Category: Cooperative Design

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What Can $1,000 Buy in Credit Union Intelligence?

On September 2, 2021, I received an invoice for 40 hours of work at $25 per, for a total of $1,000.

The service included consultation, designing, programing, testing and updating an Excel spreadsheet that allows any user to project the NCUSIF’s year-end equity using the latest data and forecasts.

It was not a simple task.  There are four variables each using different math concepts:

  1. The % rate of insured share growth.
  2. Operating expenses in $ charged via the OTR.
  3. Anticipated loss in basis points of year end insured shares.
  4. Yield on NCUSIF investments expressed as an APR.

With beginning numbers from the NCUSIF 2020 audit, these four variables must be programmed in a dynamic way so that the outcomes in dollars and basis points versus a year-end NOL target (1.3%) can be instantly updated.

Later numbers can be inserted as the year goes forward.  This is the only management model needed for the NCUSIF. The fund’s basic 1% underwriting design, its unique loss reserve accounting practice, and the almost 40 years of experience have validated its long-term resilience no matter the event or economic circumstances.

Completed in 40 Hours

The student who did this work is a college senior majoring in “leadership.”  I explained the goal, and the input parameters.   We talked by Zoom, sharing our screens  using Google Docs, and working together to test the functioning.

Here is a link to the finished spreadsheet.  It uses a year-end NOL “target” of 1.3%, share growth of 10%, and the latest data on operating expense and loss experience: https://docs.google.com/spreadsheets/d/1eAZN2CjyNkgu9bfuUXIF1xmFPBwLvAio/edit#gid=2118513014

The spreadsheet can be copied for use by anyone.  The user can fill in more recent data or other assumptions believed to be more accurate.   With the current input, the year-end equity NOL outcome would be 1.2876 or just shy of the 1.3% goal.

Is This Modeling Tool Sufficient?

The spreadsheet includes all the major variables.   The NCUSIF sometimes has accounting entries that are not related to current events creating deus ex machina  financial interventions as in a theatrical performance.

One example is recovery from prior year’s AME loss estimates which turned out to be too high.  For the past 7 years these have totaled $313 million added back to NCUSIF equity.  A second is the expense for additions to the loss allowance reserve, which often have no relation to actual experience.

Even with these minor exceptions, the tool used in conjunction with NCUSIF’s historical performance, is about as close to perfect as one could hope.  Take a look, give it a spin.

The Student  Programmer

The designer of this spreadsheet is a college liberal arts senior who also works full time for NVIDIA to help market their new Omniverse platform.

At the moment, NCUA has spent close to $40 million and over five years trying to install the MERIT data management program.   I wonder how much a bunch of smart, college kids might accomplish outside the beltway contracting environment at a fraction of this sunk expense.

The invoice ended with these words: Thanks for the opportunity to serve you (the student’s name) and the programmer’s tagline:   When you can’t, she can. 

Now that’s the coop spirit.

 

 

 

 

 

 

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A Credit Union Team’s Office Reunion

Michael F. Abernathy, Jr. became CEO of Buckeye State Credit union in 2018 following several years of losses and decline.  The credit turned a profit in 2017 and has not had a losing month since. Before COVID hit, capital peaked above 11%.  Even after the pandemic shutdown, capital remained at 10% and is building every month.

His report below is an example of a CEO’s leadership efforts after months of shut down and remote administration.  His account follows.

The First In-Person All-Staff Meeting Since Shutdown

“We felt it was important for everyone to get back together in person, but with the blessing of the staff. The previous year, we held a hybrid model meeting where branches and back office met at their individual locations while members of senior leadership were divided up and led the meeting from different locations. The meeting last year was pre-recorded, but each senior leader had the ability to bring a “live” perspective from where he or she was located.

For last year, the response was good for the event, but there was a craving to get back together. During the 2021 planning process, we anonymously polled the entire  staff to determine if the team was ready to come back in-person, or preferred another hybrid model. The polling was unanimous…they wanted to come back together for an in-person event.

It was important because we have several new employees who had never attended an in-person  with the Credit Union. We wanted to deliver an experience that felt big and bold. We wanted our team to feel like they were part of something important. Our 70 attendees were able to interact and learn from incredible guest speakers:

    1. John-Mark Young: Whitaker Myers Wealth Management.  He talked about the “Never Again” moments in people’s lives when a person makes the decision to start the journey toward financial freedom by creating a plan to save and grow their money
    2. Jamie Strayer: Credit Union Strategic Planning. She talked about how our CDFI grant affected not only Buckeye State Credit Union, but also changed lives (thru credit unions) across the country by providing resources to create innovative programs that improve low/moderate income communities.
    3. Carol Middaugh: Frost Financial Services.    She talked about how Buckeye State has saved its members over $265,000 over the last four years through gap claims. She also spoke to the hundreds of thousands we have saved members in extended warranty claims for mechanical breakdowns that were covered. Gap and warranties often have bad reputation, but we are proof that these services have consistently saved our members money and protected their credit scores.
    4. David Kettlehake: American Share Insurance. David made insurance talk fun. He talked about ASI’s history and how they stack up against NCUA and FDIC. Because ASI is owned by its member credit unions, the credit unions have a voice and a seat at the table. ASI knows what the day to day activity of a credit union is like, where federal insurance funds overlap as both regulator and insurer. This bureaucratic perspective removes them from the normal operations of a credit union. He demonstrated how ASI’s coverage stacks up against the federal insurance and how ASI actually provides broader coverage than NCUA.
  1. I wrapped up the meeting with a town hall format where I shared stories from my life and career that shape me into the leader I am today helping to guide the credit union.

The CEO’s Message

The message I wanted to relay is that our credit union is different from many others out there. We are developing products that meet the needs of everyone in the community. While banks focus on people with wealth and strong credit scores and the predatory lenders focus on the poor and weaker credit, we are creating an atmosphere where everyone is welcome. We will lend and do business with all income and credit levels. While the banks and predators are content to run down the sidelines of the football field, we seek to utilize the entire playing field and work with everyone.

With that, the messaging to our members and the community at large is that we want to empower them regardless of income or credit level. We have already rolled out our First Time Auto Buyer Loan (no co-signer needed), Youth Empowerment Account (designed for children starting at 8 years old) and our Empowerment Account (Second Chance Checking Alternative).  Moreover, we intend to roll out the following by Mid-October (Around International Credit Union Day):

    1. Credit Builder Loan- Build or Rebuild credit
    2. Advance Line- Payday loan alternative…lower rate, lower payment, longer repayment cycle
    3. Empowerment Loan- Consolidate your debt and take back control of your finances
    4. Furnish or Fix Loan- Own or Rent a Home? Does not matter, this loan will provide funding for smaller needs and projects around the home
    5. Anything Loan- Self Described, use it as you want!
    6. Youth Empowerment Card- First credit card with no co-signer needed
    7. Empowerment Card- A secured card used to build or rebuild credit

The Partnership with ASI

ASI spoke at the meeting so everyone could learn first-hand about their relationship with credit unions.

ASI covers $250,000 per account, so the member can have more coverage than provided by the NCUSIF.  The firm is cooperatively owned and governed by its member credit unions.  It understands what credit unions are doing right at ground level.  They are not government acting in the dual role of insurer and regulator.

Reversing losses of $3MM going back years was due to the approach of ASI.  The insurer worked with us to correct adverse trends by giving latitude not harsh restrictions or deadlines.

ASI does monitor capital ratios and financial performance. But because they understand what is happening at the local level, this gives them a close-in perspective to be patient and an ability to work together with struggling credit unions.”

 

 

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Are Credit Unions Being Treated Like Bananas?

What does the fate of bananas have to do with credit unions?

In 2016 BBC news reported on the potential death of the world’s favorite fruit:

For decades the most-exported and therefore most important banana in the world was the Gros Michel, but in the 1950s it was practically wiped out by the fungus known as Panama disease or banana wilt.

Banana growers turned to another breed that was immune to the fungus – the Cavendish, a smaller and by all accounts less tasty fruit but one capable of surviving global travel and, most importantly, able to grow in infected soils.

Do we need to worry about banana blight?

The story was updated in 2019 when the Cavendish itself became subject to blight:

While there are more than 1,000 varieties of bananas, which come in different colours, shapes and sizes, just under half of global production is the Cavendish type. While the fungus is not harmful to humans, it has the potential to eventually wipe out Cavendish bananas, according to experts.

Millions of people around the world rely on bananas and plantains as a staple food and as a cash crop.”The potential for devastation if it does reach them is almost total.”

“The world would carry on if we lost bananas but it would be devastating for those who rely on it economically and very sad for those of us who enjoy eating them.”

The Fungus Problem

The disease is “a serious threat to banana production” because once it is established, it can’t be eradicated, the UN says. And fusarium fungus can remain in the soil for 30 years.

It has been spreading for decades through Asia, Australia and Africa. It has now been detected in Latin America, which supplies the bulk of the world’s bananas grown for export. No other types of banana are yet ready for cultivation on a commercial scale.

If one plant is susceptible to a disease, all of its offspring will also be susceptible.

Monocultural crop

The Cavendish was brought in as a monoculture crop after “banana wilt” all but wiped out the world’s previous favourite dessert banana, the Gros Michel, in the 1950s.

According to Prof Kema, the main problem stems from the over reliance on Cavendish varieties for export, which he describes as a “monoculture”.

“We have to diversify banana production,” he said. If there is only one type of banana plant being grown, resistance to infection is lower.

There are trade-offs between the costs of containing it and the profits from growing bananas, he said.

Small producers may not be able to afford the mitigation measures, he added.

People in the UK eat 10 kilos of bananas per year, on average, or about 100 bananas.

So the market is there, but will Cavendish bananas be in the future?

The Credit Union Lesson

The critical issues in the potential extinction of this popular banana product include:

  • The need to diversify the varieties of bananas grown;
  • The tradeoffs between costs and benefits when fighting the fungus;
  • The disadvantage of smaller producers when using mitigation efforts;
  • The monocultural approach to new varieties;
  • The time needed to cultivate new strains;
  • The consumer need remains, but will there be an option?

In just 120 days NCUA’s oft-deferred RBC rule takes effect, unless the board acts.

The agency’s Risk Based Capital rule has every issue associated with the banana example. A single risk assessment applies to all firms; the lack of cost- benefit analysis; new approaches are discouraged; and credit union are encouraged to follow a “monocultural approach” to business practice.  Buy a bank here, merge a credit union there, and embrace the isomorphic actions of one’s peers to hide in the crowd.

If you question the banana parallel, the Financial Times printed the following assessment about how the US banking problems had been “resolved” during the Great Recession:

Will credit unions following NCUA’s RBC rule become another example of a banana plan?  Or will common sense prevail before the January 1, 2022 deadline?

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Words for the Beginning of School

I received a copy of an email sent to the parents of their son just entering college.  He hopes to compete in rowing at a high level.  The “coach” sent all team members’ parents  a message about his philosophy.

The college experience is more than sports and academics.  It is preparation for life. As implied in the  comment below, there will be ups and downs; mistakes and consequences.

Credit unions often offer financial “coaching.”  How is this interaction presented?   Conditionally-do this and we will give you a loan? Programmatically-follow these rules and you will be financially better off?

Or, we’re in this together.  We both want to succeed at a high level.  And when we don’t achieve what we aspire to, let’s pull ourselves up by our bootstraps and try again.

Academics and sports.  Motivations for life, not just college. Here’s the message.

Coach and Life Philosophy:  Though it is not explicitly written in a coach’s job description, we’ve been tasked to make fast boats and to develop the future gutsy citizens of our world. To this end, the coaches will challenge your sons and daughters to grow and evolve as young people at a top educational institution. We will pull/push them towards success in everything they do – motivating and inspiring them to accomplish well beyond their own scripted potential.  We do this both on and off the water and we are committed to providing the tools to succeed in all aspects of this unique student-athlete experience.  And yes, even top student-athletes with character can and will make poor choices every now and again with respects to academics and behavior. I can assure you, we will be there for them and they, in turn, are expected to pull up their boots straps, make changes and embrace any consequences.

If you are curious which college sent this, it is the first land-grant college in New York State.

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Why Latino Credit Union Matters Today

In2003, just three years after being chartered, Latino Credit Union won the Herb Wegner award for outstanding organization.

The credit union today is one of the most successful coop startups ever.  But the communities it serves and its ongoing financial performance are not its most important lesson.

Latino’s Example as a Coop

When banks are organized, it is the wealthy who put up the capital to secure the charter.   This has always been the practice and always will be.

At its founding the employees of Latino Credit Union spoke five languages and came from 16 countries. This paradigm of recent immigrants and low-income workers forming their own financial coop is a stark contrast to the for-profit banking model.

Credit unions demonstrate how individuals who are the most vulnerable and threatened in society can join together for opportunity.   Hope and trust replace fear and exploitation.

Credit unions are a different way, a unique self-help option in a capitalist system dominated by large financial firms and private wealth.

Presence-More than a Place, a Home

Latino and other credit unions offer more than branches, virtual delivery and personal service.

In America today, there are those who profit from individuals who have the least or know the least.

The coop model is about presence, a place to turn when a person is in need.  A financial home where people know their interests are paramount, like the family home.

It is about more than a place.  The credit union replaces uncertainty with freedom from fear, the fear of being vulnerable or afraid.

When the credit union option is at its finest, people can begin to realize who they want to be.  They have a rusted partner as they strive to live out their hopes and dreams.

Latino Credit Union shows why coops matter, a path for those without advantages but willing to work together for everyone’s sake.

 

 

 

 

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A Much Needed Message for today—From 2003

John Herrera’s Wegner award acceptance speech as Chair of the Latino Community Credit Union is as moving and thoughtful today as it was that evening.

In 2003 Latino Community was only $11 million in assets, relying on credit union deposits and just ramping up its loan operations.   But its initial success and impact were already noteworthy.

Herrera’s speech touches a number of important themes:

  • The “family” of supporters-over 20 on stage with him;
  • The Movement has developed an “accent”-an accent on people and community;
  • His staff: they speak five languages, are from 16 countries and routinely work beyond closing hours until everyone is served.

But his two most vital messages, more relevant than ever, start at:

5:00- “Our story is your story”- a shared vision for all persons to have access to affordable financial services;

8:45- “Immigration and the treatment of immigrants”- There are “no illegal human beings.” Immigrants are a critical aspect of America’s democratic enterprise.  The first credit union was created by and for immigrants, who couldn’t speak English.

Here is the full speech, just over 10 minutes with the family of supporters on stage beside him.

https://youtu.be/T9UfOhtljws

Questions for Today

When was the last time you heard a credit union leader speak this movingly about their credit union’s addressing critical economic issues for its members?

When have you witnessed a more concrete example of the movement gathered around a common vision?

Which credit union leader has spoken recently or more eloquently about the role of the immigrant community for America?

Can you identify another time such as this evening, when you were proud to be a part of the credit union movement?

Hopefully this speech reminds us of who credit unions can be at their best;  and whether we are building on the legacy we have been given.

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The Latino Community Credit Union-A Timeless Example of Cooperative Action

The 2003 Herb Wegner award for outstanding organization is perhaps even more significant today than when granted almost two decades ago.

Here is co-MC Annaloro’s description of the special nature of this award which had been given only 14 times before.

https://youtu.be/nqJORMMiFto

In 2003, Latino credit union was three years old, held $11 million in assets and had just 8,000 members.  Even then the credit unions was know for “punching far beyond its weight class.”

As Chair Chuck Purvis stated in his opening remarks, it is an example of the movement coming together to “effectively serve the needs” of the Hispanic market.  And those needs were clear and unmistakable as documented by the introductory 10 minute video from that evening. Why a credit union for the Hispanic community:

https://youtu.be/Hbjgz81jU5s

Latino Credit Union Today

This is a powerful example of credit union’s ability to respond to some of the most vulnerable persons in our society.  Few could foresee what the long-term results of this initial organizing effort would be.

Today Latino Community Credit Union has $663 million in assets and continues it focus on lending with a loan-to-share ratio of over 100%.  It has a below peer operating expense ratio even though it manages 13 branches with 157 employees serving in excess of 101,000 members.

Every aspect of its performance is exceptional with recent annual growth in shares (24%)  and loans (28%) at the very top of the industry.  It reported net worth of 11.2% at June 30 even with this high level of balance sheet growth.

Latino’s Meaning for Today

When passion and commitment meet human need, the opportunity for success is great.  This is the circumstances in which credit unions were begun in 1909.  Inequalities and vulnerable populations have not disappeared from American society.   The continued growth of payday lenders and check cashiers is an ongoing example of persons living paycheck to paycheck

Latino also shows the power  of new startups.  Some today disparage the efforts to form new credit unions.  They point out their small size forgetting that every credit union that exists today started small. Some point out the capacity of existing credit unions to serve more-and yet many parts of the their current FOM’s remained unserved or underserved.

Succeeding from scratch is not an easy thing to do.  Latino maximized its chances of success by getting inspiration from those who had already achieved what they want to accomplish.

We will learn in tomorrow’s acceptance speech, how these people became mentors-”family”-helping along the way.  Mentors increase the chance of success because they will have already confronted many of the questions that determine whether or not a start up will succeed.

We will see these people stand on stage with the Chair of Latino Community as he reminds us of a message-especially relevant today-why America needs more credit unions.

 

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The Community Investment Fund: A $1 billion Challenge and a Lesson for Today

The 2003 Herb Wegner award dinner was both celebration and challenge. While almost two decades ago, there are important lessons from that evening for today’s cooperative industry.

In his opening remarks, Foundation Chair Chuck Purvis described the mission of the Community Investment Fund (CIF) which was designed to be a stable revenue source for the National Credit Union Foundation (NCUF.)

In his welcome message, Purvis mentioned the CIF’s current size of $155 million and recounted two projects which embody the spirit of creating financial independence for low- income consumers.  This video is 2.30 minutes.

https://youtu.be/RiGn7AMZLAc

The $1 Billion Challenge

The current CIF balance of $155 million was just a beginning.  Purvis issued a challenge to raise the CIF to $1 billion in the next two years.  This would create a revenue stream of $10 million for annual Foundation grants at the current level of interest rates.

He noted that this goal is just .5% of the industry’s total investments of $200 billion.  By contrast at June 2021 credit unions hold $700 billion investments.  He described the importance of the goal in this excerpt.

https://youtu.be/jBMCYDYaqwo

What happened to the CIF and the Billion Dollar Goal?

CIF investments were managed by US Central which was closed by NCUA in 2010.  Other excerpts from this 2003 dinner will show how donations honoring credit union leaders were a critical part of the effort.  In that year this campaign was called the “Ed Fund,” both honoring Ed Callahan and the Foundation’s educational role.   That campaign will be the subject of blog later this week.

The history of the CIF following this dinner is unclear. One participant from this period recalls the CIF situation as follows:

The ED Fund, the Larry Johnson fund in NC and others pushed committed funds to over $300 million. Interest rates had been in a sweet spot around 6% in earlier years, so that after splitting the earnings with the Foundation, credit unions still received a decent return. After the 2003 $1 billion challenge, the CIF investments peaked in the $450-$475 million range.

 Overnight federal fund rates were quite low in 2003, but reached 5.25% in June 2006. That was probably the fund’s highest point. When rates fell to zero during the financial crisis, the CIF was no longer an effective option. With rates since, the 50/50 sharing of interest revenue with the Foundation could never reach an attractive level.

 Several corporates such as CorporateOne still offer these shared-interest CIF certificates.  But unless rates on term CD’s rise to 1.5% or so, credit unions find it easier to donate directly to the Foundation.   When CorporateOne held some CIF investments after the Great Recession, it added .30% to the CD rate as its contribution.

One participant estimates the CIF generated over $100 million in donations to NCUF and the state foundations during this decade.

The CIF’s Lesson for Today’s Cooperative System

The CIF with its fund-raising tributes like the Ed Fund are a premier example of the 3-tiered cooperative system working for common purpose.  The Wegner dinner was a collective celebration of a charitable process that was simple, coordinated and easy for all credit unions to join.

Today this collaborative effort has been replaced by Charitable Donation Accounts (CDA) approved as an incidental power by NCUA in 2013. Multiple credit union organizations including CUNA Mutual, CUES, and Members Trust Company offer programs for managing these accounts.  While limited to 5% of net worth, their advantage is they can invest in securities outside those permitted for credit unions themselves by rule 703. Their only requirement is that 51% of the total return must be donated to 501C3 organizations over a five-year period.

As of June 30, 2021 there were 187 credit unions which have established CDA’s with a total value of $1.084 billion.

There is no total for the charitable contributions made from these accounts.  The CDA option is disaggregated in both fund raising and donations versus the CIF process.  Individual accounts range in size from Pentagon FCU’s $136.4 million to Temple-Inland’s $1,000 balance.

The total in these accounts equals Purvis’s original 2003 goal of $1.0 billion. However today that coordinated system approach has been muted or even lost.  Individual credit unions organize and disburse grants to various 501C3 as they each decide.

Chuck Purvis’ framed his request for support as part of credit union’s “inherent social mission.”  He stated it would send a collective message to Capitol Hill with grants funding low income credit unions with revenue from this $1 billion challenge.  That public benefit is missing in the CDA alternative.

The Wegner Dinners are about more than awards or fund raising.  They are an expression of the collective capabilities of a cooperative system.   Understanding how this vital activity functioned in prior decades can hopefully reaffirm the importance of these common endeavors today.

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SECU’s Mike Lord: Two Remarkable Accomplishments

The CEO of the $50 billion State Employees’ Credit Union (SECU), Mike Lord retires at the end of this month. His career is noteworthy for two remarkable achievements:

  1. He successfully navigated 30 years of intellectual contrarianism with Jim Blaine, his boss. Jim’s motto is “often wrong, but never in doubt.” His public name-image-likeness (NIL) brand is an animal of the horse family, but typically smaller than a horse with longer ears and a braying call.
  2. Against all odds, he sustained and expanded SECU’s exceptional level of leadership and member well-being as Blaine’s successor in 2016.
    Succeeding a legend and then taking results to a new level whether in business, coaching a sport, politics or any field of public endeavor, is an incredibly rare event.

“Don’t Mess It Up”

The management consultant Peter Drucker stated, “the most common source of mistakes in management decisions is the emphasis on finding the right answer rather than the right question.”

For Lord and SECU that question has always been how to enhance member service. The mission and vision of the credit union are folksy truisms: “Send Us Your Mama” and “Do the Right Thing.”

When Lord became CEO in 2016 his stated goal was just as straight forward: “Don’t mess it up.”

In today’s individualistic culture that celebrates personal achievement, choosing a leader where the mission supersedes personal ego is a tribute both to the organization’s values as well as the leader’s character. Especially so in the second largest credit union in America.

An example of these values is SECU’s compensation practice. The credit union follows the “Mondragon model” to assure balance among all staff. There are no perks, no bonuses, no incentives and all staff receive the same benefits (health, retirement). This means that SECU CEOs are not paid the multi-million salaries prevalent at many smaller, less complex, less successful CUs.

Focus and Consistency

Several decades ago, SECU’s Board decided to “limit” SECU’s FOM to North Carolina. Those members who moved out of NC or lived in foreign countries could remain, but if they wanted loan services they were referred to a local CU. This focus on the core members who “brung us to the dance,” makes SECU a formidable force against major national banking competitors, several of whom call North Carolina home: Bank of America and Truist.

Today SECU serves 1 in 4 North Carolinians. Rather than trying to be a “national” credit union, its statewide focus has improved economic prospects for individuals and communities that are little more than an afterthought for large competitors.

Sustaining success following the iconic 30-year tenure of Blaine required an underrated leadership trait, consistency, one of Lord’s strengths. While he may have had to go outside of SECU for some expertise, Lord continued to promote from within for employee advancement. Front line staff are much more than transaction providers. Some even receive training in multiple areas of financial service, including tax preparation, life insurance and investment counseling, while earning the appropriate license for each discipline.

Traditional media advertising was shunned. The credit union relied on word of mouth and its foundation’s public philanthropy to keep the SECU name in the press. The funding of scholarships for every local education agency in the state, contributing to teacher housing, new hospice facilities and dozens of other projects projected a “brand” deeply involved in members’ communities.

A Cooperative Financial Conglomerate

Describing SECU as the second largest credit union in the US does not begin to define the scope of its member services. With the credit union at its core, the credit union also oversees the following organizations-CUSO’s:

  • SECU Life is the only CU-owned life insurance company in the US. Other CUs which offer insurance do so as an agent for an outside firm;
  • A broker dealer and investment advisor that developed a unique partnership with the low-cost Vanguard mutual fund family for members seeking off balance sheet investment options;
  • A 501(c)3 Foundation that donates over $15 million per year for community needs in North Carolina;
  • A property management company (SECU*RE) that owns and manages 1,500 properties to provide housing, and improve declining neighborhoods, sometimes even selling homes to members. This company is for-profit, taxable and was begun as SECU’s response to the 2009 housing crisis. Its purpose is to reinvest in neighborhoods, prevent bottom fishers from underpaying for foreclosed properties, and provide renters a better choice than local slum lords.

With these multiple business lines come many regulators: NCUA’s ONES and North Carolina’s Credit Union Division of the Department of Commerce, NC Department of Insurance, CFPB, FINRA/SEC, and of course the IRS for the Foundation.

Staying Local While Becoming Larger

With a branch in every county of the state, the credit union’s over 270 locations operate like small credit unions. They provide local employment, knowledge and expertise for every part of the state. Branch managers consult with local advisory boards and often make recommendations for SECU services or foundation grants for their areas.

Lending decisions are all made at the branch level. Branch personnel are intimately familiar with local economic conditions and politics, even in the smallest community. This gives SECU deeper insight into all things economic when making loan decisions and keeps charge-offs way below peer averages.

A Simple Product Profile

The primary purpose of each SECU product is to help members become financially stronger. The credit union’s primary product for helping members build wealth is a variable rate home loan to encourage home ownership. Its loan portfolio is 74% first mortgages.

For over a quarter of a century SECU has made 100% mortgage loans with negligible losses to help lower income and young folks achieve home ownership. Underwriting was based on the common-sense idea that if members pay rent reliably they can be counted on to pay the same amount on a mortgage to own their home. These mortgage loans also invested billions in communities throughout North Carolina’s economy, not just in wealthier big cities.

There is no risk-based loan pricing: each product has a single rate whether a credit card, auto or other lending need. Each loan is based on individual underwriting, not credit scores. SECU’s Salary Advance loan has made billions in payday loans to members at APRs less than 15%. The program, which also has a savings component, fights for-profit payday lenders who prey upon the least advantaged in the economy.

In addition to traditional savings and share drafts, the credit union has $170 million in a 529 college savings plan, $67 million in HSA accounts, and $ 4 billion in IRA/Keogh retirement savings. SECU’s 529 plan is a financial “safer option” for all participants in North Carolina’s college savings program, not just SECU members. That selection says much about the confidence in SECU within the state.

As with loan pricing, there are no savings tiers based on account balances–all 2.6 million members receive the same rate on each product.

Serving the Cooperative System

SECU’s influence extends far beyond its 2.6 million members. Within North Carolina’s cooperative system, the credit union supports others who might reach out for mergers to offer mentoring and resources so they might continue their independent journeys. These operational alliances continue today with Local Government FCU, Latino Community CU, North Carolina Press Association Federal Credit Union and Greater Kinston Community Credit Union.

Greater Kinston is the last survivor of 55 credit unions chartered by the black community during the Jim Crow era when financial services were not open to them. SECU was also a leading fundraiser for the Martin Luther King memorial in Washington, DC.

At a time when many peers proclaim institutional growth as the critical performance objective, not members’ financial well-being, SECU adamantly asserts this is a false dichotomy. Members are the credit union.

As many leaders focus on innovation and the allure of the self-service virtual future, SECU continues the traditional embrace of a face-to-face relationships– for all ages from the newborn to the retiree.

The bedrock of its strategy is the cooperative model with all its inherent design advantages versus other firms. Member-ownership is the unmatchable competitive difference. It implements what writer Ken Wilber calls “good power” in which organizations protect the many who are often at the mercy of the firms they use. He contrasts this “good power” with the instinct of “dominant” organizations that use their position primarily to protect, maintain and promote their success at the expense of others.

SECU proves that size does not dilute cooperative values or purpose. It is a powerful example of the ability to achieve mission and counter the prevailing tendencies of credit unions to become more and more bank-like.

SECU demonstrates that economic, social and political influence can be accomplished by implementing and innovating traditional cooperative principles. Its success validates the credit union system’s contribution for both its members’ financial health and for co-ops as an essential part of the American economy.

Sitting in the Same Place Where He First Began

SECU has been developing system leaders, not only by hiring at the entry level and promoting from within, but also by sending leaders to over 30 other credit unions. Some–Tom Dorety, Terry West, Maurice Smith, and Tom Feindt– ran billion-dollar shops while others migrated to smaller but no less vital firms.

Lord’s career exemplifies this leadership development capacity. In a 2016 interview after becoming CEO, Lord pointed out his office was at the same location where he first began his career 46 years earlier. Albeit in a very different building. Lord’s career exemplifies a critical life lesson, awareness of one’s “true home.”

In a poem called “Little Gidding,” T.S. Eliot ends his quartet by writing:

We shall not cease from exploration
And the end of all our exploring
Will be to arrive where we started
And know the place for the first time.

Lord is the rare exception to Eliot’s observation of human nature. For without exploring, he knew the place he belonged, from the very first time he arrived.

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A CEO’s Current Analysis—and How to Respond

As I write this, we’re deep into preparations for our 2022 business plan and budget. We’re in the mood to look forward and say, “yesterday’s numbers are yesterday’s numbers.” And, as of June 30, yesterday’s numbers are spectacular.

I could wax on about all of the effort, the good luck, and the wonderful contributions of everyone involved. Credit unions put forward the capital and embrace our alliance; we go about our day-to-day business; and the results are great.

But I have a nagging feeling about the future. We all have the sense that we’re making money by hunkering down, by avoiding aggressive investment, by just riding the wave of a national COVID approach that will leave us hanging in the future.

American citizens will all have to wake up and face the day after all the free money expires. As American businesses, that means we are going to wake up to consumers being resentful about how hard life is, the day after the COVID relief funding ends.

I wonder what a marketplace of resentful consumers means to credit unions. I wish I had a crystal ball and could tell you exactly what it means, but I don’t. I can only tell you what we’re planning for 2022 and how we hope that will pay off in the coming years.

    • We’ll have to be more aggressive about investment and think hard about what we’re committed to as a community of credit union operations. We need to fuel the future with investment. The hunkering down is over.
    • While we have a bit more time to analyze business trends related to the COVID pause, we’ll have to quickly identify the game-changers that will last, versus the over-reactions and over-estimates of how things like remote work will affect our future. We can’t throw out the baby with the wash based on an interruption in economic models. What will we count on? What will we bet on? What will we make work? I’m not sure it’s going to be as radical in the next two years as most people think. We have options if we’re patient. We have a future if we don’t shoot ourselves in the foot.
    • We’ll have to avoid being disappointed by the fact that COVID might not end as cleanly as we all hoped. We’re making progress, but that progress may not be without some setbacks. Things like vaccines, wearing a mask, and social distancing might not just end, never to be seen again. It may feel like these issues linger right through 2022 and 2023, like a bad hangover after New Year’s Eve. Optimism, and a realistic evaluation that things are getting better, will have to rule the day for business planners.

Wow! These three marketplace realities confront every in-place or new leadership team.

The pressure will be high to pick the right investments, to choose the right trends to run towards, and to maintain an optimistic viewpoint, when pessimism is all around. No easy missions for any CEO.

The pressure is not on a single individual; it’s on a network. For a network to work, we all have to help our peers be successful by contributing to each other’s success. If you want to contribute to our CUSO’s success, spend a few minutes thinking about how each of us can be the person who helps us all avoid dropping the ball.

The numbers as of June 2021 are great. The predictions for September 30 are as positive as any year I can remember. My faith in the future is constant, given my faith in all of you.

Source: Randy Karnes, CEO, CU*Answers, used with permission