes the loss of local networks has contributed to the decline of confidence in American democracy.   For it is in our connections with multiple organization that we develop awareness of mutual obligations and the common good.

The Credit Union Example

The cooperative movement, and especially credit unions, were founded with social capital.  Unlike other profit making firms, only minimal shares were pledged by organizers to receive a credit union charter.  The Field of Membership was the existing external network that provided the connections giving a new charter its mutual  support and market focus.

The net worth or financial capital requirement was a flow concept.   Either 10% or 5% of revenue had to be set aside into reserves until a certain ratio of net worth to risk assets was attained.

In the 1998 Credit Union Membership Act this “flow” concept of capital adequacy was replaced with a “stock” measure–that is the ratio of net worth to assets.  This financial point in time definition was expanded by the 2022 imposition of a risk-based capital.  This raised the  well capitalized ratio from 7% to 9%.

The founding cooperative bond of social capital was replaced with financial ratios.  This transformation was accelerated as credit unions evolved their fields of membership into new groups, areas or criteria with little connection to each other.  Instead of established connections,  credit unions began relying on new brand creations and marketing to establish a their presence in the markets they sought to serve.

A Second Factor

As credit unions moved further and further from points of connection with relationships of trust, a second decline was in member-owner governance.   The annual meetings no longer featured contested board elections; rather the board nominated the same number of internally selected candidates as vacancies.  No member votes were cast; the positions were filled by acclamation.

This resulted in the erosion of any pretense of democratic governance.  Increasingly self-appointed boards grew further and further away from their members.  Credit unions were not alone.  Putman’s work suggests that over half of America’s social/civic infrastructure has disappeared since he first wrote.

As these foundational experiences of local connection are lost, individuals become more isolated. And with that feeling, so does confidence in the governmental process, both locally and nationally.

One can debate whether credit unions contributed to, or are just another example of, institutions caught up in  a fundamental transition of community relationships.   It is  certainly possible to find longstanding  successful credit unions still serving their core markets.  One indicator is a credit union’s name such as Wright-Patt Credit Union. The counter evidence would be examples where the institution has repositioned itself with growth efforts  based on leveraging of members’ financial capital with mergers or bank purchases.

The film highlights Putman’s analysis of what makes American democracy work.

It explains  why our traditional political process of compromise is much more difficult.

Finally he suggests what can be done about it.

While the film documents the loss of social infrastructure, there is good news.   As the trends are laid out, the film closes with the message, “You can decide to change history.”   The “financialization” of credit unions with their loss of a social capital bonding can be recovered.  But how to start?

Re-establishing Credit Union’s Social Capital Advantage

A recent communication from the Texas Credit Union Commission’s monthly newsletter provides a place to reaffirm this core cooperative asset.  Change comes from the top.  Here is an excerpt from their Newsletter that I believe directly speaks to Putnam’s concerns.

The Importance of Board Meeting Attendance in a Time of Rapid Technological Change

Critical to the long-term success of a credit union is an active, involved board that provides proper oversight of operations and a sound strategic direction for the future of the credit union. One of the keys to ensuring that a board is successful is regular, participatory attendance.

This is particularly true given the rapid pace of technological change and the need for partnerships with financial technology companies (“Fintechs”) to provide services wanted by your members. . . Management and the board must ensure that . . .the Fintechs chosen are a good fit for the credit union and the membership.  

Board involvement is important in Fintech selection and other important strategic decisions affecting your credit union. The issue of board attendance is a tricky one. Board members are volunteers with their own jobs, families, and busy lives to balance in addition to the voluntary obligations of serving on a credit union board. However, missed meetings seriously diminish the effectiveness of the entire board, and a director’s irregular or inconsistent meeting attendance could result in removal from the board. . .

It is important for board meeting minutes to reflect if a director’s absence is excused or unexcused. The lack of a record of an affirmative vote by the board is construed as an unexcused absence. . . Once a director misses . . . the prescribed number of meetings . . .there is nothing the board can do except to fill the vacancy with a new person within sixty days. . .

This Texas regulator’s message is a clear reminder of every board’s guiding role and responsibility, from NCUA’s three directors to the system’s smallest of credit unions,

This is an important leadership statement from one component of the credit union’s unique dual chartering system.  Board members should actively Join in their roles, or credit unions could Die.

 

 

 

 

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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.