Rating Examiners for a Stronger Cooperative system

Net promoter scores.  Five star yelp ratings.  Uber driver feedback.   Multiple processes measure customer satisfaction.  Especially where consumers have a choice of service.

But there are few examples tracking the interactions between those exercising authority and the public subject to it.  A most critical area for this need is law enforcement policing.

Warrenton Virginia is a small, traditional rural community of 10,000 residents, most of whom are republican.   The community is conservative, wary of government and proud of  its long local history.

It is one of the least likely towns  to implement an innovative feedback process to manage the relations between the police and citizens.   But since the George Floyd murder in 2020 every community has sought out methods to incentivize fair and ethical law enforcement.

Warrenton’s police department of 29 officers and three civilian employees is one of three early adopters of the Guardian Score system of monitoring policy and community interactions.

Guardian Score’s Feedback Process

After every significant encounter with residents, officers are required to hand out their business card on the back of which is a QR code which asks for feedback on the interaction.  The questions use a star-based system to rate officers on their communication, listening skills and fairness.

The feedback is anonymous.   It can be given any time after the event.  It provides the department another tool to evaluate performance beyond data on arrests, fines or other required interventions.  It is similar to an Uber driver rating, yet the power dynamics are much different.

There have been 179 reviews so far in 2022. Guardian provides a score dashboard visible to the Chief.  The officers’ overall rating is 4.94 out of five stars.

A System for Cooperatives

The Guardian Score effort is in the pilot phase.  But the one-sided relationship between those in authority and citizens is not limited to policing.   The credit union system and its regulators have experienced this imbalance which has been the subject of several  recent articles.

As one writer summarizedYes, (NCUA) has become an entity that has lost its way in helping small credit unions succeed. Or, They are Coming to Bayonet the Wounded.

NCUA Board member Hauptman has encouraged credit unions to record their meetings with examiners as one way to encourage  open and honest interactions.

The Texas Credit Union Depart has conducted an annual “customer satisfaction survey” of its state charters for the past twenty five years.   The department publishes the complete results and comparisons with earlier years.  The latest report can be found here.

Neither approach enables the comprehensive and timely monitoring possible from the Guardian process.

Why a Dynamic Scoring Process Is Needed

There are times when NCUA and credit unions act as if they are not mutually dependent on each other’s success.  The cooperative model is not the banking model in which  shareholders try to maximize their independent ownership returns.

The coop system’s  interdependence  relies upon collaborative solutions among credit unions and with the regulator, especially when the relationship is working productively.

However  there is no ongoing monitoring of the quality of examiner and regulatory interactions with credit unions. Public speeches and anecdotal news stories are insufficient and irregular.

The Guardian Score process is dynamic, easy to implement and can be tracked daily at both the regional and main office level.   It is ready to go.  It is inexpensive.  The cost for Warrenton is $4,500 per year.

This feedback option would promote a better balance between examiners and credit unions under their oversight.  It  measures quickly the quality of the interactions that take place:  listening, explaining and helpfulness.

Moreover it could be easily extended to other areas of regulatory interactions to monitor the responsiveness of agency personnel.

In Warrenton the initial worry was that negative reviews would affect performance evaluations.  Of the 170 submissions, all have been positive.  The program is even used to celebrate  thoughtful interactions reported in the surveys.

An Opportunity for NASCUS

Where to start?  This initiative is an ideal one for NASCUS as an element in its state accreditation program.   It would provide specific, continuous data on examiner effectiveness-a traditional advantage for state charters.

Innovation at the state level has been a hallmark of the dual chartering system.   This is an opportunity to respond to a growing worry openly expressed  by credit unions. It is a process to raise the quality of cooperative oversight and community trust.

Which state regulator will be the first to step up?






“Protecting the Insurance Fund”

From NCUA board members’s statements in Senate confirmation hearings  to the examiner on the street, the most frequently stated goal stated by NCUA staff is  to “protect the insurance fund.”

This goal is repeated even though the NCUSIF is a means and not an end in itself.  The ultimate purpose of NCUSIF is to safeguard member assets.

The primary venue in which Board members demonstrate their responsibility to “protect the fund” is the quarterly statistical report  provided by staff and discussed in an open meeting.

The NCUSIF’s status was the principal topic of May’s board meeting.   I was unable to listen to the live broadcast.  All I have is the  slide deck from the agenda and posted board statements, not the actual live exchanges  that took place.

Questions on the NCUSIF’s  from the March Update

Here are some  initial questions from the  information presented.  I would hope that some or many of these would be  part of the dialogue in the Board’s duty “to protect the fund.”

  1. Since December 2021, total NCUSIF assets have declined by $130 million even after recording $578 million in new capital deposits receivable. The cumulative results of operations (equity) shows a decline of $727 million in the first quarter.  How did these declines occur?  How should users of this data understand Fund performance?
  2. The March report shows that the market value of the portfolio has fallen $806 million below cost or book value. What does this decline indicate about the management of the Fund’s interest rate risk?
  3. The Fund’s yield year to date is only 1.22% What is the required breakeven yield to cover the Fund’s operating expenses?  How large is the revenue loss in the next 12 months as indicated by the current and  continued decline in market value?
  4. How did the Fund’s investment committee modify their approach after  the rise in rates initially forecast last October/November  by Chairman Powell?
  5. How will the investment committee deploy the approximately $4.0 billion in funds arriving in the next 12 months from maturities, new capitalization deposits and interest payments?
  6. The Fund reported net income of $54.4 million in the 1st However Slide 13 shows estimated retained earnings of $4.792 billion, or an anticipated loss of $68 million in the current quarter.  That would represent a $122 million net operating decline for the June quarter.  How was this projected?  What is causing this loss?
  7. Insured savings growth is estimated at 7.1% at June 30, 2022, down from 14.2% at the June 2021 quarter. Actual twelve month share growth was 9.3% as of March 31, 2022. How much additional growth  slowdown is projected for this year?
  8. In Slide 13, the numerator and denominator use data from two different time periods to calculate the NCUSIF’s equity ratio (NOL).  If the same June 30 data were used for both parts of the ratio,  the resulting NOL would be 1.283 % versus 1.25 %.   This three basis point difference is over $500 million at the current level of insured shares.   Shouldn’t this more timely ratio be used in reporting the Fund’s actual financial position?

Fund Performance and Investment Policy

The NCUA’s immediate and ongoing opportunity  to “protect the fund” arises from its  management of its current $22 billion and  ever growing asset base.

The questions above are vital to understanding how NCUA staff implements the Board’s twin NCUSIF investment policy objectives  “To meet liquidity needs” and “To invest. . .seeking to maximize yield.”

The March financial statistics raise critical question of how the NCUSIF responded to the changed interest rate outlook over the past 12 months.  And, more importantly how it will respond going forward.

I will report on Board member’s interactions and assessments to NCUSIF’s   March information  when the May meeting video/ transcript is available.   That dialogue will be a useful example to learn how NCUA board members see their role  “ to protect the fund.”



A Merger for a New Future or a Rescue Operation?

The largest merger announced so far in 2022 is the combination of the $2.8 billion Cap Com FCU with the $5.6 billion State Employees FCU, both in Albany, New York.

Cap Com’s web site has a link promoting the merger.  It includes a video from the President and Board Chair, FAQ’s,  merger updates and a description of the voting process.

In these explanations and in the required Member Notice dated April 8, 2022, the justifications (excerpts below) are general and rhetorical.

The combination will result in a different brand and new name which will  operate state wide.  The site even highlights a critical benefit  members will be able to keep: their free checks and coin counting machines!

There is  a  link to nine merger myths which are then dismissed with a contrary assertion.  For example:

Myth #6: Bigger is not better.
Often, that’s true but having more resources will allow us to do more for members, employees, and the community. This includes enhancing technologies that make banking affordable and easy.

In all the communications, both required and marketing the decision, there is a complete absence of specific benefits except those achieved by adding together existing branch, ATM, video tellers and other operational access already in place.  No savings or loan rate benefits are presented, nor any mention of new products or services.

The March 31, 2022 Financial Reports


While State Employees is almost twice as large as Cap Com, the most recent call report suggest it is confronting headwinds.  Total first quarter revenue declined and net income fell 50% to $6.8 million from the 2021 first quarter. Cap Com’s first quarter net was $7.1 million.

State Employee’s loans are just 51% of assets.  The investment portfolio shows a $105 million decline in market value.  The net worth ratio has barely increased over the past 12 months,  going from 6.8% to 7.06% at March 31 of this year.

State Employees would be subject to NCUA’s RBC net worth requirement.  Whereas Cap Com’s 9.86% net worth would allow them to elect the simpler CCULR capital compliance option.

35 Years as CEO

State Employees President Michael Castellana has been CEO since April 1988, or 34 years and two months.  From the Member Notice: As part of  the merger agreement Chris McKenna, Cap Com CEO/ President would become President and Castellana CEO of the new credit union.

The board chair of Cap Com will become the  chair of the combined entity.  This and the other circumstances give  the impression that this merger  is  a CEO succession plan for the larger State Employees.

This “solution” will cost Cap Com members their independent, locally focused, sound organization.

Misleading and incomplete statements about the event are a suspect foundation for a new credit union launch.   It erodes trust in leadership.  It undermines promises about the future.

If that is the intent, it should be disclosed to Cap Com members.  It puts a very different framing for motivation and outcome.  For in this instance, the asymmetries in size, performance results, and financial situation  suggest the smaller credit union is rescuing the larger.

Members sense that something does not compute in this decision by Cap Com’s board and CEO to end their independent charter.  They, and even a SECU member, have made their views known on NCUA’s website.

Members’ Comments on the Merger Proposal

  1. I have grave reservations about this merger. There was not enough due diligence to provide a transparent account of why two thriving institutions must merge, and members have not been given enough complete information to make an informed vote.

I think that this is a disservice for members and the community and I would urge you to reject this merger as not enough was guaranteed to members, and the board of directors (which includes the proposed entity’s CEO) is not making decisions that favor employees or members of either credit union.

Thank you for your time.   (Jennifer Smith)

  1. Good afternoon,
    I have grave reservations about this merger. There was not enough due diligence to provide a transparent account of why two thriving institutions must merge, and members have not been given enough complete information to make an informed vote.
    I think that this is a disservice for members and the community and I would urge you to reject this merger as not enough was guaranteed to members, and the board of directors (which includes the proposed entity’s CEO) is not making decisions that favor employees or members of either credit union. (Justin Williams)
  2. I have grave reservations about this merger. There was not enough due diligence to provide a transparent account of why two thriving institutions must merge, and members have not been given enough complete information to make an informed vote.
    I think that this is a disservice for members and the community and I would urge you to reject this merger as not enough was guaranteed to members, and the board of directors (which includes the proposed entity’s CEO) is not making decisions that favor employees or members of either credit union.
    Thank You, Paul Lenz
  3. I am a Capcom account holder and I have reservations about this merger. This is being pushed down our throats and we are not being given full information to make an informed decision. Both credit unions are doing well and the merger is not needed. They have given us vague promises about “efficiencies”, while downplaying that there will be negatives.

There must be, because mergers result in lowered competition, leading to reduced benefits, increased costs, decreased customer service, layoffs, etc. If they want to say this will not happen, then I ask, then how do these “efficiencies” happen?
Please do not approve this “merger.” ( S Price)

  1. I am leaning heavily against this merger. I maintain 14 separate accounts at CapCom and just feel the information that has been released is spotty at best, and reads as if it came from a marketing company. The special member meeting is scheduled for twenty minutes before online voting ends (24 hours before mail-in ballots must be received).From the notice that was sent to CapCom members: “Both credit unions are flourishing, so this is a ‘merger of opportunity’ with the ongoing needs of the members at its core.” What are these needs? Where have they been expressed?What about:

Higher nickel and dime fees (a SEFCU speciality – Google “Story vs SEFCU”)?
What happens if the merger is voted down?
Is CapCom over-extended on its loans (a popular theory floating around)?

Sorry. There are way too many issues here and very little substance offered for anyone to make an educated decision.  (David H)

  1. As a member of Sefcu for ove 15 years, I am appalled that this so called merger of equals is going to be allowed. It was announced last July as a merger of equals. If that is the case then not only should the capcom membership get to vote but so should the Sefcu members. You can’t have a merger of equals if it’s only going to get voted on by one side . I also would like you to look into the multiple conflicts of interest on both sets of leadership. I truly don’t feel that the members of both institutions are truly going to benefit in any possible way from this proposed merger. (Russel Kuhls)


Despite the asserted benefits, this looks like a merger of necessity  to extricate State Employees from a downturn.

The members of Cap Com correctly see this as not in their best interests.

With a new  name and brand, a state wide operational commitment, a below average combined capital ratio, and required conversions from different data processing and other third-party providers, this merger is  a recovery operation not a launch to the future.  It will be costly.

State Employees could recruit Cap Com’s CEO to  be Castellana’s heir.  However bringing Cap Com’s resources to the project appears to be throwing good money after bad.

Cap Com members are being asked to rescue State Employees members in a time of heightened economic uncertainty.

Where Has NCUA Been?

The members of Cap Com are also covering for a lack of effective supervision by NCUA.   It was NCUA’s Chair who in January asserted  the need for succession planning by proposing a new rule.  Merging Cap Com to provide the  leadership  to turn around State Employee’s  trends is the exact opposite of the rule’s intent.

This rescue requires that members vote to approve and then exercise patience, of uncertain duration, to endure numerous technical conversions  for operational integration.

Whatever the outcome, credit union members are being tasked again to pay for the shortfalls of the regulator in its examinations and assessments of the management and board performance of State Employees, that is the M in CAMEL.


From the Member Notice on NCUA’s Website. 

No specific member benefits are provided.

Reasons for merger: The Board of Directors of CAP COM unanimously concluded that the proposed merger with SEFCU is desirable and in the best interests of the members. Although CAP COM thrives today, there is no guarantee it will be immune to the ever-increasing competitive pressures that can blunt success in the future. Throughout the United States, credit unions face immense challenges from digital only banking services, industry disruptors, and powerful mega banks. This merger will increase operating efficiencies and offer the potential to expand products and services for credit union members sustainably over time.

Joining forces with SEFCU is the ultimate collaboration. This merger will benefit members, employees, and the communities across the combined organization’s new, expanded footprint. The merger would capitalize on the cooperative spirit of the two credit unions, their distinct strengths, talent pool, and significant financial resources. It is from a position of financial strength that CAP COM seeks to merge with SEFCU. Both credit unions are flourishing, so this is a “merger of opportunity” with the ongoing needs of members at its core.

Changes to services and member benefits: Banding together, CAP COM and SEFCU can expand affordable, easy-to-use, life-enhancing services. A unified credit union would possess the scale necessary to deliver greater value to members – beyond what CAP COM and SEFCU could deliver individually.

The fiscal strength, and safety and soundness, of the combined organization paves the way. The expanded and diversified balance sheet and membership composition will reduce financial and membership concentration risk and increase opportunity. The combined capital of the two credit unions, once merged, is estimated to be approximately $702 million, cushioning against unforeseen economic downturns or other financial challenges.

The merged organization would have the largest branch presence of any financial institution in the Capital Region of New York State. In terms of number of members, it would rank among the largest credit unions in New York and the top 30 in the United States.

Through this merger, CAP COM members will realize gains in excellent rates, favorable pricing, and innovations that enhance their banking experience and financial wellness, thanks to the operating efficiencies of a larger organization that reduces expenses and generates revenue. The personalized service for which CAP COM is known will benefit from a larger membership across New York.

Making banking more convenient, affordable, and easy is a primary goal of the combined organization. The merger would enable members to gain access to more branches along commercial corridors and in diverse neighborhoods across the Capital Region and upstate New York (including areas where members prefer to bank today). More surcharge-free ATMs throughout the United States would also be available, along with more robust call center services and the convenience of 24/7 digital banking. Below you will find the retail expansion opportunities you will benefit from through this merger.

  • Capital Region, Central NY, Western NY, Southern Tier
  • 61 full-service branches (CAP COM currently 12) and two mobile branches
  • 27 video tellers (CAP COM currently 0)
  • 130 on-site ATMs (CAP COM currently 13)
  • Nationwide 85,000 surcharge-free ATMs (Allpoint®, CO-OP) More than 5,600 shared branches

Along with enriching the service offerings and benefits for members, this merger will create countless opportunities for employees to hone their skills, apply their talents, and grow in their careers with the combined organization, which will ultimately benefit members. All staff of both the merging and continuing credit unions will be offered continued employment following the completion of the merger.

Members of CAP COM will be well represented in governance of the combined organization. The Chair of the Board of Directors of legacy CAP COM will assume the role of Board Chair in the new credit union. In addition, Board members of the former CAP COM will occupy seven of 15 total seats on the newly expanded Board, along with committee assignments. As stewards of the unified credit union’s mission, fiscal soundness, and strategic direction, the Board of Directors will possess decades of institutional knowledge and continue to be advocates for members.

Finally, community outreach with generous financial support are hallmarks of both credit unions. Larger philanthropic efforts, and a greater number of employee-volunteers statewide, will support a more sustainable and equitable future across communities where members live and work.

Merger-related financial arrangements:

Two CAP COM executives, Chris McKenna, President & Chief Executive Officer, and David Jurczynski, Executive Vice President & Chief Financial Officer, are covered by a collateral-assigned split dollar life insurance plans (the Plans) that were established in 2019, prior to any discussion of merger with SEFCU. The Plans include a standard “change in control” provision requiring that, given certain circumstances including a merger as proposed to the membership herein, any unvested benefits that may be subject to a vesting schedule under the Plans, become 100% vested on the merger effective date.


More information on CapCom’s business strategy here:

(Opening paragraphs) For the past three years, CAP COM Federal Credit Union ($2.6B, Albany, NY) has been honing its abilities to reduce risk and maximize reward — taking care to not throw out the BABI with the bathwater.

“BABI” is shorthand for the business analytics (BA) and business intelligence (BI) division the cooperative created in January 2018. The BABI team generates and interprets data as well as makes intelligible reports available to stakeholders across the enterprise.




Today’s NCUA Board Meeting: an Opportunity for Insight into the NCUSIF

With only one agenda item, the NCUSIF’s March quarterly update, today’s NCUA board meeting presents an in-depth learning opportunity about the fund’s management.

With almost $22 billion in assets, the NCUSIF is the largest investment under NCUA’s control.

Because NCUA publishes monthly updates on its three major funds, credit unions are able to monitor how their members’ funds are being used.

The public board discussion is a vital part of this process for credit unions and board oversight.

What I Am Listening For

  1. There is much confusion caused by the NCUSIF’s use of Federal GAAP versus private GAAP accounting, the standard credit unions must follow. The Federal accounting terms, presentation and practice are different from private GAAP.

This is because Federal GAAP was intended for use by entities which rely on government appropriations.

Some examples.  Cumulative results of operations: Following SFFAS No 7 the NCUSIF recognizes interest on investments as “non-exchange revenue” which in turn means unrealized holding gains and losses are reported as part of revenue.

In contrast, credit union “available for sale” securities are reported at book value with unrealized gains or losses recorded in a valuation account, not as an income or expense.  This  account is not included when computing the net worth ratio.

Credit unions report retained earnings.  Federal accounting has no comparable account. This and other differences mean that NCUA staff transform NCUSIF Federal presentation into a private format, but then do not follow private accounting practice.

For example the 1% deposit true up (or refund) is treated as revenue in the NCUSIF; however credit unions record this adjustment as an investment asset on their books.

Will this confusion be addressed?   How will this affect the calculation of the 1% true up when presenting the NOL ratio for the fund?  Private GAAP recognizes the true up as a receivable or payable on the insurer’s books when the insured risk is reported triggering the required deposit adjustments.

  1. How has the NCUSIF investment committee responded to the rising interest rate environment? The market value of the NCUSIF’s investments may have fallen by as much as $1.5 billion from the peak in 2021.   What changes have been made in response?  How will the below market income stream from the fixed rate, lower earning. long-term bonds, affect the income of the fund and projections of the NOL in 2022?
  2. Credit union’s first quarter results have been summarized in Callahan’s Trendwatch. How does the first quarter’s 9.3% actual share growth compare with NCUA’s projections for the year? What impact, if any, will the rise in interest rates have on CAMELS ratings?
  3. What changes in NCUSIF investment policy and accounting presentation/practice is staff proposing? Or will be requested by the board?

Over the past 16 months, I have written several blogs about NCUSIF investing and accounting anomalies.   Here are selected observations and additional background for the questions that may be raised in today’s meeting:

I’ll follow up next week on the board’s dialogue.  Hopefully this will be a fresh start for improving the fund’s financial practices.


Cooperatives and Awakening the “Sleeping Giant”

Three recent observations:

  1. While reviewing an exam for a billion-dollar credit union of 25 pages, nowhere was the word cooperative used.  There were no  comments on any of the credit union’s responses to members during COVID, their PPE loans and multiple  community involvements including expanded DEI.   If the name were removed from the exam,  it would be impossible to know it was a credit union, not a bank.
  2. Two readers commented on REI’s values approach to its “brand:”

“While I am a fan of REI, I would like to mention (and this is probably not a surprise to you) that they too have a tendency towards oligarchic governance you have talked about in the context of credit unions. If I recall correctly, to be eligible for a candidacy in board elections you have to have leadership experience in a Fortune 500 company.

“We desperately need legislation that ensures fair electoral practices in co-ops. Glad you are advocating for this in credit unions. REI is a great company and credit unions are great – but they also need some tough love. “  (Leo Sammallahti)  

“I’m sure REI is admirable in its promotion of important values. However, the current unionizing effort does not seem to put REI in a good light.

“My own experience in a nonprofit progressive worker-rights advocacy organization (prior to joining the credit union movement) was that the management vigorously fought our efforts to unionize. It’s not an uncommon story among “liberal” organizations. Our effort was ultimately successful, but it taught me a lingering lesson about progressive hypocrisy. The co-op world is not exempt.”  (Cliff Rosenthal)

  1. Here is a small sample of the number of  job openings from Sunday’s CU Insight:
  • 77 positions at Lake Michigan Credit Union
  • 65 or 5.4 percent of NCUA’s authorized staff of 1,201. Fifteen were at Head Office and 50 in the regions (from NCUA Operating Fund report)
  • 40 positions at Michigan State University FCU
  • 37 positions at True Sky Credit Union

What do these Observations Mean?

Is our cooperative model struggling?   Is our business merely subject to the same economic forces affecting every other firm?  Are credit unions even addressing the multiple challenges of  inequality existing in every community?

In some respects the cooperative model is not working well.   On the surface we increasingly appear as just another financial option.  In many cases, let’s be frank, credit unions are not much different from many other financial choices in their behavior and impact on their communities.

Instead of transforming financial opportunity, credit unions increasingly embrace the tactics of their competition including purchasing banks, mergers (sell outs) of sound long- serving coops, and measuring performance by strictly financial and growth goals.

Recapturing our Promise

Occasionally a story appears in the press about a find in a flea market or an opportunity shop.  A person discovers an antique looking Roman bust selling for $34.99 in a Goodwill store.   She later learns it is 2,000 years old and priceless.

Sometimes in  life we do not understand the value of what we have.

But every credit union, not matter its size, has a founding story and purpose.  Every board inherited a legacy of power, fortitude and energy to make life better for members.

But does senior management and the board know what they have?  That is, an institution with the power to override the ever present push and pull of market forces of greed, domination and even exploitation?

The credit union charter is intended to enrich its members versus building institutional glory.  Every charter comes with that hope and potential.

So what is lacking today for why this transformative promise seems to be missing?

In One Word: Imagination

One of the examples of creative capability was Ed Callahan’s way of presenting the potential for the credit union movement, both as Chairman of NCUA and as CEO at Patelco Credit Union.

He believed the credit unions were “a sleeping giant,” or America’s “best kept secret.” They should be an option for all Americans.  Whether retired, between jobs or even for college and high school students.  The field of membership was an inclusive, not an exclusive concept.

In practice he did not let current reality limit what the future could be.  The NCUA exam cycle was over two years for federal charters when he arrived.  He held a “fire drill” that resulted in every federal credit union filing, for the first time ever, the yearend call report.   Working with regional directors, every federal credit union had an exam contact in 1982, and each year thereafter.

To celebrate the 50th anniversary of the passage of the Federal Credit Union Act, he announced a movement goal of 50 million members by 1984.   He inspired the largest credit union conference attendance ever in December of that year when state and federal examiners and credit union leaders came together in Las Vegas to debate their future.

Working with credit unions, the NCUA’s share insurance fund and CLF were redesigned following cooperative principles to create a three-part regulatory framework for the cooperative system.

These transformative events were inspired by the promise of what credit unions could be.  He recognized that in the new era of deregulation not all would perform with the same capability.  But working together, the system could position every credit union to be a competitive and valued experience for members.

Imagination was fueled by belief in what the pioneers had envisioned.  While the three current observations above may seem like challenges, they are opportunities to create a better coop system.

Let’s be honest.   Credit unions have always been understood, even trusted, as more than another financial choice.  They represent a member-centric focus dedicated to improving members’ lives and community options.

They are more than a financial institution.  Credit unions at their best represent the common hopes of young and old for a better life and a meaningful role in their chosen community.

The tools for transformative change have been a part of the cooperative model from the beginning.    What is needed is imagination tempered with vision and compassion.

Then indeed, the “sleeping giant” will be truly awakened.

Learning from Past Mergers to Design a Stronger Coop Future

Since the NCUA updated its rule for mergers in 2017, almost 1,000 voluntary mergers have been completed.  In the first quarter of 2022, 41 mergers involving 366,000 members and $5.5 billion in assets were announced.

These were overwhelming strong, long-serving successful credit unions whose boards and CEO’s decided to turn their loyal members’ futures over to another firm.

The 2017 rule was intended to correct self-dealing transactions that were prompted by payouts to senior managers and staff to incent sound credit unions to give up their charters.

The rule required disclosure of all compensation related benefits that would not have occurred if the merger had not taken place.   The result has been some, but not all disclosures of promised payments.

The rule has not prevented enrichment, but ironically validated them.  The amounts and creativity of merged CEO payouts are growing.  Financial Center CU’s CEO and Chair transferred $10 million of the credit union’s capital to their private firm incorporated just prior to merger.-all with NCUA pre-approval.  In the merger  of Xceed CU the CEO negotiated a $1.0 million dollar merger bonus while promising members to look after their interest as President of Kinecta FCU for three years-only to leave within six months.

The CEO of Global negotiated a “change of control” clause in his contract that will pay him $875,000 upon merger with Alaska USA.  Change of control is used in stock corporations for managers who might lose their positions in a sale of the firm.  In this case the CEO negotiates the employment clause, seeks out a merger, retains employment post merger as  President, Pacific and International Markets, and pockets the money for the deal whose terms he set up.

The Banking Industry Is Looking at Merger Practices

In a May 9, 2022 speech at Brookings, the Comptroller of the Currency announced a review of bank merger approvals:

From my perspective, the frameworks for analyzing bank mergers need updating. Without enhancements, there is an increased risk of approving mergers that diminish competition, hurt communities, or present systemic risks.

Bank mergers should serve communities, support financial stability and industry resilience, enhance competition, and enable diversity and dynamism of the banking industry. Revisions to the bank merger framework would help to realize this goal.

NCUA’s rule 2017 merger rule was off target.   It did disclose self-enrichment, incentives  which were common place.  But it did not prohibit them..  The rule entirely missed the  Agency’s primary job which to protect members’ interests.

The evidence before and since the rule indicates that managers and boards act without consulting members, negotiate terms privately, and then present the events as final only needing the members’ perfunctory ratification.

Formal member approval is a foregone conclusion.  All of the resources, information and control was in the hands of those who set up the deal.  Members are unable to challenge let alone question the actions.

As members are shut out of the process, the concept of member owned financial institutions becomes a fiction.  Boards and management control the fate of a charter, its resources and relationships.  Members’ interests, loyalty and accumulated wealth are just pawns in management’s efforts to enhance their well-being.

As demonstrated yesterday, the majority of mergers are sound, long-serving and certainly capable of operating on their own.

How does one bring balance, objectivity and most importantly, member interests, to the fore in this increasingly wild west of uninhibited sellouts of cooperatives.

One writer, Denise Wymore,  has urged a greater commitment to purpose by credit union leaders.

Decisions, not conditions, determine your credit union’s future.

Do we look for the why behind a tough situation or do we just complain about it? Increased regulation, cost of technology, economies of scale, expanded products and services, lack of succession planning. Struggling to achieve a goal is normal and natural. Is it possible to work together to address the challenges facing “at risk” credit unions?

You have to find meaning, a purpose, something bigger than yourself. Reflect and think about your credit union’s purpose, passion, meaning…

The Comptroller outlined enhanced regulatory reviews such as:

 “Community feedback on the impact of a proposed merger also is important. . . .For example, for mergers involving larger banks, , the OCC is considering adopting a presumption in favor of holding public meetings.”  and,

“The OCC takes into account an acquiring bank’s CRA rating and performance. Banks with unsatisfactory CRA ratings are highly unlikely to receive merger approval.”  and,

Financial Stability in “too-big-to-manage is a risk with mergers, especially for banks engaged in serial acquisitions.”

Whether NCUA can reassess its role in mergers is questionable.   Unless political pressure from the Congress is exerted, NCUA seems oblivious to the reputational and safety and soundness implications of the wheeling and dealing now occurring, and the harm done to the communities who are losing their local institutions.

Putting Market Forces Back In transactions

I believe two changes in merger policy are required.  The first is make members’ interest the paramount criteria in any proposed charter cancellation via merger.  Secondly members should have the benefit of market forces to inform their decision.

Market choice would entail that all credit unions who decide to explore mergers would announce that intent publicly, invite all parties to express interest (both credit unions and non-credit unions) and then select the option the board believes meets the test of members’ best interest.  The full process would then be presented to the members for their approval or turn down.

The options for future employment, products and services, return of member capital would all be part of the public record and members would have the information needed to make an informed choice.   If a firm that is not selected wants to make a better offer, it would be able to do so and ask the members to turn down the board’s recommendation.

Putting Members Back in Charge

This change would place members in charge of the future of their credit union; not management and its personal preferences for future employment.

Mergers when sought should be a means to the end of enhancing member options and value. Today mergers alone have become the goal.  They are about self-dealing, power and control by a few.   It is time that members are given the choice about who they want in charge of their shares and loans.







The First Quarter Score: 41 to 0:   Who Is Winning This Game?

This score is not the opening of an NBA playoff game.  It is the number of credit union charters given up versus new charters issued in the first three months of 2022.

What does the score mean?  Why is it so lopsided?  More importantly, are any members winning in these charter closures?

365,700 Members Lose their Credit Union

The 41 credit unions’ CEO’s and boards are transferring their 365,700 members to another credit union’s control.  These members did not choose this fate.  In fact they showed continued loyalty: total members increased by 2% and share grew by almost 11% for the year ended 2021.

These members have $3.3 billion in loans and have placed over $4.7 billion in savings  to benefit their fellow members. Collectively they have created over $540 million in common wealth, none of which will be distributed to them.  Their average ownership is $1,500 each.

There is no information that any of the members were consulted before the boards and CEO’s made these decisions.

Check the Box Explanations

The Credit Union Times article categorized  the 41 by the explanation NCUA provided when approving the  mergers as follows:

“34 credit unions that received the NCUA’s nod to consolidate for expanded services, two credit unions got the OK to merge because of poor financial condition, two for inability to obtain officials, two for lack of sponsor support, and one for loss or decline of field of membership.”

The continued growth in shares, membership and most importantly, the 47% increase in loan originations in 2021 suggest this group was more than competitive based on the latest performance data.  They ended the year with 9.9% net worth, delinquency of .55% and a collective ROA of 1.25%.

These 41 credit unions are sound performers which the members are loyally supporting.

The Largest Three

The three largest charter cancellations are the $2.5 billion Capital Communications FCU, the $612 million Global CU and $524 million People’s Trust FCU.  What they have in common is they are turning over the keys to their operations to credit unions already operating in their communities.

This means these six-decades old institutions are combining with other local credit union competitors.  The effect will be to reduce member choice, end opportunities for local leadership, close career options for employees, and extinguish the generations of earned loyalty and goodwill with members and local constituencies.

These credit union’s  hundreds of millions of collective capital will be under the control of directors the members did not elect and who will have broader corporate goals then just serving the newly acquired members and their transferred wealth.

These combinations eliminate local options and the diversity of models and service approaches that make credit unions successful.  Consolidation and concentration which reduces local competition may make life easier for managers.  It does not enhance member choice.

The most important math in credit union mergers is the 1 + 1 = 1.  There is no expansion of credit union coverage; the system did not grow market share; the members gained no immediate benefits.  But they will pay all the costs of merger including the cancelations of vendor contracts, employee benefits, and of course the help of professions who facilitate the deal making.

A Game without Rules or Umpires

Mergers of sound, well run credit unions are not benefitting members.  Rather they have become a sop for managers to game the system for self-benefit and boards who have lost any sense of fiduciary responsibility.

Writer-commentator Scott Galloway has characterized the motivations for mergers as:

Competition depends on rules, and rules depend on umpires. We should fight to protect competition — not winners. Because winners subvert the process. In the name of competition, they demand that their anticompetitive acts go unpunished. In the name of freedom, they insist on their right to shout down the dissenter’s voice.

His thesis is simple in capitalist economies:   No field sees winners try to retract the ladder behind them more aggressively than business or I might add, the CEO’s of sound merging credit unions.

The primary advantage of the credit union model is the member relationship grounded in democratic ownership.  Their unique advantage is their local knowledge and relationships that provide members a sense of agency over their lives and communities.

That goodwill, built up year by year over generations of members. is sacrificed in mergers.

NCUA requires new charters to survey potential members to demonstrate support, years of financial projections, vetting of proposed board members and employees with a process that takes hundreds of pages of documents and generally years to approve.

To give up a successful coop charter which took generations to succeed, is literally approved in weeks.  The form is perfunctory, there is no effort to validate the reasons given nor the rhetorical promises made.

The credit union system is failing the members who created it by routinely approving consolidations that mimic the activities of institutions for which credit unions were supposed to be an alternative.

At a time when individuals and communities are confronted by forces, events, private and governmental institutions over which they have no say, the credit union is supposed to be an option they  can count on.   Mergers destroy this sense of influence over events in one’s life.

The score this quarter is 41 to 0. At the moment, the members are losing this game.

Tomorrow I will provide some thoughts of others on what might be done.


“They’re Coming In to Bayonet the Wounded” Part II

This is the rest of CEO Joy Peterson’s concerns with the regulatory environment and six suggested changes.

Part I can be read here.

Pivoting from COVID to DEI

The pandemic saw record sums of COVID inspired money pouring into banks and credit unions.  Global fear and confusion were rampant.  Businesses were shuttered-some temporarily and some forever.  The global economy began a free fall.

There were reports of billions lost to PPP and unemployment fraud.  Where was NCUA?  One would expect nearly daily guidance regarding concentration risk and fraud prevention and best practices regarding NACHA rules.

Instead, the talking heads at NCUA started scolding credit unions about Diversity, Equity and Inclusion.  Rather than real concern for our members-the salt-of-the-earth member/owners of our financial institutions who feel a common bond to a financial institution  with their co-workers or their community-NCUA decided we are evidently racist and somehow elitist.

Our color chart no longer satisfies their hunger for diversity.  They alone are responsible for how our charters read but, in hindsight, they have decided we are perhaps too white or not serving enough underserved?!

In reality it doesn’t matter what color or gender our members are.   It doesn’t matter whether they are rich or poor or anywhere in between.  If we spend all of our time and most of our income trying to satisfy NCUA’s constantly changing view of what makes credit unions valuable to our members, we are no longer serving our members at all.

If we aren’t provided with the leverage to protect their money and their identity and their financial privacy, we are no longer good stewards of the faith 129.6 million people have placed in us.

The Most Needed Change: Respect for Credit Unions

Small credit unions are wounded and struggling to maintain our relevance and profitability in today’s economy.  From one CEO to the CEOs of the thousands of smaller Federally insured credit unions, the next time you are notified that your examiner is due to arrive, make sure you look carefully behind their back as you usher them in.  There could be a bayonet that will be driven firmly into your back as they write up yet another list of tail-chasing requirements to be deemed “safe and sound”.

I think it’s time all of us ask our regulators to be more constructive in their approach to the industry.

Here’s how  NCUA can demonstrate respect for our efforts to serve members, the reason why we exist:

  1. Recognize that small credit unions are, in fact, different from large ones. Their capabilities are not the same, but our service to members can still be extraordinary, needed and valued.
  2. NCUA should support credit unions instead of fighting them. Statements by NCUA spokespersons often include comments critical of credit unions. Our members decide whether we are “good enough”.
  3. Stop labeling our members. NCUA likes to call them marginalized, disadvantaged, underserved and low-income.  They refer to “minority communities” and recently “Other Targeted Populations or OTPs”.  While we happily serve ALL members of our community, these terms give the impression that only people who are “less than” or “other than” belong to credit unions.  They are just people.
  4. There needs to be more transparency from NCUA regarding its own management. Losses to the Share Insurance fund caused by thefts went on for years without raising any red flags to NCUA examiners. Were there any adjustments to NCUA examinations to address these limitations? NCUA should also be expected to manage their own investments at least as well as they expect us to manage ours.  Our credit union members pay for NCUA’s management failures.
  5. NCUA shouldn’t expect more of small credit unions than they expect of themselves. NCUA “recommended” that credit unions allow no-cost loan payment deferments and the waiving of overdraft fees during the pandemic.  My credit union gave up more than $15,000 in income to help our members.  What did NCUA do?
  6. So many mixed messages. Don’t tell credit unions we need to do more lending to people with lower credit scores and then criticize us because our delinquency goes up.  Don’t take away our ability to earn non-interest income from overdraft fees and interchange income and then wonder why we aren’t more profitable.  Part of the reason for all the mergers is the demanding, overbearing NCUA requirements as well as the utter lack of support  from our regulators.

Respect for members is what makes us different.  That is also what makes us sound.  It doesn’t work the same, the other way around.






Ten days ago I received a positive comment on a post.  I asked what aspect spoke to the writer.

In return the CEO Joy Peterson of Bessemer System FCU, Grenville, PA sent an article written earlier that she hoped to publish in the credit union press.

I read it.  Her voice is authentic; her coop commitment lifelong; and her frustration with the regulatory environment, clear.

In her lament, I hear echoes that  concern many about leaders in Washington, especially those in positions of authority.

I suggested she add recommendations to her critique.  She did.  They are in the second part of this blog to be presented tomorrow.   Here is part I.

From Joy Peterson:

As a lifelong accountant, my Dad had a sign hanging in his office that said “Auditors are the ones who come in after the war to bayonet the wounded”.  His clients would all chuckle at the sign and nod in agreement.  As a child, I didn’t quite understand the meaning.  As the CEO of a small credit union, I understand completely.  Our regulator, NCUA can be thought of as the auditor in the equation.  It’s quite possible that FDIC and CFPB are members of the same group although I don’t have enough direct contact with them to speak to them specifically.

 Membership Growing, Credit Unions Declining

At the end of 2013, there were 6,554 Federally insured credit unions in the U.S according to ncua.gov statistics.  By the end of 2021, the number had declined by an astounding 1,612 to 4,942.  During that same time period, the number of credit union members actually increased from 96.3 million members to in 2013 to 129.6 million members in 2021.  Since the membership numbers grew, it seems evident that the decline in the number of credit unions is not due to consumer dissatisfaction.

What then, does explain the loss of so many credit unions at a time when Americans are searching for value and safety in the financial industries?  Even with fewer credit unions to choose from, 129.6 million Americans still seem to find solace in member-owned financial services.  Evidently, they still believe in the prospect of pooling their money for the good of all of the members that make up their charter.  Based on results, our regulator doesn’t hold that same high opinion of Federally insured credit unions and their mission of service.

Serving NCUA, Not Members

I’ve been a lifelong member of my credit union and an employee since 2001. In that time, I’ve seen substantial regulatory changes in my credit union as well as the industry as a whole but none as significant and harmful as the ones I’ve noted from 2013-2022.  Our members are not being served by their credit unions.  Instead, our credit unions are serving NCUA.

Based on the numbers, many have been unable to continue to do so successfully.  Some have been dissolved involuntarily and many others have been “encouraged” to merge in order to fulfill NCUA’s crushing requirements for what is deemed to be “safety and soundness.”

It seems NCUA would much rather provide oversight to a few giant credit unions than have to provide guidance and oversight to thousands of us little guys.  Is that really what the millions of members of both small and large credit unions want?  Do our members really understand that there will come a time when belonging to a credit union is no different than being an account holder with Bank of America or Wells Fargo as their individual control over their financial institution is being diluted at a record pace?

The Compliance Burden: Boards as Scapegoats

Today, trying to comply with NCUA’s ever growing list of compliance requirements is like trying to herd cats.  Are those requirements making credit unions safer and more productive and efficient?  Based on the numbers, the answer is a very clear and unequivocal NO.

Each NCUA audit results in additional requirements for volunteer board members and supervisory committee members.  These completely uncompensated volunteers are now expected to review employees’ accounts, verify the vault, balance the checking account, review corporate accounts, attend meetings and training on Bank Secrecy and on and on and on.

When volunteers resign in frustration, NCUA demands they be replaced.  Replacing volunteers encumbered with such overwhelming responsibility is becoming nearly impossible.  Not only are they not compensated, they frequently aren’t even able to receive some of the benefits the rest of the membership are granted like the waiving of fees for an incidental overdraft or a request for a stop payment.

They are reminded with every NCUA contact of their culpability for any insider fraud or failure to mitigate risk appropriately.  Rather than volunteers, they are becoming potential scape goats for NCUA.  In order to rope in replacements, we have to overstate the “service to your community” aspect and seriously understate the actual responsibility of it all.

The Big Three DP Monopoly

Beginning around 2014, NCUA started a nearly constant drumbeat regarding “Vendor Due Diligence”.  We are cautioned on the growing threat of losses caused by the numerous outside vendors we use for everything from data processing to corporate account services to network security.

We chase our tails trying to verify these vendors are properly insured and sustainable and are abiding by regulatory requirements in terms of security.  We make lists and check boxes and retrieve SOC I and II reports.  We even hire other vendors to help us keep track of us monitoring our vendors.  We spend thousands upon thousands of dollars and hundreds and hundreds of hours trying to make sure our vendors are safe.

In reality, small credit unions have very little choice of vendors and almost no control of their behavior, particularly in regard to information security.  The Big Three data processors have become so big and so powerful. They have not only access but also control of every bit of our members’ financial information.

They refuse to provide security audit information on the pretense that doing so would compromise their own security.  They refuse to return our data without hundreds of thousands of our members’ hard-earned dollars in “de-conversion fees” if we attempt to cut ties with them.  They hold our data hostage and simply refuse to allow our exit until we meet their demands. Rather than a contract termination, our dissatisfaction is relegated to a hostage negotiation scenario.

Does NCUA intervene on our behalf as we attempt to comply with their demands surrounding vendors?  Absolutely not.  In whispers they admit that they have no oversight of these giants either.

Yet small and large credit unions alike are expected to demonstrate that we are overseeing these bullies.  The really large credit unions at least have the benefit of the substantial sums they pay to these vendors to use their leverage to obtain Service Level Agreements when signing contracts.

Small credit unions like mine have no such advantage.  The Big Three don’t care what I demand in terms of service on behalf of my members.  When their shoddy security practices put my members’ information at risk, they shrug their shoulders and basically dare me to find an alternative.

Rather than contrition and embarrassment regarding their failure to maintain adequate security against current threats, these Fortune 500 companies threaten legal action for disclosing their rookie mistakes.  They aren’t sorry they failed to use their superior security resources to provide superior security.  They are only sorry we found out about it and demanded that we deserve better.

End part I.

Part II tomorrow, includes a recent additional concern and six recommendations for improving the regulatory relationship.

Needed: A Coop Pulitzer Award for the Credit Union Press

In America the press is often called the “Fourth Estate.”  The term places the press’s role as critical as the three branches of government: legislative, executive and judicial. It signals the watchdog role of the press, so vital to a functioning democracy.

What is the state of press coverage of credit unions?  Especially now that coops are the second largest depository system in the economy, serving over 100 million members and managing $2.2 trillion assets.

A Brief Credit Union Press History


Today’s independent coverage of the credit union system evolved from newsletters that emerged in the 1970’s and 1980’s as the credit union system become more coherent with national ambitions and organizations.

These startups included CUIS, Report on Credit Unions, NCUA Watch.  These newsletters relied on subscriptions versus the free in-house updates from league and trade associations.

In 1986 ASI established the first printed newspaper format called Credit Union Week.  Shortly thereafter Mike Welsh, former CUES President, launched Credit Union Times offering original reporting and commentary.  In following years Credit Union News and Credit Union Journal were launched as competitors.   All used a combination of advertising and subscriptions to support their free-spirited reporting.

Today the independent credit union news media is largely virtual, publishing daily online summaries relying extensively on press releases from the industry.

More than Aggregators

With small staffs, limited budgets and daily posts, opportunities for original reporting or even investigative efforts are limited.

But there are periodic examples of the traditional press role of speaking “truth to power.”   Power refers both to the actions of NCUA and other government agencies, as well as events within credit unions and trade organizations.

Peter Strozniak of the Credit Union Times has a talent for tracking legal proceedings involving credit unions.  His articles have provided valuable insight into NCUA’s regulatory shortcomings, as revealed in court records.  A recent example is his story of a credit union’s suing NCUA for failure to prudently manage its interest in taxi loan participations.  The opening paragraph:

The $390 million Nassau Financial Federal Credit Union is suing the NCUA for nearly $1 million for allegedly breaching an agreement to settle defaulted taxi medallion loans for a mere fraction of what they were worth.

Many observers questioned NCUA’s disposition of the taxi medallion loans sold to a hedge fund in February 2020.  The agency refused multiple FOIA requests for details.  This example further adds to the impression of an NCUA coverup in its actions in the $750 million sale  of loan participations to a Wall Street hedge fund.

The Members’ Interests: Sunlight as a Disinfectant

CU Today has published a series of original articles about member’s efforts to participate more openly in their credit union’s governance.

One series discussed the efforts of four members of Virginia State Employees Credit Union to seek nomination for open board seats.  Their efforts were totally ignored. The credit union elected the board’s self-selected candidates including the current chair with no outside nominees permitted.

More recently CU Today has followed the efforts of former directors and  CEO to challenge the announcement of Vermont State Employees to merge their very successful credit union into the larger New England FCU.

CU today publisher Frank Diekmann editorialized about his goal of “pulling back the curtains.” He explained why reporting the merger information provided members when charters are ended and the payouts to management that sometimes accompany such efforts matters.  It read in part:

We also got to see how many CUs opted to return net worth to the people who own it (in some cases, obviously, there was little to reserve from the reserves). We further got a peek into which were not offering any payout, with a few citing odd reasons such as the acquiring CU has more branches or, bafflingly, offers Apple Pay and Google Pay. Eh?

One CU did announce it would be paying out some of the excess capital, but in this case only to savers, with more than $2 million being distributed in all. I’m not suggesting the members of the board all had savings/CDs at the credit union and that few if any were borrowers. I’m just saying. 

Sunlight may indeed be the best disinfectant, but not if no one never opens the curtains. CUToday.info has made a commitment to reporting on all the merger disclosure forms sent to NCUA, meaning we will continue to give the curtains a pull. 

Needed:  A Pulitzer for Credit Union Reporting

At last week the White House Correspondent’s dinner the comedian Trevor Noah’s public roast of many public figures ended with this close about the never-ending importance of a free press.

While the international press coverage of the war in Ukraine was top of mind that night, a domestic event happened the following day proving Noah’s thesis.

The national press released a draft of a Supreme Court decision that would reverse the Roe vs Wade fifty-year precedent giving women the right to an abortion. The coverage took  the debate from behind the hermetically sealed Supreme Court process, to the public sphere.

If credit unions are to fulfill their purpose of bringing more economic democracy to their members and greater choice for all consumers, one of the most important ways to monitor this role is an independent press.  One that reports its successes and exposes its failures.

In addition to Herb Wegner awards honoring credit unions leaders who exemplify the best in cooperative commitment, I believe an equally important moment would be to award “Coop Pulitzers” to press coverage of credit unions.

These would recognize the writers and stories from within and without the industry who take the risks and invest the time to hold those in positions of leadership to public scrutiny.  Especially for those with public authority. For unlike the White House Press, in credit union land there is only one estate, the NCUA.