Category: NCUA

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When There Were Two National Credit Union Trade Associations

If you have ever speculated about what is lost in a merger of credit unions, leagues or trade associations, the following example may be a helpful reminder of why choice matters.

CUNA’s Letter on NCUA Leadership

The Credit Union National Association’s August 6, 1973 letter to the White House:

Dear Mr. President:

The members of the Executive Committee of CUNA, Inc respectfully and unanimously urge you to replace Herman Nickerson, Jr as As Administer of the National Credit Union Administration.  . .

We are urging General Nickerson’s replacement because we feel that his actions as Administrator are creating growing bitterness and antagonism throughout the credit union movement, and this is causing a serous loss of confidence and trust in his administration.  . . we would particularly like to call your attention to the following:

  1. General Nickerson’s arbitrary and authoritarian attitude in deail with credit union problems. . .
  2. General Nickerson’s excessive issuance of burdensome regulations. . .
  3. Diminishing morale among employees at the NCUA. . .
  4. General Nickerson’s refusal to cooperate on legislative matters. . .
  5. General Nickerson’s poor public image. . .

Signed by the entire executive committee including Herb Wegner.

NAFCU Responds

On August 10, 1973, NAFCU’sExecutive Vice President Jim Baarr wrote the White House:

Dear Mr. President:

We have received a copy of  the August 8, 1973 letter from CUNA  . . . signed by all members of the Executive Committee.

The letter contains a series of five charges against  General Nickerson. . .

We totally disagree with the five allegations contained  in the  August 8 letter.  . .

Allegation (4):  He has always cooperated whenever possible with this Association. . .

Allegation (5);  “General Nickerson’s poor public image.”  . . .I was not aware that  Mr Jack Anderson (and his column The Washington Merry-Go-Round) was the final authority in assessing an individual’s public image. . .

In conclusion, may I add that as a representative of the credit union industry, I am appalled that a letter of this type would be directed to you by a sister trade association .  . .  may I state on behalf of the officers and directors of NAFCU that we continue to give an unqualified endorsement and support to General  Nickerson.  . . 

(Source of letter excerpts:  NAFCU’s  Washington Line, October 1973,  pages 15-16) 

The Credit Union System’s Challenge Today

A current echo of this concern  of a single administrator is the ongoing political debate about the structure of the Consumer Financial Protection Bureau and its lone Director.

The above debate on NCUA’s single overseer was real. The situation was resolved in 1977 when legislation was passed creating NCUA as an independent agency with a three-person board.  No more than two members could be from the same party.  The board structure was intended as a check and balance on the chairman’s power and to facilitate different points of view on policy and oversight.

As mergers continue to reduce the number of independent voices in the cooperative system, how are different and sometimes opposing points of view getting voiced?   The credit union community values relationships.  Public disagreement is rare.  Internal board dissent is even more likely to go unaired.

One hope is that the competition of ideas will occur in the “free market” and different points will automatically arise.  Rarely happens.  Mergers are often of competing organizations as in CUNA and NAFCU’s recent combination.  The same occurs in many credit union tie-ups.

Another hope is an independent press, but the structure and resources of oversight of these organizations are limited.  The general press rarely follows credit union events, unless there is a crisis. There is no requirement that institutions respond to press queries.

Finally, some put their hope for dissenting views in  external oversight by Congress or state regulatory or legislative activities.  The current effort to amend the federal credit union act to accommodate Navy’s management of a military bank, has found sponsors and opponents submitting their views to Congressional committees-which are then reported publicly.

When any industry is marching to a single drummer, sooner or later that approach will be found wanting.  Ensuring there is open and full consideration of differing points is how change begins. Defending the status quo can lead to irrelevance or worse,  purely self-dealing decisions.

Mergers at their core, are anti-competitive.  Anyone doubt that motivation?

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One Credit Union’s Simple Unique Act in 2023

The $46 million Solutions First Federal Credit Union was founded in 1964 to serve members of the International Association of Machinists and Aerospace workers at Fort Novosel (formerly Fort Rucker).

Its main office is in Enterprise, AL with a branch in Ozark.  Over time the credit union has expanded to a community charter for  Dale, Coffee, Covington, and Geneva Counties, Alabama with an FOM of over 170,000.  Today its ten employees serve  5,000 members.

One event makes this credit union unique in the three decades since the turn of the century. It is the first and only credit union to borrow from the movement funded Central Liquidity Facility (CLF).

During the 2008/2009 financial crisis the NCUSIF borrowed $10 billion from the CLF on behalf of two corporates.  There was also an effort to create a special program for credit unions to refinance members home loans that never got off the ground.

So Solutions First is the first stand-alone CLF loan this century.  This unusual borrowing was noteworthy enough that it was mentioned by Chairman Harper in the December 2023 board meeting, but without any details.

A “No-Brainer”

At yearend 2023 credit unions continued to face liquidity demands due to the uncertainty caused by bank failures earlier in March and the Federal Reserve’s raising short term rates to almost 5% to fight inflation.

At the 2023 yearend 1,267 credit unions reported total borrowings in excess of $137 billion versus only $44.8 billion at December 2022.

Following the sudden failures of Silicon Valley Bank and two others, the Fed in March 2023 established a special borrowing facility, the Bank Term Funding Program.  This became the go-to source for credit unions.  The special facility was used by hundreds of credit unions as described in this analysis. The Fed ended the program in March 2024.

Frank Garrett is the CEO at Solutions First, having arrived eleven years earlier from a banking career.  He said the approach for a CLF loan had been suggested by NCUA examiners. The credit union was facing ongoing loan demand especially from its indirect lending program.  The credit union  was funding this with overnight borrowings costing as much as 7%.

By taking a short-term fixed rate $1.0 million CLF loan, the credit union was able to save almost 2%.   The process took about thirty days to become a member and receive the loan which was fully collateralized .  He called the decision a “no-brainer.”

Since that event,  loan demand has diminished dramatically, the credit union has curtailed indirect loans, shares have stabilized and investments yielding as low as 1% matured and been reinvested at 4.5% or more.   He was able to prepay the loan in the first quarter of this year.

In this first quarter, the credit union like many others, has slowly started a comeback from a difficult 2023.  The prior year saw staff cutbacks, expense reductions and above average delinquencies.

The  CLF loan was done with NCUA encouragement, a positive sign.   The critical question Is whether this an example to be emulated by others, or merely the last “bird of summer” ?

 

 

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Three Observations on Sound Credit Union Mergers

Members Vote Against Merger

From the May 24th CUToday story:   In a rare development, members of Hoosier Hills Credit Union have rejected a merger with Centra Credit Union. The two credit unions had announced in January  their plan to combine to create a CU with more than $3 billion in assets. 

The credit unions said in a joint statement that “despite extensive communication from Hoosier Hills outlining the factual details of the merger, the vote was impacted by the circulation of misinformation.”

The credit unions did not say what that misinformation consisted of. The vote tally was not released.  

Why did members reject this merger? Here is a post on LinkIn by Hoosier Hills CEO Travis Markley, based on a Forbes article dated June 20, 2023 about the credit union.  The merger was announced six months later.

“Amazed and humbled to be a part of this organization and everything we do for our members, and so proud of the dedicated staff that make it possible!

“Hoosier Hills Credit Union is honored to be recognized by Forbes as one of the three Best-In-State Credit Unions in Indiana for 2023, joined by our friends at Interra Credit Union and FORUM Credit Union.

“This award, the result of an independent survey conducted by Statista, was based eighty percent on feedback from 31,000 US consumers, who rated their credit unions on criteria such as trust, branch and digital services, customer service, fee transparency, and financial advice. Twenty percent of the scoring was attributed to publicly available Google Reviews from the past three years.

“We are honored to serve our members, and appreciate this special recognition, which we could not have achieved without the dedication and character of our team at all levels,” states Travis Markley, CEO at Hoosier Hills. “Our knowledgeable and caring staff is committed to carrying out our company’s mission and continues to put the needs of our members and communities at the center of every decision we make and every action we take.”

This Merger Process Seems Suspect

Very soon after this positive external recognition, the merger process started.  The CEO would become the Chief Experience Officer of the new combined entity.

What is even more curious is that the merger proposal posted on NCUA’s website for comment says that Centra is merging “with and into” Hoosier Hills Credit Union, not the other way round as implied in the CUToday article. The Centra Chairperson, Jim Bickel signed the merger plan sent to members (whose?) on November 1, 2023 or five months after the Forbes “best” ranking for Hoosier Hills.

In this Centra notice to members there is an effective date of the merger of July 1, 2024. However, the credit union being merged is North Park, not Hoosier Hills.

This entire episode needs a good hard look by state and federal regulators as the documentation and explanations appear questionable.  There is reference to a detailed merger plan by Centra, but it is not included in the required posting even though the letter states it is enclosed with the Notice to Members.

This example reminds me of a recent post by credit union consultant and former OCC examiner Ancin Cooley.

Mergers are Feeling “Icky”

By Ancin Cooley

Is anyone else beginning to feel a little “icky” about the current merger frenzy in the credit union industry? Something about these transactions just doesn’t sit well in my spirit. . . what do credit union members get for their capital and assets when they merge?

Here’s an excerpt from a recent merger disclosure:

“Members will have access to more branches, a 24/7 call center, industry-leading online and mobile banking services, and will still receive the personal service they enjoy from the same employees they rely on every day.” 

This feels “icky” to me. The credit union I mention below is giving the acquiring credit union 7 million dollars in exchange for no board seats.

Would you give me your house in exchange for my cutting your grass?

The Game

And let me be clear: I do not think the individuals involved are bad people. The game is the game. If the cooperative movement is ever going to survive, it needs to be “guarded” by individuals who believe in its purpose. If your credit union or any cooperative has “unguarded” capital, someone will come and take it.

A Case Study

I’m reviewing the financials of a credit union set to merge as of May 1, 2024. The CEO, who has been there for over 20 years, inherited a credit union with over 16% in capital. By 2015, they ventured into indirect lending, and by 2019, it represented 60% of their total loan volume.

This credit union’s financial health started heavily declining two years ago. I’d be willing to bet that is right around when this CEO started looking for a merger partner. Indirect charge-offs were well over $600,000 last quarter. . . ending with a 7% capital ratio. This credit union was not lost due to technology, costs, or economies of scale. This was bad management and weak governance.

So, this person drives the credit union into the ground, receives a hefty retirement payout from the acquiring credit union, and retires happily. Ick… If you couldn’t earn a performance bonus payout while functioning as the CEO, getting one on the backend of a merger you brought to your Board doesn’t sit well with me.

Where are all the other voices? Where are all the credit union governance experts? Even if you disagree, please point out any errors in my logic or perspective. Don’t discuss this in small circles over dinner. Stop treating credit union capital like you invested in the organization with money out of your pocket.

What Are the Principles?

The evolving landscape of credit union mergers should invite deep personal introspection and discussion on the future of cooperative movements. Are these mergers truly beneficial for all stakeholders involved? Do they warrant a closer examination of the principles guiding such transactions?

Lastly, humans in general, often value relationships with people in close proximity to them vs. folks they don’t know. This manifests itself when directors, close to management, struggle to hold their executive teams accountable.

In the example of this post, if I named that CEO, I’d face more backlash than him or her for running the credit union into the ground.

Why is all this happening?

1) Because we value personal relationships over the member-owners of the cooperative movement. Some very smart and shrewd folks realized this years ago. Once the “old school” credit union folks passed away, it became a market free-for-all.

2) Where else are you gonna get 7 million dollars on a promise for better services? There’s too much money involved and not enough incentive to stop.

The only thing that could turn the tide is if some well-respected CEOs (and consultants) in the industry begin speaking up more. We may well continue to lose at least 15 credit unions per quarter for the next year or so. On my end, I’ll focus my energy on helping credit unions that want to grow, turn a profit, and keep their charters.    END

Another Interpretation of Credit Unions’ Personal Deal-making

The motivation for these so-called mergers of sound credit unions may have been best summarized by the well-known American entrepreneur, Al Capone who said: “This American system of ours, call it Americanism, call it capitalism, call it what you will (cooperative mergers), gives each and every one of us a great opportunity if we only seize it with both hands and make the most of it.”

 

 

 

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NCUA May Board Meeting:  Vice Chair Hauptman Finds His Voice.  Harper Cancels June Meeting

(Note correction to spelling of board member Tanya Otsuka’s name from the initial post)

With Chairman Harper on extended medical leave, May’s board meeting was expected to be a routine quarterly review of the financial status of the NCUSIF.

Instead, Vice Chair Hauptman opened with a ten minute critique of NCUA’s new collection of NSF and OD fees from credit unions in future call reports.

Hauptman’s remarks can be heard early in the Board video.  He is articulate and energized. The proposal was not discussed at any board meeting. He had not heard about the effort till January.  All his suggestions for how to use the information were rejected.

Most importantly he believed the policy implications were intended to push fees downward.  This regulatory action would be contrary to the federal credit union act to serve the underserved.

In his view, when a person is short on cash, there are no good options.   In many instances, having the payment go through and charged a fee may be best of limited choices.  He gave several personal examples of being in this situation.

In addition to adding to regulatory burdens, he believed the effort was prompted by two  groups not looking out for credit unions’ best interests:

  1. The press looking for clickbait headlines;
  2. Political groups with an agenda.

Board member Otsuka’s response urged that the collection effort’s impact not be prejudged.  Members have a right to know this information. This is about safety and soundness and consumer protection.

The Meeting’s Outcome

This is the first time Vice Chair Hauptman has been so outspoken in response to Chairman Harper’s priorities.  He has loyally supported new rules, spending initiatives, and staff reports that could have been critiqued on both policy and substantive grounds.

While it is not clear why he chose this topic at this time, the response from Chair Harper absent on medical leave was immediate.  He announced the cancellation of the June board meeting.  This is after cancellation of the March meeting and a very “light” April agenda which the Chair attended virtually.

The power of board members comes from their participation at public board meetings and from the political process provided by the three person board oversight.   This legislative change from a single administrator in 1977 was to ensure no single person had total control over the agency.

Now while physically on leave, Harper is trying to retain his political control by canceling normal board functioning.  With a two-person board, both members have to agree on the board’s agenda and concur for any motion to pass. The check and balance still exists.

However  Harper’s cancellation of public board meetings stakes away the most important power and venue board members have.  He is undermining the Board’s oversight responsibilities and other agency priorities.

Leadership Uncertainties

Harper’s efforts to hold onto his authority while absent raises critical questions for credit unions and NCUA.   For credit unions, the reputation and political standing of the Agency is at risk.  Who speaks for NCUA? Who is leading the staff?    Who sets priorities?   With no public meetings, how are the multiple constituencies to which the agency is accountable, supposed to know what is going on?

For NCUA staff, do they respond to queries raised by board members concerning internal and external events-policy and otherwise or just ignore?   Does the newly created Office of Business Ethics or the IG have a role in this exercise of absentee leadership?   The cancellation of board meetings?  The lack of the Chair’s public presence and accountability?

Hauptman may have thought he was just providing an alternate perspective on an Agency data collection effort.  But his critique, and Harper’s response,  raises a whole new set of consequential issues about the board members’ role in a time of Chair vacancy.

In recent years within NCUA and the broader federal government. when there have defaults of leadership (vacancies and personal management failures)  it has been individuals dedicated to their Agency’s mission and the proper exercise of authority that have stepped into the vacuums.  Did Hauptman just start this process for NCUA?

 

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Deciding on a Merger Partner Shouldn’t Be Like a Blind Date

Edited excerpts from this Second Quarter 2017 column in The NCUA Report provide a perspective on current merger discussions.

Scientific brainteaser of the month: “This man-made creation is defying the normal rules of science by both expanding and contracting at the same time.”   The final Jeopardy answer is: The U.S. credit union system.

In a streak now extending for decades, the number of credit unions in American continues to shrink while credit union membership and assets continue to expand.  . . no other issue is as perennial as the discussion of consolidation within the credit union system.  Many bemoan the erosion of the small credit union fraternity, while others cite the ever- increasing tide of financial services competition for making the erosion inevitable.

Protecting Member Interests

Whatever your perspective, climate change in the credit unions system is real. . . our focus is on ensuring member interests are protected, through the regulatory process and that the merged entlty meets safety and sourndess requirements.

The value proposition of mergers is, as it properly should be, left to the members of those institutions to weigh and then decide. . .

Really Acquisitions

But, while the term “merger” has a distinctively collaborative ring to it, make no mistake many mergers are really acquisitions.  For some credit unions, their growth strategy is defined by pursing acquisitions.  On the surface there is nothing inherently wrong with such an approach by either the acquirer or the acquired as long as sunlight permeates the pathway from boardroom to membership. 

Transparency: a Cornerstone Principle

Throughout my tenure, transparency in governance has been a cornerstone principle my colleagues and I have committed to build upon.  As we are constantly reminded, “every dollar is ultimately a credit union member dollar.”  . . .it is equally valid and important to remember that the same responsibility falls upon boards to be open and forthright with their member-owners when it comes to the merger process.

While many mergers germinate from the ability of the acquired credit union, generally a smaller institution, to adequately serve its members, some voluntary mergers have involved medium to very larger credit unions with relatively strong balance sheets.  In such instances, boards of director should be comprehensive in their disclosures to their members.

If an acquiring institution is tapping the net worth of an acquired credit union to pay for the acquirer’s’ cost of the merger, that reduction in net worth should be transparently, completely and fully disclosed to the members of the acquired institution before they vote on the proposed merger.

Certain disclosures of executive compensation and boards of directors’ benefits are already required under some circumstances, but the threshold for disclosure many not be adequate to provide true transparency to members.

Many board directors initiate the marriage dance long before the merger nuptials are finalized.  Pay and benefit enhancements for the acquired credit union’s leadership are sometimes finalized prior to triggering the current window of disclosures. Members also may not be given adequate opportunity to digest the information before the final merger vote. . .

Merger Windows and Frosted Glass

In the final analysis, it will, and should be, the members who will rightly make the ultimate decision, not the NCUA.  But, as members peer through the merger window, it is imperative their view not be obscured by frosted glass. 

By Rick Metsger, NCUA Board Member

 

 

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Former Oracles of Alexandria Offer a New Prophecy

(Note: This is an updated post to reflect an error in my initial post where Vice Chair Hauptman’s name was mistakenly used instead of Chairman Harper’s) 

On May 11, 2024  four former NCUA chairs sent a cosigned letter to the majority and minority leaders of the House Financial Services Committee.

In this unique, unprecedented and “bipartisan” communication they urged that NCUA be given new power and expanded authority to examine/supervise  “third parties” who do business with credit unions.

The four signers with their dates as chair were Mike Fryzel (2008-2009), Debbie Matz (2009-2016), Rick Metzger (2016-2017)  and Mark McWatters (2017-2019).

These former chairs presided over situations involving the largest projected losses ever recorded by the NCUA in its oversight of credit unions.  Their joint prophecy of future catastrophe if the federal credit union act is not changed, would therefore appear to merit some consideration.

Their Records at Predictions as Chairs

The first of the two largest losses ever recorded by the credit unions was the forced liquidation of five corporates in 2010 with combined projected write offs and additional premiums of up $16.2 billion all paid by credit unions.

The second largest was the loss of approximately $750 million recorded in the sale of taxi medallion loan portfolios  to a New York City “vulture fund” Marblegate Asset Management LLC in 2020.

In both cases these future loss estimates proved highly inaccurate.  Instead of collective writedowns and assessments in the billions, credit unions and the NCUSIF have recorded recoveries and payouts to corporate shareholders in the billions of dollars.

In the taxi medallion resolution, the fund that purchased the medallions has seen a four-to-five-fold increase in guaranteed value to $250,000 for New York medallions.  NCUA refused multiple  FOIA requests about sale details,  but public estimates were these medallion-secured loans were sold by NCUA for under $50,000 in this liquidation.  Credit unions took the entire loss and a third party got the windfall.

Moreover, in their traditional oversight of natural person credit unions in the 2009-2010 financial crisis, the NCUSIF expensed estimated loss provisions of $1.362 billion. Actual net cash losses in the same two years were only $373 million or 27% of the amount projected.

Two observations from the tenures of these four former NCUA chairpersons when estimating future losses from their time on the job are:

  1. The estimates they provided for both natural person losses (or projected recoveries) and corporates 2009-2020 were wildly inaccurate. In the case of the taxi medallions the cash liquidation sale provided all the upside recovery to a third party, not to the credit unions’ borrowers or the NCUSIF.
  2. In none of the problem cases were third party vendor difficulties ever cited as a factor in these largest cases of potential or realized losses.

New Oracles about the Future

So what is the basis for these four former oracles now calling for greater NCUA regulatory powers given their track records.   They refer to none of their prior events as Chair as a basis for their position.   They cite no reference to any studies, factual analysis or actual examples from any regulatory experience.  There is no insight from their post chairman responsibilities or even reference to recent bank failures.

Without actual evidence, their plea  presents a dystopian prediction about how future bad actors could harm the credit union system.

“Many credit unions have large concentrations of members that could be of high value to our nation’s foreign adversaries.  These fields of membership are tied to military installations, the state department, agencies of the United States Intelligence Community, Congressional staff and others.

“A cyber incident could create devastating consequences for these very sensitive populations.

“It is not hyperbolic to say that the safety and soundness of the credit union system is at risk due to the potential for operational failures, cybersecurity breaches and compliance violations by third party vendors.

“Credit unions in many cases unknowingly expose themselves to financial losses, reputational damage and regulatory enforcement actions because of vendors who fail to meet regulatory requirements or adequately manage risks.

It is all hyperbole however, a verbal waving of the bloody flag to create fear and uncertainty absent any factual evidence.   And in the ultimate logical flip flop to support this open-ended expansion of authority, they claim it will actually be a form of regulatory relief:

“Additionally, this statutory authority would translate to significant regulatory relief for many small and mid-size credit  unions who, in many cases, do not have the requisite experience, or resources to conduct due diligence on vendors who are vital to their survival.”

The Four Horseman of the Apocalypse

The content of this letter is an embarrassment to credit unions and the signers’ reputations as knowledgeable about cooperative financial services and the credit union system.

Their own track records is one of misleading catastrophic future predictions of losses around the core business they should be most expert.  The NCUA had examiners on site full time at WesCorp and US Central before their conservatorships on March 20, 2009.  Every month’s financial results and investment actions were sent to NCUA’s head office for review.

Similarly, the taxi medallion problems had been in NCUA’s crosshairs for decades.  The agency actually stopped credit unions from issuing new loans years before the conservatorship of $1.3 billion Melrose in February 2017.

Despite these records of oversight failures, the four authors proclaim that “Without proper (NCUA) oversight of these service providers, credit unions may be exposed to greater chances of operational disruptions, financial losses, etc,etc” 

The core problem from past failures is not NCUA authority, but the Agency’s effectiveness in problem resolution.   Individual downturns and occasional failure are inevitable  in a market economy.   Rules and regs do not prevent bad decisions by credit unions just as good policy does not guarantee NCUA performance.

Credit unions survive and thrive not because they are better at conquering fear and danger, but rather because they embrace the human spirit of hope and betterment.   That spirit has sustained them for over 100 years as the country and cooperative institutions have gone through  periods of change and challenge.

What caused these chairs to sign on to this political act, obliviously designed by NCUA’s current chair Harper (correction to original post which mistakenly used Vice Chair Hauptman’s name), is  unknown.  They create a caricature of informed and experienced regulatory wisdom.  Their desperate reasoning makes them appear like the four horsemen of the apocalypse, the biblical figures in the Book of Revelation that represent the end of times. Instead of the challenges of conquest, war, famine, and death their prophecy is about the end of the cooperative system.

Their collective letter reminds one of the first rule of leadership by Richard Feynman: “The first principle is that you must not fool yourself — and you are the easiest person to fool.”

Let’s not let these four prophets of doom fool credit unions or Congress.

 

 

 

 

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Chairman Harper’s Medical Leave and Agency Leadership

In Monday’s public letter to the NCUA staff, Chairman Harper announced he was “stepping away from daily duties” for back surgery.   He expects to return to “my full duties in July.”

His only reference to how the Agency would be led was that “I know the NCUA team will not miss a beat” and “will continue executing the Agency’s mission.”

The extended withdrawal by a Chair from his daily duties for an open-ended period is unprecedented. The statement left unclear what, if any role, Harper will play while on leave.

The Critical Questions

The uncertainty about this unusual self-managed absence raises many questions about the Agency’s leadership.

The demands on any senior executive are tough.  Some organizations build in predetermined sabbaticals for top officials to recharge and reflect.  It Is critical that senior, public officials be proactive as Harper states in “addressing their physical and mental health needs.”

It is important however that the Agency has ongoing decision making and clear responsibility assigned for critical roles, such as:

Who will determine the board schedule and meeting agendas?

Who will represent the Agency in testimony before Congress? On the FSOC and other interagency roles?

How will programs, projects and priorities be overseen in the absence of the Chair?

What is the process for taking supervisory actions that require board approval? 

NCUA has had a two-person board several times in the past.  Chair McWaters and board member Metzger is the most recent example.  They made several momentous decisions including the merger of the TCCUSF with the NCUSIF.  This resulted in raising the NCUSIF’s NOL above 1.3% for the first time in its history to accommodate the new surplus funds.

The question is not about function, but how important internal decisions (personnel, spending, organizational alignment) and external responsibilities are being carried out.

An Opportunity for “Team” Members

For some time, the role of the NCUA board has been downplayed.  In February, the board for the first time since 2017 ignored past policy and practice to set an NOL above 1.30% without any supporting documentation or modeling.  This was a commitment that Chairman McWaters said future NCUA boards should follow after the 2017 merger of the TCCUSF when raising the NOL.

The 2024 March board meeting was cancelled.  The 30-minute April public meeting had only one item, a proposed rule, which Chair Harper attended virtually.

When the CEO is absent in any organization, there should be a continuing chain of command and authority.   This role initially falls to Vice Chair Hauptman and member Otsuka. May’s Board will be the first demonstration of their response and how they see their expanded responsibilities.

One approach would be to have more public reports on the many areas that fulfill the Agency’s core safety and soundness functions. They could request staff to present timely reports on the financial status of the NCUSIF and the Operating Fund (March data is still not available on the web).

There could be updates on the state of the examination program, the single most important Agency function monitoring credit union performance.  Will an annual exam be completed for all  FCU’s over $1.0 billion?  How do onsite results compare with quarterly filings?

There could be a discussion of the effect on culture and performance of the Agency’s policy requiring in-office attendance only two days per pay period.

In short, the two board members could take the lead in showing how they are “watching the store” and that staff continues to complete essential responsibilities in a timely manner.  Moreover, it would give both board members a platform to state their views and request input from credit unions on other issues.

A Vacuum of Power and Accountability

Harper’s  absence leaves a vacuum at NCUA.  The Chair is the primary spokesperson for the multiple constituencies to which NCUA is accountable.  The Senate banking committee approves all board members and, with the House, provides periodic oversight hearings.  The Administration nominates all NCUA board members and establishes policy priorities.

Most importantly over 100 million member-owners through their 4,600 credit union organizations depend on clear rules of the road and assurance the money they send to the agency is used wisely.  Credit union professionals are constantly reacting to market changes.  Is NCUA paying attention to their concerns about meeting member needs?

Harper’s communication to NCUA staff addressed none of these accountabilities.  A leadership vacuum may  tempt some to exercise long sought ambitions.   For others, it will be an excuse to do nothing, to just get by, while waiting for the boss to come back.

Others will see an opportunity “for the next man up.” That is the phrase used when a teammate is injured and unable to play; or in conflict when the assigned leaders go down.  This challenge happens for many in everyday life. When a spouse (breadwinner or homemaker) leaves or dies-the family must learn new responsibilities.

Harper’s statement left all options open for stepped up Agency leadership.  Who will take on new roles?   How do credit unions monitor and to whom do they communicate their concerns during this time of NCUA uncertainty?

The essence of cooperatives, is that we are all in this together.  How will this unique credit union capacity for cooperation show up in this new circumstance?

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Why the CLF Has No Interest

For over 15 years, the public-private credit union designed liquidity lender, the CLF, has had no activity.  The last major loans were to the NCUSIF for $10 million to pass through to US Central and WesCorp as part of the stabilization efforts when they were conserved by NCUA in 2009.

Liquidity Options

In April 2024 an $800 million credit union reported to the board their return on its two primary liquidity lender relationships as follows:

The FHLB declared and paid a 9.0% quarterly dividend last month.  Our capital stock value there is $1,884,000.

Corporate One FCU declared and paid a 5.75% dividend on all Perpetual Contributed Capital last month.  Our PCC there is $1,283,000. 

In contrast, the CLF reported its first quarter dividend as 4.54% which was down from 4.62% from the prior quarter.  That return is approximately 1% below the overnight rate credit unions are earning on risk free investments.

The CLF’s First Quarter Financials

At March 31, 2024 the CLF’s $895 million balance sheet was composed of $859 million in member shares and deposits and $41 million of retained earnings.  There were no loans.

The CLF’s primary assets are investments in Treasury notes ($819 million) and cash ($95 million).  At yearend the portfolio was $9.0 million underwater.  Why would a liquidity facility  ever invest longer than one year, let alone the $45 million extended beyond five years?

Moreover, the CLF has investment authority similar to FCU’s.  Why is it limiting its portfolio to just Treasury securities-generally the lowest return option in the market?  Does NCUA lack the investment expertise from staff who routinely evaluate the soundness of credit union portfolios?

The below market quarterly dividend means every credit union member is subsidizing the CLF.   The dividend decline is even more puzzling when the CLF reports adding $869,000 to retained earnings which now total over $41.1 million.

The CLF has no risk and no loans so why shouldn’t all net income be paid to its shareholders?  In the same quarter of 2023, for example, the CLF added only $3,000 electing to send all net income to shareholders.

A Vestigial Organ

The numbers show that the CLF has played no role in a year which saw record credit union borrowings and liquidity pressures from rising rates and banking failures.  CLF investments report below market returns. The dividends paid are not competitive.  That fact alone shows how detached CLF and NCUA leaders are from managing a facility that would actually serve the members who loyally fund it.

Contrary to NCUA board members’ entreaties for new Congressional legislation, the lack of credit union support for the CLF is not a statutory shortcoming. It is a management one.

Over decades the CLF has evolved to become a regulatory vestigial organ serving no purpose. As shown above, credit unions have liquidity options which they also own and which provide real value.

Isn’t it time the CLF decided to do the same?  Or at a minimum pay a competitive dividend before shareholders decide there is no reason to continue “bankrolling” a moribund facility.

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Standing on the Shoulders of Others

Recently a CEO reported on a new event for his credit union:

Earlier this month the Executive Leadership Team and the Chairman hosted the First Annual Credit Union  Alumni Breakfast with 17 retired employees and volunteers. Special thanks to key staff for their work in putting on this special event.

Today we stand on the shoulders of these employees who have come before us as they laid the solid financial, operational, and philosophical foundation upon which we are building today.

We asked each attendee to share their favorite credit union memory.  They  can be summarized simply – the PEOPLE. To a person they shared that it was the members and/or colleagues that made this the best place they have ever worked.

They shared story after story about the changes in members’ and employees’ lives, and in many cases, how these interactions changed their own lives. We know that for so many of these retirees this was not just a job, but part of who you are.  So we will continue to cultivate that community, even after you have retired. These Alumni are some of the best Ambassadors in our community.

Celebrations Create and Honor a Shared Past

Yesterday was May Day, an informal, country-wide celebratory event in England.  My daughter sent several pictures of how the Day begins with the ringing of the bells and singing by the boy’s choir from the tower of Magdalen College. Oxford.

The event commemorates not only the beginning of spring, but the common destiny we all share with nature.

Merry Makers on the way to the Tower:

Bells ringing and boy’s choir singing to bring in Spring-with 14,000 early risers.

A Visit by Louise Herring to NCUA

In Ed Callahan, Bucky Sebastian and my first year at NCUA, Sam Rizzo who was the CEO of ASI (then NDGC) made a special  effort to bring to D.C. the last living attendee from CUNA’s founding at Estes Park, Colorado in 1934.  Louise Herring spent her entire life promoting, leading and founding numerous credit unions and supporting firms (such as ASI).  She had to travel attached to an  oxygen breathing cylinder.

Her mind and commitment were as sharp as ever.  Field of membership for FCU’s was a hot button issue. Her belief was that all Americans should have credit union access.  In her memorable phrase, “Poverty is not a common bond.”

The incredible chartering and organizational efforts of her era and the passion for the movement were apparent to everyone.

Louise is just one example of the pioneers who devoted their lives to lay the foundation for credit unions today.  Her commitment was a memorable experience for everyone she saw.

Recognizing past credit union regulatory leaders was an integral aspect of Chairman Callahan’s role.  Just one example. He honored his predecessors at NCUA and in the HEW’s  Credit Union Bureau by asking them to come to D.C. to celebrate the 50th anniversary of the Federal Credit Union Act in 1984.

Earlier that year Ed presented the Agency’s highest honor, a gold medal, to recognize many whose tenures were only recorded in official reports. (see Dean Gannon’s medal award)

Current and prior federal credit union regulators, General Counsels, and Executive Directors reunite  at NCUA’s headquarters, 1776 “G” Street, Washington D. C. on the 50th anniversary of the Federal Credit union Act.

The Past Makes the Present Possible

It is always tempting to believe when one achieves a position of great responsibility, that the future begins with their arrival.  The past is gone.  Those are the achievements of others.  Now it is our turn to pivot with new beginnings.  After all who wants to just carry forward the success of others when every impulse is to put one’s own imprimatur on events?

However, without a knowledge of the past it is difficult to sustain a sense of common purpose or community with others.  Each leaders turn at the wheel becomes a unique episode.  The lessons of prior efforts are overlooked.  The successes are taken for granted, because they seem just to endure naturally.

But that is not how lives or even organizations are remembered.  When individuals are at their best, their work and example transform the moment.   There is a moral component that recognizes the worth of each person, and a commitment to common good, not merely individual or organizational momentary success.

Every society has its May Day celebrations.  They create a shared heritage that goes back generations in England.

Current leaders and CEO’s of organizations may not know or even be interested in their predecessor’s  success or viewpoints.  The past leadership is gone and I am now in charge.  Some CEO’s are uncomfortable even talking with their forebears.

Knowing the history of any organization is vital to continued relevance. That is why I believe this credit union’s inaugural Alumni breakfast matters.  Honoring leaders from different eras and circumstances, gives meaning and context to current events and decisions. How a leader remembers their predecessors is a good indicator of how one’s own tenure is likely to be recalled.