Category: Observations

Going to college in the Boston area in the ‘60s meant following the Boston Celtics. They were the dominant team in the NBA led by coaching legend Red Auerbach. Near the end of yet another Celtic victory, he would light up a cigar to celebrate the win, before the game was even over.

When he retired the critical decision was who could follow this extraordinary leader. Management chose Bill Russell, the team’s center, to be a player-coach. An unusual and risky option.

Russell was a five-time NBA Most Valuable Player and a 12-time All-Star. As the centerpiece of the Celtics dynasty, the team won eleven NBA championships during his 13-year career. In his three-seasons (1966–69) as player-coach he become the first black coach in American professional sports and the first to win a championship.

To perform both leadership roles well requires not just a superb athlete, but unusual awareness of the team and game’s multiple dynamics. During a season as a member of a military basketball team for the Naval Supply Depot in Yokosuka, Japan, I volunteered to do both roles when our coach was away on temporary duty. At halftime the best player on the team took me aside and said, “Chip, you can play or coach, but you can’t do both.” My brief Russell-like imitation effort was over.

The Player-Coach dual role was a perfect fit for Rex Johnson. As CEO he repeatedly proved he could perform at the highest levels of lending keeping Baxter at an 85% or greater, loan-to-share ratio. As a consultant, he taught (coached) thousands of credit union loan officers and managers the art of lending using their own institution’s examples.

The Case Study-The Core of His Teaching Method

The following example “Who Will Trust Me?” is from Rex’s book More Passion for Lending. It demonstrates his skill as a loan manager-“player.” From this experience he developed specific lessons on  the art of sound loan decisioning. Here’s the case.

Just Starting Out-Who Will Trust Me?

“To illustrate that lending is based on judgment, not formulas, let’s review the case of a young, first time borrower.

On the application, we learn that Doug is nineteen and is just starting out on his own. He has been a member of the credit union for two years. His parents are also members.

Doug wants to buy a new Chevy truck and finance the $10,500 loan in his name only. He is just beginning his first real job, and has no credit history, and might well ask, “Who will trust me?”

That’s a good question. You could see a lot of reasons for turning Doug down, or require his parents to co-sign:

• lack of credit history;
• short time employment;
• no credit bureau report;
• no real assets.

Every situation is different. There are 19- and 20-year-olds who may be excellent credit risks. When Doug applied for the loan, some of the things you should have liked were:

• He saved his money and was paying $1,795 down on the new truck;
• He had worked all through high school and although he is not going to college, he did want to learn a skill;
• The credit union will have a 100% secured loan;
• The credit union knows the family; and
• There is good stability-Doug has lived at the same address in an established area for nineteen years.

When the application was taken, the credit union learned the following:

• Doug had enrolled in a trade school for four years to learn to be an electrician. Doug is good with his hands. His employer allows him to work full-time while going to school; and,
• Doug had completely restored a 1969 Pontiac GTO. It looks as good as new, and Doug wants the truck to haul it to car shows. The GTO has a value of $12,000.

If you are looking for a way to make loans, sometimes it is vital to take time to develop the application by asking the right questions. The new information above made the loan application much stronger. Developing an application is an art that can be taught.

Doug is not going to college. However, he is a very industrious young man. Based on this information, the credit union made the loan three years ago without the benefit of payroll deductions.

Doug has only two years left on his loan. He has never missed a payment. He is now earning $12.75 an hour and will graduate from trade school next year. The credit union has since given Doug a credit card, which he is handling very nicely.

I do not suggest that you start out granting loans to every 19- and 20-year-old who applies. I am suggesting you treat them as individuals and look at their qualifications based on their age. Doug always appreciated the fact that the credit union gave him his start, and my guess is that the credit union will have a life-long member.

Look at each application individually, even those showing no credit history. You may find some of the applicants well qualified. Remember, lending is a judgment business.”

(An observation on this first case in More Passion. I cannot help but wonder how much Rex empathized with this applicant whose life seems a close parallel to Rex’s own starting out.)

A CEO on Rex as Coach

By Karen Church, CEO,
ELGA Credit Union

Rex was my hero and mentor. I’m not sure where our credit union would be today if I hadn’t called on him in 1993. 

Rex revolutionized lending for the credit union industry. He taught us to listen and record the story of each member coming to us for a loan. He said, “ask good questions to understand their future attractions rather than dwell on their colorful credit from the past”. He explained that we would help them with affordable loans, and they would help us with higher yielding loans. Rex was spot on!

He was a phenomenal credit union leader!

A Brief History of Elga Credit Union

“We are a not-for-profit cooperative; formed in 1951, owned and operated for a single purpose: members helping members.”

“ELGA Credit Union had a humble beginning, helping Consumers Energy employees that were paid below the average of other industrial workers in the 1940’s and 50’s. ELGA got its name from a contest held in 1959 to rename the credit union, replacing the previous name, Flint Division Consumers Power Company Federal Credit Union. The name incorporates the first two letters of Electrical and Gas. Today we like to say it stands for “Everyone Loves Goals Achieved”. We are dedicated to helping you achieve financial success.”

In Part II tomorrow, I will present Rex’s four decade- long contribution to the ever-evolving credit union story.

In a February 28, 2021 article Forbes highlighted the growing number of business startup programs at colleges around the country.

“Gen Z grew up in an era when entrepreneurs were put on pedestals, and business leaders like Elon Musk and Jeff Bezos hold a disproportionate mindshare of the U.S. public. Entrepreneurs have a new prestige factor.”

“Entrepreneurship is an unusual discipline, in that there is no set path for creating a successful company. The competitive landscape changes so fast that it’s tough to study, learning to be an entrepreneur is very much about learning by doing.”

Learning by Doing

The story stated there are more than 250 university startup programs around the country. To determine whether a school offers a good environment for “learning by doing” the article cited a raking of the Top 20 Entrepreneurship Competitions by the Times of Entrepreneurship.

The New Venture Competition (NVC) at the George Washington University in DC is ranked the 3rd largest student enterprise program in the country.

The 466 participants this year were the most in school history. The 12 final teams were selected by 150 judges from all over the world.

These 12 are divided into three tracks of four teams each-Tech, New and Social ventures.

On April 15, at 6:30 pm they will compete for $500,000 cash and in-kind awards at the annual NVC Award Show.

You can register to watch live here: RSVP to get the live stream link

Why Watch?

The live business presentations are well honed, documented and excellent examples of “elevator pitches.”

The business passion and skills of these students is inspiring.

Some of the ideas would seem to align well with credit union purpose. For example, this is one finalist in the social venture category:

P.E.E.C.E. Homes

P.E.E.C.E. Homes is a real estate venture determined to supply affordable, energy-efficient homes for underserved communities in Baltimore City.

Team: Brookklin Brown (CPS MPS ’22), Marylynn Jones

Look in Your Area

Check the list of the top 20 or look for a similar college/university  initiative in your area. Then reach out to see if there is a role for a credit union.

Some call this the entrepreneurial generation; others see this as reaffirming the American spirit. There might even be a credit union startup inside one of these higher education business incubators.

Nature at work and play

As credit unions increasingly challenge NCUA’s funding from the overhead transfer of expenses (OTR) to the NCUSIF, and the record buildup of cash (over $110 million) in the operating fund, the Board approved an unprecedented Request for Proposal (RFP).

Chairman Harper said the board’s unanimous support is an “innovative response” to credit unions’ concerns over ever increasing agency operating costs. “We need creative ways to meet our growing financial responsibilities. This RFP also grew out of suggestions by credit unions themselves.”

Vice Chairman Hauptman, the newest board member, was equally supportive of the initiative to bring private sector “best practices” to the agency.

Building Naming Rights

Hauptman specifically singled out the idea of selling naming rights to the Agency’s Alexandria head office. The concept was raised by PenFed during the agency’s recent approval of their 21^st merger. The nation’s third largest credit union had been seeking a building in the DC area on which to display its brand. The proposed wording: PenFed Tower with the tag line, Anyone Can Join. Their initial offer was for five years with a yearly fee of $5 million. The amount was coincidentally the same as the ONES office’s annual budget. (ONES: Office of National Examination and Supervision)

Educating CURE (Credit Union Resources and Expansion)

State Employees Credit Union NC had earlier met with the director of NCUA’s CURE concerning the disappearance of small credit unions and lack of new charters. “Without these smaller institutions the largest credit unions will not survive,” said Mike Lord, SECU’s CEO. “Our foundation normally limits its contributions to North Carolina projects. We offered to fund 100% of the tuition for every CURE employee to complete the Credit Union Development Educator (CUDE) program. Once CURE staff understand how credit unions are conceived, we think a wave of de novo charters will follow.”

Sponsorship of Monthly Board Meetings

To provide upgraded video technology for board meetings, the RFP also seeks interest in sponsoring the Board’s monthly open board meetings. The caveat is that messages cannot be a narrow promotion for a single credit union.

Any messages must have the character of a “public service announcement, like those on NPR,” said the Director of NCUA’s office and external and public affairs (OEPA). For example, a promotion for “better banking with XYZ Credit Union” would not be permitted. Whereas Navy FCU’s, Our Members Are Our Mission, would be acceptable.

Naming the Chairman’s Office

To avoid future public relation embarrassments when new Chairman furnish their assigned office, SchoolsFirst CEO has offered to endow an office renovation fund in perpetuity. The CEO gave two reasons for the credit union’s munificence. “I know what it’s like working in DC under attack from all sides. Plus, our credit union is thankful for the $360 million in additional capital from our merger with Schools Financial CU in 2020. I think it is important to show a little gratitude for NCUA’s generosity with Schools Financial member’s accumulated wealth.”

Publication Sponsorships

One of the agency’s most used publications is Truth in Mergers. Several credit unions expressed strong interest in underwriting future editions. Infinity FCU’s request to sponsor was deemed premature as their merger with Deere has yet to be approved.

However, the Director of Supervision for NCUA’s Western Region suggested the update be named for Andigo Credit Union. Their members voted 32,494 to 0 to merge with Consumers Cooperative Credit Union on April 9, 2020. Consumers added over $100 million in reserves from this unanimous member vote. “They could easily pay 1% of this added capital for endorsing this indispensable agency guidance,” the Director suggested.

Internal Staff

Agency staff involved in drafting the RFP volunteered other ideas for “naming” dedicated spaces.

For example, the Director of Examination and Insurance (OEI) suggested the rooms where NCUA examiners are provided on-going training be named after a former NCUA examiner, Edward Rostohar. As an NCUA employee Rostohar was so well-schooled that, for two decades as CEO of CBS Employees FCU, he went about a $42 million embezzlement no other examiners were able to detect.

Another NCUA staff recommended approaching CUNA Mutual. The company recently acquired Assurant’s Global Prearranged Funeral and Final Expense Business. Staff thought this new business’s purpose aligned perfectly with NCUA’s Asset Management Center (AMC) which disposes of failed credit unions. CUNA Mutual’s promotional support would not only reduce the cost of future liquidations but also offer members of failed credit unions a unique cooperative end-of-life burial option.

Next Steps

Once published in the Federal Resister, comments will be accepted for a 60-day period.

The Agency emphasized the urgency of receiving as many responses as possible before this year’s budget cycle begins.

Chairman Harper was enthusiastic about this innovative effort: “This is a unique opportunity for the cooperative community to increase their support of NCUA. It is a win-win for all. A third versatile funding option is opened up for NCUA. Credit unions can choose to participate or not. New promotional and endorsement options are limited only by our collaborative imagination.”

The chairman also reminded credit unions that the agency’s concurrent Request for Information (RFI) seeking applications for artificial intelligence (AI) use in the Agency are due at the same time.

“There are some serious disconnects going on, ones that imperil the safety and soundness of credit unions. One is the disconnect between members and their credit unions. The other is between credit unions and their regulators. . . Regulatory systems are bureaucratic and not market driven. The regulators are not so cognizant of just how rapid the changes in the real world are. They are focused on a bookkeeper’s definition of safety and soundness.”

Ed Callahan, Callahan Report, May 1999

A CEO’s March 2021 Comment to the Board:

“Almost daily the mood all around us is improving – not from the messages that the media and our government push on us, but from the fact that teammates announce with beaming faces that they got vaccinated, that they recognize more and more people have gotten vaccinated, and that the momentum for things to improve is local and real (not national, not a mirage of bias).”

A Thought about Future Living Environments (from: Building Back Better, You Say? It’s All About Scale) By James Howard Kunstler

“The good news is there is another way (than big city or suburban life), and it’s a better way: the traditional town, where all kinds of businesses can be integrated healthily and happily with houses and apartments; where most of the things you need from day-to-day are within a five-minute walk; and where everything is at a much more humane scale. There are thousands of towns across the USA that once formed the basis of what we considered most valuable about American life: places worth caring about, places that you could confidently call your home. Most of them are in terrible shape these days, because for most of the past century, Americans have been settling in the big cities and the suburbs. Dis-investment has been savage in small-town America.

But that is the next frontier for redevelopment and should be of special interest to New Urbanists.(and credit unions) Get in early and avoid the rush. These small towns, and even small cities, are sitting there waiting to be reactivated with much of their infrastructure intact and already properly scaled to the more austere conditions we face going forward. The renovations can be accomplished at the small scale, building lot by building lot, without requiring absurd amounts of capital.”