Category: Local Effect

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A Merger Made For Members

(This is a story by Marc Rapport published on creditunions.com on April 24, 2017.  Reprinted with permission)

Gas & Electric Credit Union in Rock Island, IL, has set the standard for transparent transactions that ensure any movement on a merger is for the members’ sake.
RID Federal Credit Union had 600 members, $4 million in assets, and a dim future when it sought a suitable merger partner in the Quad Cities.

CU QUICK FACTS

Gas Electric Credit Union
Data as of 12.31.16

HQ: Rock Island, IL
ASSETS: $71.3M
MEMBERS: 5,169
BRANCHES: 2
12-MO SHARE GROWTH: 0.02%
12-MO LOAN GROWTH: 3.1%
ROA: 0.60%

That was in 2013. In 2015, the credit union, which served the local Army Corps of Engineers, merged into Gas Electric Credit Union($71.3M, Rock Island, IL), culminating a process that could serve as a template for how to merge a credit union in a way that benefits both organizations and their members.

The Challenge

After years of considering a merger, loan defaults and investment returns that couldn’t keep up with operational costs forced the board’s hand at RIDFCU.

Karen Hagerty, a biologist and project manager with the Corps who was an RIDFCU board member at the time, says the board delayed merging mainly because it didn’t want members to lose an institution that had been around for a long time, and it didn’t want the credit union to lose its identity.

But independence was not in the future.

After serious strategizing and belt-tightening, it became obvious our credit union was not sustainable, Hagerty says. We began looking at merger options.

RIDFCU had experienced staff but could not offer internet banking, debit cards, or other basics members expected. The credit union had just stopped growing.

(photo: Karen Hagerty is a project manager with the Rock Island District of the U.S. Army Corps of Engineers and a board member of the former RID Federal Credit Union)

It had been losing money for several years and its net worth had declined as a result, says Daryl Empen, president and CEO of Gas Electric. It also had an engaged board of directors and experienced staff. I think they truly tried to turn things around, but they were simply unable.

The Process

The RIDFCU embarked on the merger process with some specific goals.

We wanted to keep our local office open and were looking for a well-developed network of locations as well as online banking, credit and debit cards, and ATMs, Hagerty says. We originally thought a credit union with many locations would be a better fit for our dispersed workforce. Technology allows remote access but nothing takes the place of someone who cares enough to know your name.

The board sent eight requests for proposals (RFPs) and interviewed five credit unions. That original group did not include Gas Electric. It was an RIDFCU board member, who was also a member of Gas Electric, who suggested the credit union talk with Empen about his credit union and its two mergers more than a decade ago.

The board was so impressed with Daryl’s leadership and philosophy that we also extended an RFP to Gas Electric Credit Union, Hagerty says.

Insights From Vetting

The RFP and interview process was eye-opening.

We learned everyone wanted to merge with us and most of them were interested in using our locations to expand their operations, Hagerty says.

RIDFCU’s assets were in decent shape because it had started the merger process relatively early, Hagerty says. And all but one of the credit unions were responsive and eager to share information.


(photo: Gas Electric Credit Union President and CEO Daryl Empen poses for a holiday party photo with his staff behind him.)

We were shocked by the lackadaisical attitude of one credit union that had been pursuing us for many years, she says. I guess it took for granted we would want to merge with it.

Darron Niles, an RIDFCU board member who now fills the board seat Gas Electric reserved for the merged credit union, attended meetings with prospective merger partners and says he learned some were just looking to gobble up RIDFCU. That wasn’t the case with Gas Electric.

Gas Electric, with its closed charter, looked at us like an additional member group, he says. The numbers worked financially, but our members became part of something bigger and better without losing RIDFCU’s identity completely.

The Decision

RIDFCU members agreed to merge with Gas Electric by a vote of 145-6 on Dec. 16, 2014.

The completed merger in 2015 was the culmination of a process that began with that initial meeting with RIDFCU’s board where Empen says he answered questions such as: What questions should RIDFCU be asking? Could it make it on its own? If so, how?

The board members engaged in a deliberative, thoughtful process to make the best decision for their members, Empen says. That’s what impressed me the most. It was clear this was what was best for the members, not just the board of directors.

“There is nothing wrong with growth. We all need to grow, but it should be based on member benefit.” Daryl Empen, President/CEO, Gas Electric Credit Union

For its part, Gas Electric tried to be transparent.

We were required to have a membership meeting to approve the merger, Empen says. We could have done the bare minimum for notifications, but we advertised it heavily. We wrote a detailed article in our newsletter about the proposed merger and the reasons behind it. We invited members to the meeting to vote.

That transparency also helped ease the fears of RIDFCU’s membership, Hagerty says.

We struggled to keep the rumor mill under control, she says. Members appreciated the clear communication of why we were pursuing the merger and what would happen if we didn’t.

The Aftermath

Gas Electric kept the RIDFCU office open and its longtime manager, Bev Rice, stayed on, providing a sense of familiarity and a cheerleader.

When you have the support of the staff, it makes the process smoother, Empen says. She’s (Bev Rice) has been a fantastic promoter of the credit union and the new services.

The main office of Gas Electric Credit Union, one of two branches, is also located in Rock Island, IL.

Those new services include debit cards, a checking option that returns 2.25% in rewards, internet and mobile banking, bill pay, and mobile deposits. Gas Electric also offers better rates on saving and loan rates than RIDFCU did, and a $250,000 bonus dividend paid out in 2015 didn’t hurt relationships.

That was a nice feeling to be able to reward all our members, including the new members from RIDFCU, Empen says.

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Credit Union Member-Owners Rebel Against Proposed Merger of their $1.7 Billion Credit Union    

Synopsis:  Due to the length of this post, the following is a quick summary of this merger proposal.  The five highest paid executives of Member One FCU will receive $570,000 in bonuses; the continuing, Virginia Credit Union, takes over a very sound $1.7 billion balance sheet and adds $155 million new capital to its net worth, and the members receive only free cookies for their 84 year old successful credit union.

Tomorrow, July 30, 2024, member voting will end on the proposed merger of Member One FCU in Roanoke, VA with Virginia Credit Union (VACU), in Richmond.

Member One was founded 84 years earlier to serve the employees of the  N&W railway headquartered in Roanoke.  Today it is a multi-seg charter with $1.65 billion in assets, $1.5 billion in loans, 159,000 members served by 335 FTE’s in fifteen branches.  (data as of June 30, 2024)

The members will receive nothing from their $155 million of collective capital (9.57% net worth) and four generations of loyal support.

The Member Notice dated June 13, 2024 confirms that this merger is not about change but rather continuation of the business status quo:

“Same knowledgeable, Friendly Employees”

“ the credit union’s main office and branches will remain open, subject to good practices and safety and soundness.”

“Changes to services and benefits:  There are no anticipated changes to core services and member benefits.”

The only advantages referenced in the Notice are general assertions about potential future capabilities which are completely undefined either in time or factually.  An example: “we would ultimately gain economies of scale.”

This decision facing members is simply stated by member Carrie Adams on the opposition members’ website:

“Saying “no” to a merger is saying “yes” to the future you believe in.”

The Opposition’s Campaign and Web Site

The member-owners opposing this sale have established a website VoteNoMemberone.org that documents the reasons for their opposition.  It includes a countdown clock clicking to the voting deadline tomorrow, Tuesday.  It urges members to vote No.

The basis for their opposition is summarized in six points:

  • There is No Real Benefit for Members
  • This is Bad for the Roanoke Valley
  • VACU is only after the numbers
  • Different Culture, Different Fees
  • You will become a number, not a Member
  • You are NOT being communicated with

In the Your Voice Heard portion of the site, members’ comments document these statements. In the almost 100 posts one quickly senses there is nothing to be gained and much to be lost in this betrayal of members’ trust.  Here are some examples of members and the community “being left in the dark:”

I had no idea! Thanks for the information about the credit union, brings a light to us members being left out in the dark.

I sent Member One some feedback through their website and had asked some questions, expecting to hopefully get a response. I did. I got a canned response asking for my information to contact me rather than just answering my questions through their email response. . .

We can say goodbye to the hometown feeling of being a valued member to becoming just a number.  

Yet another local business being bought out by a BIG City Business. The only notice we got about the merger was a tv news report, so if you didn’t see the news or a friend tell you about it, you would never have known. They did not even send out an email notification or a notification with our statement. What the hell are you hiding Member One???

The proposed transaction announced in January 2024 is already hurting Member One’s local business reputation:

Just recently I was looking to move and purchase a home. When I talked to my realtor about financing the mortgage; I had planned on using Member One since I had loans with them in the past. My realtor told me they were not using Member One for any mortgage financing since they had announced the merger because of the uncertainty of they stability at this time. They also said they knew of other realtors not using Member One for the same reasons.

Freedom First is now charging for checking, I started to look at Member One, but seeing they are getting eaten by a larger credit union, I went in a different direction

I work for a local car dealership and found out that VACU doesn’t operate loans on Saturdays, thats going to hurt a lot of local business if we can’t get autoloans approved like they currently are at Member One.

Members’ Voices Amplified

The posts in the Member Voices portion of the website also contains comments from insiders, current and former employees:

I am currently an employee at MO at a branch and wish to remain nameless for fear of retaliation. VACU’s goal is to be a $10b CU within the next 5-6 years. MO is just a ‘cog’ in the wheel and there is no true benefit to merging for MO members. . .

Truthfully, there will be people let go at some point b/c of redundancy, while nothing will change at first, by Operational Day 1 in late 2025 or 2026, you will likely see fees change, call center moved to the one in Richmond.

And: As a former employee of MO, I recall discussions about a $10 billion deal some time ago. Initially promoted as ‘better together,’ the attitude shifted within weeks to a rush mentality focused on pushing through the merger, resembling more of a takeover than a mutually agreed merger. After getting ‘bad vibes’ from that, I left the company.

The opposition has been reported in a story on the local news radio WFIR July 24. The  report opens with  concern about Roanoke losing another local company through this “sell off.”  The credit union spokesperson replies that this is a merger of “two very healthy organizations” and that “bigger will be better” in responing to members’ criticisms.

Researching Virginia Credit Union’s Online Reputation

The opponents’ site provides links to multiple social media and other posts in a section called VACU Reviews And Information.  These 12 links include VACU’s own mobile app with 177 reviews and a rating of 2.6 out of 5. Other sites such as  Facebook, Yelp (2.2 score from 17 reviews) and Grassroots (3.5 score and 18% approve of CEO) all have similar low evaluations or scores of VACU’s services.

Needless to say, none of this rating information was provided to Member One voters being asked to transfer their future and all their collective resources to this new institution.  One wonders if there was any due diligence by the executives and board of the credit union.

So Why is This Merger Happening?

One member posed this question in a comment:  Why would our local credit union allow an outside credit union buy them out?

Two members posted their conclusions referring to  the Member Special MeetingNotice:

I read the top brass gets a big payout if the merger goes through. . .

Wow, looks like the c-suite gets a nice ‘bonus’, I bet other employees won’t see anything in the way of retention or bonus pay.

These comments refer to the $575,000 in bonuses ($250,000 to Frank Carter, CEO) listed for the five most highly compensated employees in the credit union in the Notice.

One member noted: The “incentives to stay” at the end of the meeting Notice seem extraordinary – why is such an incentive needed? There would certainly be others available to hire who are well qualified should these people choose not to stay. Well more than a half million dollars is being promised to these five individuals! That amount would best serve members in so many other ways. . .

Incomplete Information

But even this disclosure is incomplete and therefore misleading.   NCUA rules require that members be provided a “detailed description of all merger related financial arrangements.  This description must include recipient’s name and title as well as at a minimum, the amount of value of the merger-related financial arrangement expressed, where possible, as a dollar figure.” CFR $ 708b.106(b)(4)(v).

There is no disclosure of any contractual employment terms suggesting that these five are “at will” employees even though the Notice clearly states a bonus commitment and conditions.  It would be highly unusual for senior executives not to have a written contract from their new employer,  with their bonus benefits and future employment after the merger.  Those facts must be disclosed under the rule.

Secondly, Member One’s call reports list a Select Employee Retirement Plan (SERP) valued at $15.5 million and an employee life insurance fund valued at $16.5 million-a total of $32 million in benefits.  These plans’ vesting and/or payout terms will activate when Member One ceases to exist or under “change of control” clauses.  These changes in payment terms due to the merger were not disclosed.

This total compensation information is critical. CEO and executive pay  is readily available from the IRS 990 Form filed by Virginia Credit Union (VACU), as a state charter.  While an excerpt is printed in the website’s VACU Information section from CAUSE IQ, those totals are incomplete when the full VACU 990 for 2022 is analyzed.

That report’s 2022 Schedule J shows VACU’s CEOs total compensation as $2.216 million.  The top eight employees received $7.4 million in total or an average of $917,265 each (the top two received almost 50% of the amount).  VACU’s compensation approach from IRS 990 schedule O clearly states the credit union “has a compensation philosophy of paying salaries and benefits that are competitive with . . .peers in the credit union and financial industries (banks).”

As stated in the Notice, VACU CEO Chris Shockley will be President/CEO of the combined credit union.  Certainly his more recent compensation is relevant to Member One’s member-owner’s vote.

Transparency is critical for informed decisions as well as preventing self-dealing.   Member One owners should know what their leaders who made these decisions are paid now and promised in the future.  In addition to disclosing all self-interest there is another critical factor from this information.  Such data points to the character of the arrangers for this transaction.

The Values Questions

Is 2022  CEO Shockley’s total compensation of $2.2 million is almost double the amount of the total of all 18 community grants and donations made by his credit union in the same year of $1.22 million.  The phrase that “charity begins at home” would seem apt when it comes to how the leadership of VACU distributes net revenue between executives and the members in the community.

This example provides insight into one of  the benefits asserted in the Member Notice that “this merger will combine two established entities that share similar values and commitments to their members, people and culture.”  It raises the question  of what due diligence Member One Board chair Joesph Hopkins reviewed when signing this member Notice.   Or do these two boards’  understanding of fiduciary duty to members and the community only arise after their executives ambitions have been fully satisfied?

VACU has received publicity before about its implementation of coop democratic values.   In two posts The Fix is In and We Own VACU  members’ frustration in being totally ignored when submitting nominations for four board seats is described.  Member voting for directors is not the the standard VACU election process; rather the nomination committee only selects the number of their preferred candidates equal to the open seats, no outside nominations considered.  All chosen then confirmed by acclamation.

A Perpetual Coop Model?

One other perspective on the credit union model which is designed to be perpetual by paying members collective wealth forward to benefit future generations.

Member One is 84 years young in 2024.   The two senior executives, CEO Frank Carter mad EVP Jean Hopstetter  joined in 2008, or 16 years ago.  These two leaders have had their roles for less than 20% of the credit union’s history.

However their legacy is to end the credit union’s charter and turn its future over to a third party.  This is not succession planning failure.  Rather it is pulling up the ladder of opportunity so no one else will have the professional leadership and financial chances they have enjoyed.

The Consequences for the Cooperative System

As in other manipulated, self-serving mergers powered by self-interest, what happens in Roanoke will not stay in Roanoke.  VACU’s minuscule $575,000 personal payments to five Member One executives to acquire $155 million in equity and a $1.7 billion sound balance sheet will not go unnoticed.

This equity capital addition is vital to VACU as it reports a loss on the market value of its own investments of $153 million at March 2024.  The same FASB 115 adjustment for Member One  is zero.

The absence of any pretense of due diligence by Member One’s board and senior executives, the alienation of the members and Roanoke business community and the compromise of the values credit unions are supposed to reflect will resonate throughout the coop system and in political capitals locally and nationally.

Instead of credit union members being paid the full value of their ownership, a small number of executives will see the chance to cash out, to sell out the members, their community and the coop system.  VACU executives know the market value of what they are being gifted as they compare their performance with banks.  No other financial firm would ever propose such a deal to their owners-only a misguided credit union board. This backroom deal is the stuff of cutthroat capitalism, not cooperative purpose.

Where is NCUA?

The agency is fully aware of these events but have neither the courage or convictions to  implement their own merger rules.

All three board members love to debate diversity, equity and inclusion.  Only equity has no real application in practice.  Equity’s traditional understanding of fairness, transparency and equal opportunity has just become another form of virtue signaling.

When board members have have no vision for either cooperatives or for principled leadership, a certain segment in credit unions quickly learns that they can game the system for personal advantage.

If this seems like a harsh judgement, I challenge each board member and their senior staff to read the four page member notice in this case.  Then ask if they truly believe that the information presented is sufficient for any member, let alone an engaged analyst, to determine if this is a fair deal for the owners.

The basic regulatory approved disclosure document provided members  is nothing more than marketing rhetorical phrases filling out NCUA approved forms. There is no relevant information or facts to make an informed decision.  No other state or federal financial regulator would ever accept this superficial disclosure as adequate for owners’ deliberations.

I give the final assessment of this ongoing credit union system failing to a member.  This person sees clearly what any concerned credit union leader would recognize instantly about  this so-called merger proposal.  This common sense wisdom puts to shame the actions and inactions of the movers and approvers of this event:

I’m advocating for a “no” vote on the credit union merger because it’s crucial to preserve our community’s values and personalized service. Our credit union has thrived on being member-focused, providing tailored financial solutions and fostering a strong sense of community involvement.

A merger could jeopardize these qualities by potentially changing fees, terms, and services in ways that might not align with our original values. Maintaining our independence also ensures we retain decision-making power and governance autonomy, which are vital for keeping our institution accountable and responsive to our members’ needs.

Voting against the merger is about safeguarding what makes our credit union special and ensuring it continues to serve our community with integrity and dedication.

Amen

A note from IRS 990 Schedule O for 2022 stating VACU’s compensation philosophy:

PERIODICALLY, THE BOARD OF DIRECTORS ENGAGES AN OUTSIDE CONSULTANT TO CONDUCT AN INDEPENDENT REVIEW OF EXECUTIVE COMPENSATION AND BENEFITS TO ENSURE THE APPROPRIATENESS OF TOTAL COMPENSATION LEVELS.

THIS EVALUATION LOOKS AT THE AVERAGE COMPENSATION AND BENEFITS OF EXECUTIVES AT FINANCIAL INSTITUTIONS OF COMPARABLE SIZE, INCLUDING BANKS AND CREDIT UNIONS. THIS PHILOSOPHY RECOGNIZES THAT THE EXTENT TO WHICH WE ACHIEVE AND MAINTAIN THIS GOAL MUST BE BALANCED WITH THE OVERALL FINANCIAL HEALTH OF THE ORGANIZATION.

THE CREDIT UNION HAS A COMPENSATION PHILOSOPHY OF PAYING SALARIES AND BENEFITS THAT ARE COMPETITIVE WITH EMPLOYERS IN THE SURROUNDING METROPOLITAN AREAS AND WITH PEERS IN THE CREDIT UNION AND FINANCIAL INDUSTRIES.

ANNUALLY, EMPLOYEES RECEIVE PERFORMANCE REVIEWS WHICH DETERMINE MERIT INCREASES. THE PRESIDENT/CEO COMPENSATION IS APPROVED BY THE BOARD EVERY YEAR.

 

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What Credit Unions Can Learn From BND

Recently the Bank of North Dakota (BND) released its 2023 Annual Report of almost 80 pages.

The Report including the bank’s history (see excerpt below) is a creative example of an alternative financial institution thriving in the privately managed financial services marketplace in America.  Its ongoing success is the model for similar startups in other cities and states.

Founded in 1919, the bank is exempt from all state and federal taxes.  It is funded by receipts collected by the state government and its agencies.  There is no FDIC insurance but is backed by the state of North Dakota.

BND’s primarily lending activity is participation loans originated by the other financial institutions throughout the state.  It is a wholesale lender.   In 2011 when NCUA implemented new regulation requiring more member capital and reduced corporate operating and investment authority, the credit unions decided to close their corporate.  One of the factors was the option to receive much of the corporate’s  financing services from BND.

A Very Successful Year

The Dakota Credit Union Association has presented a summary of BND’s 2023 results. The highlights include total assets of $10.1 billion, record earnings of $192.7 million for a return on equity of 18.2%.

From the Association’s summary: The Bank originated and renewed 10,734 loans for more than $2.5 billion, bringing the amount of the total lending portfolio to $5.8 billion, a new record. The total portfolio increased by $394 million from last year. BND delivers both agriculture and commercial loans through 72 different financial institutions and their 218 branch offices. . .

In addition to these portfolios, BND administers more than $1 billion in legislative-directed loan programs, including school construction, state infrastructure, water projects and disaster recovery.
 
“Bank of North Dakota works closely with local lenders to ensure its programs are relevant and impactful,” said members of the Commission in a joint statement. The Commission, consisting of Gov. Doug Burgum as chairman, Attorney General Drew Wrigley, and Agriculture Commissioner Doug Goehring, oversees BND. “This attention to local needs is one of the reasons for the Bank’s success.”

A Bipartisan Embrace

Beyond the current success and its historical longevity, support for the Bank comes from leaders of both parties.  Gov. Doug Burgum is reportedly on Donald Trump’s short list of vice-presidential prospects.  Nowhere do we see opposition to this state-owned and managed financial institution that republicans or bankers in other states might call out as a “socialist enterprise.”  Its track record serving the agricultural, industrial and public financing needs across North Dakota has made it a vital component of state government.

The success of BND has spawned similar startups in other jurisdictions. The Public Bank of East Bay (PBEB) has hired a former Credit Union CFO, Scott Waite, to lead its fund raising and organizational efforts.  There is an attempt to pass state legislation for a city owned bank in Rochester, New York described in this June 3, 2024 article Why a Credit Union Wants the Local Government to Create Its Own Bank.

Both of these organizers cite BND as the model for their more focused local ambitions.

A Lesson for Coops?

BND’s longevity demonstrates the variety and innovative capacity of an open economy.   When NCUA closed down many financial options for corporates, other institutions were available.  Long time relationships and collaborative capacity were lost as the FHLB’s and other secondary market providers stepped up to serve natural person credit unions.

One might view these events as just the normal process of creative destruction that is a hallmark of competitive economies.  Or. it might illustrate that options are available or adaptable when existing institutions fail to fulfill their core purpose.

More History of BND

Page 11 of this year’s Annual Report provides a summary of the Banks founding.  Here is an excerpt:

If you lived in North Dakota in 1919, it is likely that you made your living as a farmer or rancher, or in a profession that supported farmers and ranchers. There wasn’t a great deal of economic diversity at the time.

When you put your grain on the railway to be delivered to an elevator in Minneapolis/St. Paul, you were given the most broken-down of the railcars, causing tons of grain to be lost along the way. You were paid for the grain that arrived in the Twin Cities, not the amount of grain you loaded in North Dakota.

You weren’t present when they tested your grain so you needed to rely on the elevator’s assessment, often thought to be more favorable to the elevator than the farmer. When a loan was needed, it most likely came from a bank in Minneapolis or Chicago, with interest rates in the double digits. It was unaffordable for most agriculture producers, and they barely squeaked by.

This set the stage for the Nonpartisan League to come into power, and as part of its platform, the 1919 North Dakota Legislature created the State Mill and Elevator, Workforce Safety Insurance, and Bank of North Dakota along with the Industrial Commission to oversee them.

North Dakota tax dollars would be used to support North Dakota residents. While it wasn’t the first or only state-owned bank to be created, it is the only one that has survived the test of time.

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Do Americans Want or Need More Credit Union Charters?

The answer to the first question is easy.  On May 24, 2024 NCUA replied to Denise Wymore’s FOIA request for the number of new charters in any phase of the application process.

The response: “In June of last year it was reported there were 51. . .(Now) There are a total of 63 applications.”

Where is the Need?

NCUA did not provide details of the chartering efforts. Two broad examples of innovation by those looking for alternatives to the for-profit banking system have been covered in the genral press.

One example is the growing interest in “public” banks chartered by cities, counties or states to manage their funds and to support investments in local housing and other priority projects.  This is an example of an Oakland, CA based effort.

The second are those groups and/or communities not being served by existing financial options.

A long description of this demand is reported in this recent Washington Post analysis, Community crowdfunding is built on trust for immigrants.  The article gives two organic financial creations.  One is the Korean self-funding and self-help practice called Keh.  First developed in Korea following the Korean war, the financial practice was adopted in America by immigrants who were limited in the amount of funds they could take from to their new homes in this country.

The Post has followed this form of financing for the greater DC area over several decades.  In an article in 1990, it reported the Korean Association of Greater Washington estimated 80% of Korean American households belong to at least one keh.  It is the source of financing for local grocery and convenience stories, and more recently the ubiquitous food trucks serving the community.

The article states that Korean-American banks began to meet some of these local business finance needs in the late 1990’s with traditional SBA and other finance options.  “But the tradition of community-based microfinance has evolved and flourished in the years since-just as the economy has been reshaped by fresh waves of newcomers.”

“Unlike a traditional investment, the keh lenders earn no interest and no equity and have no say in the business. . .Instead, it is best understood as a trust-based financial support network that’s held together by concern over reputation.”  These efforts sound much like the original credit union model.

Financial Networks in the Latino Communities

The other example in the Post article is the creation of tandas among the Mexican community on both sides of the border.  Like keh, the immigrant communities rely on mutual trust; “the last thing they want is to be ostracized by their own community.”

One organization that is addressing the variety of financial needs of the immigrant community and those left behind is the Mission Asset Fund in San Francisco.  It is a 501(c)(3) tax-exempt organization that in 2022 had revenue of $7.7 million.  Its Annual Report describes programs of micro finance, startup funding and training programs involving almost 20,000 individuals.

The Credit Union Challenge

There are multiple organic, people-centered financial solutions for individuals and communities which are not part of America’s financial mainstream, including the credit union system.   They serve those at the outer boundaries of financial experience who lack the history and resources demanded by traditional institutions.

Instead, they rely on an individual’s character and local community when extending financial services.  The solutions are diverse, experimental, dependent on good will and trust.

In theory the credit union charter in all its diversity and potential should be an ideal fit for these circumstances.  But for that to happen there is going to have to be a reawakening of purpose and priority for the cooperative community.   The charter interest and economic needs are there—but is anybody paying attention to these groups and their potential  as new startups?

 

 

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A Student-Organized Startup On the Credit Union Runway

University incubators supporting startups and often incentivized through innovation contests are found at many higher institutions.  The story of Emory University’s  The Hatchery Center for Innovation is being repeated across the country.

Called a sandbox for experimentation, here is how Emory’s role is described:

A sizable selling point of university-based incubators is the freedom for early-stage testing and experimentation. Before startups become startups, products must be designed, development methods must be established, team dynamics need to be organized, and workflows adjusted. University incubators provide a longer runway to build a startup before student entrepreneurs enter into a competitive market and grapple with life’s constraints post-graduation.

This February 24, 2024 article describes the fourteen Best University Incubator and Startup programs from the prior year.  The list is a Who’s Who of leading institutions. Students are looking for ways to implement the oldest of American dreams, starting one’s own business.

A Credit Union Startup on the Runway

As part of the 1984 CU-Expansion effort  celebrating the 50th Anniversary of the passage of the Federal Credit Union Act, NCUA supported the chartering of student run credit unions around the country.

The story is told in this post from 2021 which includes this introduction:

The New York Times in a lengthy 1986 article, Credit Unions Boom On Campus, opened with this brief history of student charters:

“The first student credit union was formed in 1975 at the University of Massachusetts. Students at the University of Maine formed one in 1978 and at the University of Connecticut in 1979. But it was not until 1983, when the National Credit Union Administration helped to organize its first conference for colleges, that today’s credit union movement began. Four were formed that year.”

The Winning Entry

Yesterday, students at Seattle University posted this announcement on LinkedIn of their first prize in the school’s business plan competition.  The listing of administration, faculty and student supporters is impressive.

We are honored to announce that Seattle University Credit Union Initiative received🌟1st place🌟in the Harriet Stephenson Business Plan Competition for the grand prize of $20,000. This award is a testament to our team’s dedication and exceptional hard work. Thank you to the Seattle University’s Innovation & Entrepreneurship Center for organizing such an incredible event!

The HSBPC was established by Dr. Harriet Stephenson (SU faculty member) in 1998. It was designed to help students and alumni in launching new business ventures, providing participants with the chance to enhance their Seattle University learning experience, gain feedback on ideas, develop networks, and expose their ideas to potential investors.

 We extend our deepest gratitude to the five esteemed judges:

Kathleen Baxley, Lindsey McGrew, MBA, John J. Ostlund, Dave Parker, and Peggy Smith, SCRP, SGMS-T (she/her), and to our coach Chris Medina.

As well as President Eduardo Penalver for allowing us to start this journey at Seattle U, Dean Joseph Phillips for giving us unwavering support in Albers, and to CMO Robin L. Meeks for your incredible guidance.

We’d like to recognize Cisco Malpartida Smith, our Chairman, who has been an invaluable mentor leading the team every step of the way.

And our team; Ana Giordano (CEO), Julian M. (COO), Ethan Sue (CIO), Emma Nguyen (Future CMO), Jonathan Tran (CFO), and Dora Becker (Acting CMO), for all their hard work, as well as the remaining cohort of student who have put incredible work into this initiative.

We also want to express our heartfelt thanks to our community and supporters who have believed in our vision and mission. This victory is not just ours but a shared success with all who have contributed to our journey.

As we look forward to the future, we remain committed to our mission of positively impacting our community and continuing to strive for excellence in all our endeavors.

We ask that you assist us in reaching our goals by Donating, Making a Social Impact Pledge, or if you’re a student, join the initiative!

Two examples of reactions to the announcement:

Emma Nguyen

Student at Seattle University | Passion for Artistic Creativity and Entrepreneurship

Still in disbelief of this accomplishment! So much hard work and dedication went into this accomplishment, and i could not be more thankful and proud of the entire team who contributed towards this milestone!! Excited to see what comes next for the Seattle University Credit Union Initiative

Cisco Malpartida Smith

Credit Union Executive | Adjunct Professor @ Seattle University

This is one of my proudest moments at Seattle University. Literally 20 years in the making. We are launching a new credit union! It’s getting exciting! 

Engaging the Next Generation of Coop Entrepreneurs

This and other examples such as the George Washington Credit Union Student Initiative suggest the interest and enthusiasm by students to chart their own financial course.

Shouldn’t the cooperative movement be taking advantage of this generation’s interest and enthusiasm?  It is not the size of the startup that matters, but the passion of the founders.  That is something from which we could all benefit.

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Credit Union Mergers: The Final Solution?

(This post was composed by Jim Blaine and reprinted with permission)

      Credit unions are changing…

     … and disappearing.  

Badin Employees Federal Credit Union used to be tucked up against the Uwharrie Mountains on the banks of the Yadkin River, about 40 miles east of Charlotte – the hometown of banking giants Bank of America,Wells Fargo and Truist.

The Uwharries are thought to be the oldest mountains in the U.S. These mountains are well-worn and rounded; the Rockies they ain’t! Uwharrie is an old Indian word. It’s a bit tricky to pronounce, much like La Jolla, Yakima, Albuquerque, and Butte. “Yew-whar-eee” is correct;  “you’re hairy” is not.

https://asset---north-carolina.bldg15.net/img/4/f/4fc74af4-b323-4065-ab53-b09cd8dcf5dc/Stanly%20County%20-%20Morrow%20Mountain%20State%20Park%20Overlook-crop(1,0.636,0.000,0.334,r4).4e964e48.jpg Been searching for years for the original Indian meaning of that name. Recently, a friend told me he knew the origin. He said, it’s in the dictionary: “Uwharrie” means “unknown”. Really? Asked him for a copy of that reference for my files. Sure enough, the following week, in came a copy of the dictionary definition. It said: “Uwharrie – adj., probably from an ancient tribal name; meaning unknown.” Perhaps I just need to pick better friends….

Badin is a company town. In 1917, Alcoa dammed the Yadkin River to generate hydroelectric power for a new aluminum ingot plant. The lake and town which sprang from those efforts are quietly picturesque – but, all things revolved around the plant. Driving into town, down Falls Road, under an unwashed denim sky, is a journey home, a journey back in time The town is just two blocks long, but makes the most of it.
 

https://1.bp.blogspot.com/-K9Q1q_E1eFs/YDv8zTuCAtI/AAAAAAAASQw/nmm1E01Qrkc7SpsLMraBnCI_Ug_1RiicgCLcBGAsYHQ/w1200-h630-p-k-no-nu/IMG_3451.jpg “Downtown” the candy-striped awnings and improvised handicap ramp of Badin Town Hall and Police Department adjoin the Masonic Lodge #637. Then comes the post office with its single window, fleet of post office boxes, and well-used community bulletin board.  Shading the post office is Memorial Park, flanked by a cedar tree honor guard for the seven Badin soldiers who died in World War II. And, out of sight up a short dirt road, is the best named roadhouse on the planet: The Bottom of the Barrel Disco and Cafe; now vacant, having recently burned to the ground.  Bet that last party was a great one. Sorry to have missed it!

But, the center of attraction in town was the Badin Employees Federal Credit Union. The Credit Union was housed in a one story, red brick building with blue shuttered windows and a bright, “no-way-to-miss-it”, burgundy door. The Credit Union always closed for lunch from 12:30 to 1:30 pm, but you could sneak a look into the office through the partially drawn, real-wood Venetian blinds. It was a comfortable, inviting looking place. The kind of place you could sit a while, have a cup of coffee, talk to the manager, y’know think it through a bit.

Badin Employees Federal Credit Union was prosperous with assets reaching $4 million, capital 18%, loans available to all, delinquency negligible. Everyone in town was a member; no local banks remained. Badin Employees FCU had achieved “market dominance” without ever spending a penny on “engagement, member experience, or passions of self-importance”. The “word around town” took care of all that. Yep, folks in Badin had a strong opinion about their Credit Union. They were the kind of folks – as you might suspect – who didn’t need “thought leaders”, “X”, or talk radio in order to form an opinion!

https://i.pinimg.com/736x/41/5b/88/415b88882030af28aaba824deda36369.jpg The beauty of Credit Unions used to be something you couldn’t easily wrap, bottle, or “spin”.   Badin FCU is no longer there to make a difference – gone the way of merger. There are no longer any banks or credit unions in Badin. The aluminum plant, too, is gone.

… are we getting close to the Bottom of the Barrel on a lot of important things in our Country, including credit unions?

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Sharing Purpose & Meaning With Effect

Communication transforms when it touches a person’s emotions.  It transcends the moment.  It becomes art.  It helps us see beyond what we knew before.

The most difficult challenge for any organization is telling anyone why they should be interested in joining with you.

Messaging is more than competing for our attention with a product commercial or a clever brand.   Ultimately, it must appeal to something inside.   It should make us care.

He Gets Us is a video campaign that attempts to represent the “greatest love story ever told.”   It suggests the relevance of christen belief in today’s context of religious decline or misuse.

This creative group states its purpose as follows:

We’ve done a lot of homework on our culture. We researched how people feel about each other and what they think about Jesus and Christianity. We’ve connected with thousands of people of various faith traditions and those who claim no religion. We spoke to all kinds of people — different backgrounds, beliefs, and, yes, political affiliations.

And this is what we’ve learned: From politics to sexuality and religion, so many of us feel like our values, beliefs, and identities are under attack by the ideological “others” around us. Many perceive those who differ with them on issues of justice, dignity, and humanity as not just wrong or misguided but also as evil. As enemies. We often see these “others” as close-minded, selfish, hypocritical — and if we’re honest, many of us respond in kind. 

This week I will share several of the group’s “presentations” which look and are sometimes presented as commercials.  But they are much more.  They help us see, to understand more than we did before watching them.

The Credit Union Parallel

What do these “messages” have to do with credit unions?   To be seen as relevant in today’s crowded social media is the same challenge credit unions confront.  There are a number of organizational parallels.

The participation trend lines in most religious denominations are trending down.   Smaller churches are closing.  Larger ones are greying.   Sunday or Saturday “sabbath”  is a time  for  family errands, fun outings and preparation for the week ahead-not participating in a community of shared purpose.  Society’s divisions are mirrored in our religious practice as presented in the group’s purpose:

The more ideologically defensive we become, the more we are willing to sacrifice things like kindness, patience, and the respect and dignity of others for the sake of victory — the righteous ends justifying the dehumanizing means. And it’s tearing us apart. We experience it in politics, in the workplace, in schools, and even in churches. And at the heart of the conflicts is a fundamental disagreement about what it means to be good. 

Credit unions and churches no longer seem central to many persons’ lives. Our basic needs and core values, “to be good,” are fulfilled in other ways and commitments.

The He Gets Us videos try to show the relevance of lessons from generations ago for real people today.

My hope is to inspire rethinking for today’s coop messages.   We need to move beyond the headlines and priorities of our current moment and rediscover the energy that made the industry a movement, an alternative to the status quo and  rediscover who we can aspire to become.

The Immigrants

A hot button topic when people are polled about public issues for political campaigns is the flow of migrates to America.

The one-minute video, Refugee, presents this ongoing human circumstance with a specific context.

(https://hegetsus.com/en/featured-videos/refugee)

What I found equally compelling is the producer’s five-minute  story  telling how this video was assembled.  The making of the Refugee video:

(https://hegetsus.com/en/featured-videos/the-making-of-refugee)

Does this message open one to a different way of seeing this issue?  Does it stay with you after viewing?  Does this human-centered perspective suggest a parallel in your credit union’s role?

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Big Banks Adopting a Credit Union Tactic

Yesterday’s Marketplace program on NPR had a brief report on the investments two of America’s five largest banks are making to improve their competitive position.

Technology?  New Ventures? Greater staff skills? Social Marketing Influencers?  Third party-fintech-origination partners?  More acquisitions?  All are factors, but not the newest priority.

The New-Old Strategy

JPMorgan Chase announces brick-and-mortar bank expansion in a digital age

Several of the relevant paragraphs from the story:

In the year 2024, when you think banking, you think mobile apps, online deposits, digital future, right? Not so fast. JPMorgan Chase, the country’s largest bank, announced today it’s opening more than 500 new brick-and-mortar branches and renovating another 1,700.

This follows an expansion by Bank of America last summer. So, what’s the value of banking in person in the digital age?

You don’t usually think of a bank as having a living room. But Jason Patton of JPMorgan Chase says they’ll be a staple in a handful of the bank’s new branches, which are meant to be places where people chat. . . (in cu’s this is called serving members)

“Some of these branches, we’re opening up in places where we’re not as well known,” he said. “So, in many cases, people don’t know what we have to offer.”

And it’s important to see and be seen by those people if banks are going to drum up new business, said Jaime Peters, a finance professor at Maryville University in St. Louis.

“By going and building these new branches, and having that placard on the side of the road that people pass every day, that is brand awareness, that is trust building,” she said. . .

The Only Growth Option Is Organic

Big banks have another incentive to add branches: The ones that hold more than 10% of the nation’s deposits are generally prohibited from acquiring other banks, said Michael Rose, a managing director in equity research for Raymond James. 

“So because you’ve removed the ability for them to actually acquire other banks, they have to grow essentially organically,” he said.

The Credit Union Counter: Enhancing “Their” Local Environment

After posting the latest video from White Fish CU,  I received a link from Jason Lindstrom CEO of Evergreen CU in Maine.  This new video  has a similar community theme, but different subject matter. It is an homage to Maine’s forests and the people who maintain and enjoy them.

In addition to branches,  “local” means that  a credit union is authentically “home-grown,” not merely a local outpost of an out-of-state or national financial firm.    Bank of America or JP Morgan Chase branches are not being grown (drummed up) from the natural environment.  Rather they are an invasive species, trying to replace the local habitat.

This is Evergreen’s mission, “keeping Maine wild.”

(https://youtu.be/ocJ5PGR8FM8?si=VF46w9L01uk_tEj4)

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Three Examples of Credit Union Success

Credit unions can be inventive when communicating their special nature.  Here are three different approaches.

A Few Great Numbers (KPI’s)

This traditional view of success is from the yearend numbers of an exceptional coop. This CEO’s team focuses on the 5 key performance indicators (KPI’s) in 2023 as shown below.

metrics goal actual
member growth 5.10% 4.10%
net earnings 1.00% 1.23%
service quality 82.25 83.3
P&S per member 4.64 4.61
deposit growth 10.00% 12.80%

These along with many others not shown (net worth, loan growth etc.) would be outstanding in any year.  However in this year of flat to down trends overall, they are extraordinary.   How was it accomplished?

This credit union implements the most traditional and important strategic advantage credit unions enjoy–“relationship banking.”  It provides stable deposits, long term members and intense focus on their community and its well being.

The organization does this by putting people first. The CEO tells employee and member care stories as a central part of his monthly updates.  Not words, but deeds, sometimes confessing honest shortcomings.

The credit union leadership has set boundaries, what to do well and what not to attempt.  No mergers, no bank buys.  They are in a market dominated by a super coop competitor ten times their size.

For those who believe scale is necessary for success, this credit union grew to over $700 million in 2023. It did so while recording the fifth consecutive year of lowering its operating expense to average assets ratio. In this five years the ratio has fallen every year going from 3.08% to 2.55%.

That result  is lower than the majority of credit unions over $5 billion.  It is because they know who they are as a credit union.

Celebrating a Community That Cares

For any credit union striving to communicate its role in the communities served, I would urge you to look at this latest video from Whitefish Credit Union in Montana.

It is from Josh Wilson, Senior Vice President for Marketing.  The video centers around people in all walks of life serving their community in local food banks.

It is a moving documentary.  So powerful it should be entered in the Sundance film festival. The stories honor those who serve and are being served.  It is a tribute to the small rural towns and the natural environment in which the credit union operates.

Watching it makes you feel good about this example of caring for others.  There is not a word about Whitefish’s financial services, which says everything you need to know about the credit union.  Enjoy.

(https://youtu.be/9t7xl3IQRw4)

The Special Opportunity for Credit Union Leaders- I Feel Like Makin’ Love

Yesterday I linked to a song by the rock group Green Day.  A fan, Bob Bianchini, sent me their latest video from two weeks ago.  It is a real picker-upper to start your day.

You might ask who is Bob Bianchini?  He is the only League President who simultaneously served in the state legislature.  That was in an era when credit union leaders knew how to get things done.

This video reminded me of Rex Johnson’s exhortation to the credit union audiences who attended his many lending symposiums.   He would close by telling them, “your job is to treat your members so well that they become fans for your credit union.”

Here is what genuine fandom looks like-in a New York subway station from Bob and Green Day.

https://www.youtube.com/watch?v=EiF28zBaOlI

(https://www.youtube.com/watch?v=EiF28zBaOlI)

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The Pied Piper of Stockton (Part II)

This is a three-part look back of a January 26, 2022  article on the transfer of $10 million of members’ capital to a non profit  by the CEO and Chair as a result of merging Finance Center Credit Union.

Part I  summarized the previous events and articles offering principals’ explanations.

Part II below presents data subsequent to the merger from the Foundation and CEO Duffy’s activities through January 2024.

Part III will address what happens now?

Part II: Updating the FCCU2 Story To the Present

How is the newly expanded Valley Strong Credit Union doing?  After the first full year post-merger, (ending December 2022) the credit union was going gangbusters.   However as of September 2023, the same indicators suggest the credit union has hit a  brick wall.

Ratio/ Measure     December 22    Dec ’23

Loan growth %            49.1%                 -6.6%

Share growth                8.7%                      1.5%

Members                     16.4%                       6.8%

Total Assets                 21.3%                    -3.8%

Net Income                 (46.0%)                   8.6%

ROA                                 .44%                         .44%

Net Worth                       8.1%                       8.5%

Loan Originations         58.5%                (51.4%)

Delinquency                     1.1%                        1.2%

Net C-O loans              $25.4 M              $68.8 M

# employees-FTE            625                       570

Two notes from 4th Quarter numbers.  The credit union reported a non-operating gain of $15.2 million or 84% of total net income on which ROA is computed.

The compound four year CAGR annual ROA growth (2019-2023) is negative 18.9.  In the same period the annual CAGR for average salaries and benefits grew 12.2% per year.

The two years’ trends show a dramatic slowdown in key balance sheet accounts,  rising loan charge offs and a staff reduction of 50 employees.  Mergers can create an initial  “sugar-high” growth appearance, but sustainability depends on a firm’s ability to  develop relationships, that is grow organically.   How FCCU members view their new credit union is hard to discern from this macro data.

 The Data from IRS Filings

The 990 IRS non profit filings for FCCU2 and Valley Strong (both  for 2022) provide important data.

From Valley’s 990, we learn that all of the senior FCCU employees listed in the Member Notice, remain employees and qualified for their $800,000 in total 2021 merger bonuses. Their total  compensation for 2022 is listed as :

Michael Duffy, EVP Chief Advocacy Officer    $1,088.045.

Nora Stroh, Legacy Ambassador  $361,814

Steve  Leiga, VP Accounting   $354,748

David Rainwater, Sr. Project Mgr   $362,747

Amanda Verstl, HR manager   $353,542

The data is from Valley Strong’s 2022 Schedule J partially shown below.

Total compensation of the five senior FCCU executives on this schedule is $2, 521, 696.

The FCCU2 IRS Information-A $2.0 Million Bonus Contribution

The FCCU2 foundation’s 990 for 2022  provides information about the transfer and use of FCCU members’ funds from the merger.

  • The most stunning fact is that the Fund did not receive the $10 million listed in the official Member Notice. Rather the total sent to the foundation  in 2021 was for $11,959,462 or almost $2.0 million more than disclosed to and voted on by members.

No explanation is provided where these additional funds came from? Why were they taken from members or not transferred to Valley Strong as part of the equity transfer? Who approved this $2.0 million additional amount? What was NCUA’s role?

  • In the same 2022 IRS filing we learn:
    • The Foundation has changed its name to The 54 Fund.  No public explanation of the reason can be found in any media.
    • The address is no longer at the former credit union’s office but in the building below, that is 2616 Pacific Avenue #4081. It is the local post box not an office.

  • The new foundation lists no website address or other contact information.  When I emailed Foundation director Steve Liega on the IRS return, I received no reply.  When dialing the phone number, it is “not in service.”

  • We do see the $250,000 donation listed in Valley Strong’s contributions, its largest single grant.

We also learn all of the initial funds were invested in a firm called the Dana Group.  What does this have to do with credit unions or prudent investing?

After adding  $2.0 million more of members’ funds, all these registration/location changes further remove the Foundation from public scrutiny and accountability. The only  information available is from the IRS 990 filed in October 2023, ten months after year-end.

In  contrast credit union call reports are public and received quarterly.  Annual  state and federal exams validate reported data. The 990 provides additional information on donations, political contributions and executive salaries.  In contrast, the financial details of the new 54 Fund are available once per year and then ten months after year end.

The 54 Fund Spent $0.38 for Each $1.0 Donated

Even though limited, the Foundation’s first full year report gives insight how it manages its activities.

Total revenue was $368,658  including the $250,000 donation from Valley Strong.   Total operating expenses were $105,858. Charitable donations were $272,479.  For every $1 in donations, the Fund spent another $.38 on operating expenses.

The $272,479 donations were distributed in 86 grants ranging in size from $1,000 (45) to three at $25,000 each.  The recipients include churches/temples of all denominations, multiple private and public schools, private social agencies, and the United Way of San Joaquin. The 54 Fund at 2022 yearend had more assets than at the beginning ($11.974 vs $12.058 million)

The purpose stated for all  grants is “general support.” Other than seven over $10,000, the much smaller 79 amounts might be characterized by the term, “walking around money.”

Of the nine 54 Fund directors chosen by Duffy, four are former senior FCCU employees, now at Valley Strong.  In 2022, all five former senior FCCU executives listed in the Member Notice received much greater annual compensation from Valley Strong  than the Fund’s $272,492 in total donations to help its 29,000 former members.  Is it just proving the adage “charity starts at home?”  Were these five positions  and pay, or others,  “at will” or negotiated in contracts?  Did the executives guarantee their success and not member benefits?

Three other 54 Fund directors are former FCCU board members including the  Chair Manual Lopez. Another director is Ed Figeroa, listed as Executive Director, who received a salary  of $46,667.  Figeroa had recently retired as CEO of St. Mary’s Dining Room. In 2020 the charity received a $100,000 donation from FFCU as part of the credit union’s Stockton Strong donation (see video from Part I).

By comparison, Valley Strong CU made  total 501 C3 contributions in 2022 over $1.1 million including  $250K to the 54 Fund.  These grants were made without the need for a foundation.

As a tax exempt organization there is no purpose for a credit union to establish a separate foundation to  expense grants.   This raises the question of motivation.  Why was a new foundation needed “to advance and support the needs of the members”-Duffy’s characterization in Part I.

The “Tragedy of the Commons”

Why was the  FCCU2 foundation established just a month before the merger announcement when it was unnecessary for charitable grants in the credit union’s previous 65 years of operations? Or at Valley Strong now?

The separate foundation registered by CEO Duffy (along with  his former employees and board directors) keeps total control  of the  funds by Duffy.  If the money had been returned to  the members  or transferred to Valley Strong, the ability to continue to cultivate an image as a civic patron would not be under Duffy’s control.  This transfer of $12 million  “privatized” members’ common wealth.

The  54 Foundation was the vehicle used to promote the personal philanthropic reputation of the  FCCU CEO once he left his leadership role.  His previous political and public grants activity had been funded from his credit union’s resources.  He needed a new funding source.

Two examples of this reputation motivation are in recent articles. In January 2024 Michael Duffy was selected as Stockton’s 69th Stocktonian of the year.  The story begins:

“Dressed in a gray plaid suit and a red striped bow tie, the former president and CEO of the Financial Center Credit Union became the 69th person to receive the award for service and positive impact on the city.”  The paper provided a series of pictures of the event. 

The article cited Duffy’s past as CEO of FCCU (a responsibility he had exited 28 months earlier) and his position at Valley Strong. There is no reference to Valley Strong’s recent charity or the Foundation as the source of Duffy’s donations.  But he gladly accepts the praise and publicity for giving away a tiny fraction of the $12.0 million set aside from the  former FCCU members’ collective savings.

A longer article reporting the same award was published by the Stocksonian on January 29, Banker Michael  Duffy Surprised by selection as Stocksonian of the Year.

He is now described as a “banker” a higher calling apparently than a former credit union CEO.

He is quoted in the article saying: “I love Stockton, and so I find every which way to be a part of Stockton,” Duffy said. “If it’s from the north, to the south, the east, the west, the tiny neighborhoods, the big events, the very small not-for-profits, the very big ones, if I can be there enjoying this city with everybody I’m there.”

Neither article notes that after gaining his living for 28 years from the credit union, he and his board failed to seek a successor to lead the city’s 66-year old and largest local cooperative financial firm. That would be  standard industry best practice when CEO’s decide to leave.  It is also a fiduciary duty of the Board of directors.

This is a recent case  of how CEO succession normally proceeds, especially for financially strong credit unions. FCCU’s capital ratio of 16% was twice the ratio of Valley Strong.

But that process would mean Duffy would be out of a job which had been paying  him over $1.0 million per year. And he would no longer have access to members’ funds to show his civic “love.”

A Financial Pied Piper Leads Members and Resources to Bakersfield

The term Pied Piper refers to a person who is able to charm or lure others through the use of their skills and ability to manipulate them for their own gain.

Instead of sustaining the credit union  to serve its founding community, Duffy engineered the transfer of 29,000 Stockton’s members’ $635 million locally owned assets and their $110 million accumulated capital.  A new board and executive team 250 miles away now controls how these resources will be used.

When initiating this change of control to a credit union with no local  roots,  Duffy set aside $12 million of his members’ surplus for his direct control in the 54 Fund.

He turned the Robin Hood model of wealth distribution into a financial round robin game.  He first retains money, not using it for member benefits, to build reserves more than 100% higher than peers. From this extraordinary capital surplus, he directs $12 million into the new organization he controls.  To justify this diversion,  he says it to help those from whom he withheld the earnings benefit in the first place.

When CEO, Duffy short-changed members’ returns  by building capital ratios twice the industry average.  He turns to this same source for the 54 Foundation funds. Truly a double blow for those who entrusted their financial futures to his credit union leadership.

In Part III I will discuss what happens next.  And share the names and writings of two persons who saw through this whole financial flim flam from the start.

(Editor’s note:  Valley Strong data for December 2023 updated on February 3, 2024)