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Telling stories is a leadership art.  They stick in our minds much longer than financial performance numbers or rhetorical marketing phrases.

They present authentic moments from real life situations with which all can relate.

Stories honor individual actions and illustrate the special  service culture of a credit union.

One would also hope these are part of the messages shared with congressional staffs during Hill visits this week.

Here are two examples from WEOKIE CU’s CEO’s monthly staff update.

The 599 FICO Score

“David, a non-member, applied for a loan with 599 credit score. This app would have been easy to decline and move on due to his poor and limited credit. Wanda and Kyla worked together to figure out why he had such challenging credit.

“He has a great career with plenty of income. Long story short he had to spend some time in the hospital which caused a lot of medial debt and insurance was not cooperating. We were able to help him get an auto loan and hopefully, we created a member for life.”

To Whom It May Concern-“She’s a Keeper”

(a member’s note)

“To whom it may concern: I have had the pleasure of working with Shirley for several days now. I just want to tell you that she is a breath of fresh air to customers!

Shirley went way out of her way to help me, while the other bank did everything they could do to cause problems.  She initiated a 3-way call that helped solve the problems the other bank was trying to create. You rarely see this type of customer service anymore, Shirley is one of the best problem solvers I have ever seen. Just a note to whom it concern: she is a keeper!”

 Changemakers in a  Service Culture

The CEO describes these efforts to take great care of  members  as follows:

Changemakers are individuals dedicated to positively impacting the people and places around them. They are often seen as visionary, collaborative, purposeful, and empathetic. They possess critical thinking and problem solving skills as a prerequisite.

No challenge is too big, every story is relevant, and every person has a purpose. Changemakers live the mission of changing the lives in our communities, one person at a time by being the best place our employees ever worked, and the best place our members have ever banked.

 

 

Often events for good or otherwise are quickly forgotten.  Deeds are overwhelmed by subsequent activity.  We want to live in the present, project hope into the future, and allow the past to stay there.

The following is a situation of self-dealing where all the principals are doing their best to help us forget.

The circumstances of the $634 million Finance Center (FCCU) merger with Valley Strong was analyzed in A theft of $10 million or Just Spreading Goodwill, You be the Judge.  (January 26, 2022)

The two credit unions’ main offices were 240 miles apart.  Prior to the merger, FCCU had reported member capital of over $100 million (17% net worth), a falling loan to asset ratio which at points were below its net worth ratio.  The two primary executives, the CEO Michael Duffy and the COO Nora Stroh were brother and sister.  They had been in these leadership role since the early 1990’s, They had paid themselves over $1.0 million in compensation in several years prior to the merger. CEO Duffy also served on FCCU’s five-person board.

The member’s Merger Notice contained all the rhetorical promises (consolidation of energy and resources) for a future of better products and expanded services. Bonuses for FCCU’s five senior executives and future employment prospects were presented.

A complicated formula for a member dividend from the credit union’s $100 million net worth was outlined.  And, the diversion of $10 million to a non-profit newly organized by CEO Michael Duffy and FCCU’s board Chair Morales, with a ten-year Valley Strong funding commitment of $2.5 million, was presented as a merger benefit.

Post Merger Events

Two years later in January 2024 I wrote a follow up story: The  Pied Piper of Area Code 209 or What Happened to the FCCU Members $10 Million?

Part II of the analysis detailed the immediate fall in  Valley Strong’s financial performance, the $800,000 in merger bonus payments to four FCCU’s  senior executives with their continued “employment” at Valley strong.  Their salaries ranged from $353,000 to $1.088 million.

The blog also  presented the financial filng of the newly created FCCU2 charity from its initial IRS 990 report. Part II The Pied Piper of Stockton.  (February 1, 2024)

In a Game with No Rules (February 2, 2024) two FCCU member’s comments critiquing the merger’s premise and  “giving away the member’s $10 million”  showed the reality from the owners’ perspective.

California and NCUA regulatory approvals were critiqued.  Their combined inaction was more harmful than mere benign neglect. The cooperative system’s fundamental soundness was being compromised.  I asserted that credit union mergers have become a game without rules. Longtime, sound credit unions were being transferred out of existence where the only concrete benefits  were for the CEO and senior staff who initiated the transaction.

The Continued Self Dealing

The CEO, senior executives and board of FCCU negotiated the merger of their overcapitalized institution in return for $800,000 of immediate bonuses and continued employment in vacuous  responsibilities (Chief advocacy Officer, Legacy Ambassador). The undisclosed terms  of their future employment compensation and benefits resulted in  their receiving $2.5 million in 2022, per the IRS 990 form filed by Valley Strong.

These five senior executives gave up all leadership roles and accountabilities. They no longer report to a board and their performance is not subject to external examination or audits.  The team which they supposedly joined is 240 miles distant (Stockton to Bakersfield). But their full pay and more continued.

This continuing compensation was in addition to receiving the benefits from retirement plans they previously awarded themselves in FCCU and reported in the IRS 990 filings.

The FCCU2 Foundation Becomes The 54 Fund

Old habits are hard to change. The continued self-dealing, clothed in philanthropic disguise as evidenced in FCCU’s final years, continues with the diverted $10 million (sic) in members’ equity.

In 2022, the first full year of activity by the newly created 501C3, we learned the following as described in The Pied Piper, Part III:

• Almost $12 million, not the Member Notice amount $10 million, was diverted to the Fund;
• The Fund’s name was changed from FCCU2 to The 54 Fund, distancing itself from its credit union origins;
• The address is no longer at the former credit union’s main office, but 2616 Pacific Avenue #4081. It is a box at the local post office.
• The fund received a $250,00 grant from Valley Strong CU and dividends and interest income of $118.7K (a return of .99% on its $12 million in assets)
• Total charitable donations were $272.5K to 86 local 501 (C) 3’s. That total was much less than the  salary that each of the five FCCU executives received individually from Valley Strong.
• For each $1.00 donated, The 54 Fund reported $.38 cents in expenses.
• The 54 Fund’s nine directors were all from the merged credit union: Three former senior FCCU employees, five former directors and Mary Webb, no previous connection noted.
• A former FCCU director Ed Figeroa was paid a salary of $46,667 and is listed working 40 hours per week. He had recently retired as CEO of St. Mary’s Dining Room.

The2023 IRS Filings for The 54 Fund and Valley Strong

In the continuing credit union Valley Strong’s 2023 IRS return, three former FCCU senior executives were still on the payroll earning the following:  Nora Stroh $1.662 million; Steve Liega $1.311 million; and Michael Duffy $1.021 million. The two senior “at will” FCCU employees in 2022 were no longer listed.

Stroh’s total compensation was the highest of any credit union employee, and Liega’s the third highest just behind Valley Strong’s CEO.  Both former FCCU executives had unusual compensation \structures.  Each received salaries less than the prior year 2022. In Valley’s 990 Schedule O listing,  Stroh received other reportable compensation of $ 1.332 million and Liega, $971.537.

No other of the 39 Valley Strong employees listed any amount close tp these numbers. This unusual compensation suggests a transfer of some asset other than normal salary/benefits and bonus  cash payments.

Even with the two “at will” FCCU employees gone, the three remaining at Valley Strong received  total compensation of $3.994 million . That amount was $1.473 million greater than all five together earned in 2022.  None of this post merger largess was disclosed in the Member notice as is required by NCUA rules.

Charitable Data Just Once per Year

The effort to transform the FCCU 2 foundation into a non-public, inaccessible entity continued in 2023.  IRS filings are required only once per year, often filed late into the next reporting period.

Here are summary totals from The 54 Fund’s first three years filings. 2023’s is the  most recent we have.

Year	Assets Y/E	Income	Expenses	Grants
2021	$11.974 M	$19.7 K	$5.2 K	$0
2022	$12.058 M	$368.7 K	$106 K	$272.5 K
2023	$13.302 M	$592.1 K(1)	$222 K	$438.5 K

(1) Revenue before deducting a $157.5K loss on sale of investments.

As part of its “going dark” operations, the Fund affirms in IRS Part XIV 2 that “the foundation only makes contributions to preselected charitable organizations and does not accept unsolicited requests for funds.”   

The Fund has no office or web site. When calling the the telephone listed a recording says an answering machine has not been connected.  All directors and the books and records are reportedly held at the single post office box address.  It must be a very big box!

I could find no public information about ithe Fund’s activities other than the listing of donations in the IRS filings.   I would surmise that many Stockton recipients would be grateful for these annual tokens  of manna from this minimalist financial resurrection by FCCU’s former leadership team.

Despite this ongoing lack of pubic information, an analysis of 2023’s filing shows:

• The fund spent 50 cents in administrative costs for every $1 donated to a charity, up from 38 cents in 2022.
• The Fund’s full time employee, Ed Figeroa received total compensation of $110K or two times his  earnings in 2022.
• The fund reported cash interest and dividends  on its average investment monthly balance of $12,6 million  of 2.7%. After subtracting an investment sale loss of  $157.5K, the cash return is 1.8%,
• However, the Fund reports its portfolio’s market valuation increased by $1.5 million, This gain accounts for almost all the growth in Fund assets.
• Because the Fund uses cash accounting, the minimum 5% IRS distribution calculation includes only cash received, not the total portfolio valuation. The Fund’s contribution requirement  was $625K in 2023. It used only $24K of this amount along with the unused  balance of $584K from  2022 to comply with the 2023 distribution test.  It carried pver to 2024 the balance of $600K left undonated from 2023.
• The Fund’s $115k increase in operating expenses includes, besides doubling its one salary, expenses including events of $28.3K and office and software expense of $5.6K although no physical office address is listed.

In summary, the Fund distributes only the bare minimum required by the  5% IRS test. It grew total assets by over $1.3 million from increases in the market value of investments. Operating expenses rose at a faster pace than contributions.

The Ten Year Plan

The Fund has received two $250,000 initial payments from Valley Strong as part of a ten-year $2.5 million pledge reported in the Member Notice.   This planning suggests he Fund never intended to distribute all of its assets.  Instead it has become a personal petty cash account for a rump group of former FCCU leaders to further an impression of public philanthropy-with members money.

The 54 Fund’s financial giving meets only the minimum IRS contribution requirements.  This charity is a closely held, unelected, private entity with no public accountability. The former CEO of FCCU keep the books. His self selected previos directors make all decisions.  The purpose continues their pevious public performance as Stockton philanthropists.  But it is not their money they use but the former member owners of Finance Center Credit Union which they closed down.

Similar to the final five years of the credit union’s operations,  the Fund has became a personal platform for promoting Michael Duffy.  It is not resolving the needs of the former member-owners of the credit union or the Stockton community with its multiple, tiny token grants.

FCCU’s senior executives and board negotiated a merger that rewarded their own self interest, not the members’ well being. The 2023 extraordinary compensation Valley Srong paid to two of the former FCCU senior executives was not disclosed in the Member Notice.   This failure was on top of the additional $2.0 million sent to the new Fund versus the $10 million listed in the Notice.

A Continuing Failure of Fiduciary Responsibility

This continuing saga of self-dealing was designed by the CEO of FCCU, but was enabled by the Valley Strong Board and CEO.  They only had eyes on the prize of free capital and a $630 million asset transfer.  The inaction of NCUA and California state regulators who approved this deeply cynical transaction is a critical failure of supervisory responsibility.

Cooperative mergers, for a number of CEO’s, have become a Game with No Rules.  It is whatever one can get away with in private deal making.  There is no added value for members. just future promises. Board members  approve these transactions and payments oblivious to their fiduciary obligations.  The process of members voting is nothing more than a sham. Regulators routinely approve communications that lack any meaningful substantive disclosures.  Those who benefit from the event control the entire member manipulated voting approval.

When is Enough, Enough?

This continuing blight on the cooperative system undermines the  basic foundation for the soundness of any financial system: the trust of the users.

This is however an opportunity for cooperative leaders to demonstrate both moral and common sense clarity. Who wlll stand up and say “enough is enough”?

Without leaders’ voices, this  rampage will continue. The  future of an alternative cooperative system is at stake.  But not from political change from DC, but rather from internal decay.

Some credit unions act out the belief that their future is the same as that of the for profit, self-interested commercial competitors. But this internal corruption is only succeeds until members see the reality behind these tortured transaction. Their response may be either fire (anger) or ice (apathy).  Both are equally fatal to the member-owned model.

 

 

 

 

 

 

 

Knowing history helps us navigate current uncertainties, even severe problems. This is a story of a credit union that was mismanaged.  There was front page publicity about the problems, NCUA’s role, and direct quotes from NCUA, including Chairman Callahan.

The year was 1983.  The credit union was charter number 435 which opened on January 1, 1935.  State Department FCU also served NCUA employees.

Here are the opening paragraphs of an August 16, 1983 Washington Post article investigation of the situation:

The State Department Federal Credit Union has operated at a loss since last year and has been placed on a “problem list” by federal regulators, according to credit union officials.

The federal action is based on the credit union’s overall financial condition, but it comes at a time when the credit union’s administration is under attack from some of its members for the amount of money it spends on receptions and trips for employes and board members to conferences in places such as Las Vegas, Munich and Paris. 

The credit union, which has $166 million in assets and 36,000 member accounts, reported a loss of $346,095 on total income of $8 million for the first half of this year. Last year the credit union, with a total income of $15.7 million, lost $224,200.

Examiners from the National Credit Union Administration (NCUA), which regulates federally chartered credit unions, told the board of the credit union in a meeting July 27 that the member-owned institution has been placed under special surveillance, according to Edward N. Gulli, general manager of the credit union.

Here are further detals from this lengthy report:

NCUA examiners said the credit union “would have no problem” if board members “took the steps to turn it around and become very profitable again.”  . . 

Some 7 percent of the 11,200 federally regulated credit unions in the United States are on the NCUA’s “problem” or “watch” list, according to Layne L. Bumgardner, director of supervision and examinations at the NCUA. . . 

In an effort to conserve the credit union’s cash, Gulli said the board has voted to stop traveling first class, which was previously allowed on any trips of more than three hours’ duration, and to suspend any travel until the end of the year. However, he said travel to conferences is a necessary part of credit union activities and will be resume .. . 

During 1982, the credit union spent $51,628 to send board members–who are State Department employes performing the credit union work as volunteers, receiving no extra salary–to conferences in places including Paris and Munich. . . 

They spend money like water on trips, and they say they don’t have the money to hire additional tellers or pay better interest. They think we’re dumb,” said Mary Drakoulis, an employe in State’s Freedom of Information office who was one of the original organizers of protest against the credit union management. . . .

The article included five paragraphs listing individual board and senior executive travel expenses.  Here is one example:

A June 26 to July 1, 1982, trip to a credit union industry conference in Las Vegas by six board members and three of their spouses costing $3,099 in hotel expenses at the Las Vegas Hilton and $9,520 in first class airfare. Five board members and a credit union employe traveled to Las Vegas again for a similar conference in May of this year. . .

NCUA’s chairman, Callahan, said the question of what is or is not a proper level of expenses is up to the members to decide. “We do not usually get down to splitting hairs as to which expense is appropriate. If it is a problem institution, I’m sure their expenses are being scrutinized,” said Callahan, who is a member of the credit union.

Even Larry Connell, the former NCUA Chair and now CEO of Washington Mutual Savings Bank was asked for comment.  He stated: “To me,” he said, “the best enforcement is for the membership to vote on whether to continue the management. I would think the members should have reasonable access to the records of the credit union.” 

Finally, the President’s compensation was published. Federal charter salaries are not required to be disclosed as is the case with state charters.

Because Gulli’s salary increases are based on the (board) recommendations, not the (U.S.) president’s decision, he got a raise last year of 18.47 percent, while federal workers got a raise of 4 percent.

Gulli currently makes $89,000 a year, about $9,000 more than Secretary of State George P. Shultz. He said that since he is not a federal worker, his salary should not be compared with the secretary of state’s. He pointed to a recent industry study showing the median salary of executives employed by the top quarter of government credit unions with assets of $80 million or more is $84,502. 

“I don’t have a chauffeur-driven car or a plane at my disposal,” he said, referring to Shultz. He said he got a 15 percent increase in lieu of health insurance and a pension plan. 

Lessons from This Case Study

First, the credit union survived this very public airing of its leadership’s perks and excesses, its poor performance and being added to NCUA’s watch list.

Today State Department FCU is a $2.9 billion institution with 88,000 members, 6 branches and over 200 employees.   It’s 2024 performance mirrors the industry’s overall trends: delinquency 1.14%, ROA of .34%, net worth 10.5% and loan and share growth around 6%.

Secondly, the transparency on these issues was an important catalyst for change.  Members were provided the information on senior management compensation, board and staff travel and their stewardship of the members’ funds.

These details should be standard operating disclosures for all credit unions today.  Special events and  major business initiatives such as a bank purchase financing should be routinely provided.  Such transparency not only provides essential owner information for the annual election of directors; it also induces accountability.

Thirdly, senior NCUA officials from the examiners, the RD, the DC head office and even the Chairman spoke directly to the press.  If one reads between the lines, the reporter was questioning whether the regulator should be more forceful in stopping these activities.  The response was that this was the responsibility of the owners, unless the excesses undermine the operations.  But members must  have access to all relevant facts whatever the circumstances.

Every Credit Union Is An Example

Finally, the article several times refers to the entire credit union system and their role in the economy.

Credit unions are nonprofit organizations originally formed to help employes get loans when banks did not make consumer loans. The industry now has $93 billion in assets nationally and 48 million members. The State Department credit union is 46th largest among 19,630 credit unions in the country. 

Each credit union today is a representative for the entire cooperative model, for good or otherwise.

Actions from the Article

My colleague Bucky Sebastian’s rule as a public employee was to never say or write anything that you wouldn’t want to read on the front page of tomorrow’s newspaper-or the lead in a blog post.   However the solution is not to avoid the topic or say you can’t comment.   That will just make the press more interested.

Every credit union will have performance problems. Economic cycles are just that, cycles, not straight line performance.  Managers are not perfect and board oversight will vary.

The best way to prepare for these inevitable ups and downs is to be transparent with pro-active disclosure habits in all seasons. This creates a pattern that  demonstrates responsibility to the owners, even in times of performance shortcomings.  State Department survived this very public thrashing by the Post.  NCUA was upfront about its role.

Without this practiced accountability any credit union can risk becoming the next poster child for a cooperative system that seems to have lost its way. And added to the lists of examples kept by those seeking to undo the special role of credit unions in the American economy.

 

 

A life of meaning and purpose

This 1980 official portrait by Robert Templeton is in the National Portrait Gallery.

“Life is not measured by the number of breaths we take, but by the moments that take our breath away.”

May you  experience such moments during this holiday of thanks.

The five-year NBC TV series Friday Night Lights was the story of a high school football team in the fictional town of Dillon, a small, close-knit community in rural West Texas.

But this reality actually exists all across America.  The sports seasons are a central aspect of the high school experience for most American communities.  Especially smaller ones.

For example “Coach” Walz’s role in leading his high school football team to a state championship in Minnesota may be better known than anything he did as governor.

It was with much anticipation then, that last Friday I  attended the home football game of the Rensselaer, IN, Central High School versus the visiting West Lafayette team.  What I took away was not what I expected.

Here is a photo summary of a warm midwestern autumn evening on a playing field carved from acres of cornfields.

The team’s football schedule is announced  in every store window in town, featuring just five seniors.

A senior perk: painting their reserved spaces in the school’s parking lot.

The field of football dreams and past glories- 2014 State Champions.

The team ‘s nickname and mascot: the Bombers.

Warmups.   RCHS had about 30 varsity players; Lafayette about twice that number.  Many of RCHS’s better athletes play both offense and defense.

It was senior night.   The Bombers have only five members from this class.  As the coach stated: “I play a  lot of underclassmen who only show peach fuzz (not started shaving).”  Honoring the five:

Entering the field for the game via the Bomber tunnel:

Stands not quite full.

The band presents their pregame show to the music of Mussorgsky’s  Pictures at an  Exhibition. Halftime will be used to honor all sporting seniors.

The Difference from My Era

So far the evening was similar, albeit more modern in technology, to when I was in high school.  The special occasion for this game was recognizing every senior who had participated in a varsity sport during their four years of high school.

The halftime program featured each senior’s recorded talk while walking out of the Bomber mascot with their parents.  The players’ audio summaries included their sport teams, other school activities (Sunshine Club, FFA, etc) and post high school plans such as college or other career options (eg. lineman , CDL training, or the army).

A picture that captures this entire group of at least 50 athletes escorting their parents shows a major difference from my high school days.  Sixty years ago there were just three boys sports and no athletic teams for girls in high school.

If you look closely at the photo below, more than half of the senior athletes are girls.  Rensselaer has ten teams for them:  Volleyball, basketball, tennis, cross country, track, softball, soccer, swimming, golf and yes, even wrestling.

I guess that helps one understand how  both a former football coach and a woman now run as one team for the highest political offices in America.

Change often starts at the grassroots sometimes next to farmers’ fields.  From these opportunities we develop our self confidence and aspirations for who we want to be.   The Friday Night’s experiences are now open for all of us.

PS:  For those interested in the outcome, RCHS lost 34-7.   However the players’ intensity and fight never wavered.

 

 

 

July 30, National Whistleblowers Appreciation Day, is the publishing date for Community Capital,  Race, Equity and the Credit Union Movement.

Clifford Rosenthal and Michel McCray are co-authors. The book’s detailed case study is in Part Two.  In an earlier post, I quoted Rosenthal on its significance even today.

The story of Kappa Alpha Psi FCU and its abrupt liquidation in 2010 is recounted in five chapters by McCray with frequent observations from participants and referencing key documents from NCUA.

This excerpt from Chapter 12, Alice in Wonderland, presents a core issue.

Regrettably, NCUA evaluated KAPFCU as if it were a mature credit union, defined as being ten years old with $10 million or more in assets. The accounting rules and regulations are entirely different for these small, new credit unions—but KAPFCU was improperly evaluated based on the much higher standard by NCUA examiners.

Ignoring the improvement in KAPFCU’s NWR to 3.67% by June 30, 2010, NCUA opted to move forward with liquidating the credit union. KAPFCU challenged NCUA’s action, bringing the case to the federal district court in Washington, D.C.

Ironically, KAPFCU’s court case may be the most significant challenge to the NCUA’s authority in recent memory. This tiny African American credit union was contesting the constitutionality of the Federal Credit Union Act and NCUA’s rules and regulations themselves. KAPFCU’s chief complaint was that it had not been afforded the full flexibility allowed under NCUA rules, regulations, and supervisory authority for credit unions of similar size and character.  (page 178)

Tomorrow:  the clash of personalities and backgrounds.

It is a cliché, but true.  The well-being of any organization depends on the quality of board leadership.

Boards select the executive team and, depending on the organization’s bylaws, exercise ongoing monitoring of performance and strategic guidance.  In the case of a public board, politically appointed, the board becomes the primary face of the organization to its various constituencies.

Board leadership is a critical skill.  Some boards become so dependent on either the CEO (staff) or the chair that their performance is perfunctory, just follow  the leader. At other times in the same organization, boards are dynamic, bringing expertise, insight and critical mission debate.

Following is the front page of the January 2008 NCUA News.  The lead article is about minority board member Gigi Hyland’s testimony to Congress on the need for flexible and responsive mortgage loan modification options.

The topic was certainly timely in light of the subsequent financial crisis.  But what is even more interesting, is that she represented NCUA’s position. The Chairman and vice chair were republican appointees JoAnn Johnson and Rodney Hood.  Both also had  short articles in this edition about their activities.  But the lead story is Hyland’s testimony for NCUA..

The Changing Role of NCUA Board Members

Since the 2008-2009 financial crisis, the role of the NCUA board has changed.   Sometimes new members have very limited, or no, first-hand experience of credit unions or regulation.

Members have interpreted their responsibilities in different ways.  Some have viewed it as merely “policy making” with limited or no staff oversight.  Some view the job as a part time time responsibility.  It does not even require in-office attendance except on public board meetings which can now be done virtually.

The result of these various understandings, is the Chair can influence board member’s  substance and roles in very narrow or expansive ways.

The example above shows a board fully engaged in different responsibilities and communicating with its constituencies in a full and open manner.   This NCUA publication no longer exists.  Board members now just post individual statements, and sometimes speeches, on NCUA’s web site.

With Chairman Harper on an extended medical leave, the NCUA board’s role becomes more problematic.  The message is still the same however.  The quality of any organization depends on the board’s leadership.

This comparison from the communication of 2008 suggests the current Board has a lot of ground  to make up.   Perhaps a first step would be to restore the NCUA News in which each member has an opportunity to discuss what they are focused on.

Many participants see credit unions as having two operating options-either a federal license or a charter issued by one of the forty-five state authorities.  Within this second group is a small subset of approximately 100 cooperatively insured credit unions in ten states who are subject to only to their home state regulations.

Traditionally the choice of charter has been an important check and balance when a regulatory system, local or national, becomes unresponsive.   Charter conversions go both ways.  In 2023 there were 12 changes with nine state charters moving to FCU’s.

Traditionally state regulators and legislatures have been perceived as more accessible and responsive versus the federal system.  Some state FOM practices are less complex and  CUSO and other authorities more flexible.  For example, the majority of bank acquisitions have been by state-chartered credit unions.

A Multifaceted Charter Choice

But reality is not this simple binary selection. Operating options are more complex than either a state or federal charter.

In a CUSO magazine article summarizing NCUA’s yearend data, the writer pointed out several  of these other operating designations.

From the  December  2023 data summary: “NCUA reported that the number of federally insured credit unions (FICU) declined to 4,604—156 fewer than there were as of the fourth quarter of 2022.  Many of those may have come from low-income designation credit unions, whose numbers dropped by 129 from 2,612 in 2022 to 2,483 in 2023.

“Meanwhile, the number of “complex” FICUs—those with total assets over $500 million—increased by 5 to 714.”

These sub-classifications matter, as they grant additional authorities or impose different regulatory requirements.  Newly chartered credit unions have different reserving timeframes in their initial years.   NCUA will periodically update the status of Minority Depository Institutions (MDI’s) which it sees as a special class of charters.

Multiple Service Designations

In January of this year Callahans, using September 2023 data, published  a summary of three other “service designations.”   In their full analysis they showed how these operating authorities, low-income (LICU), community development (CDFI), and Juntos Avanzamos. will sometimes overlap.

CREDIT UNION DESIGNATIONS
FOR U.S. CREDIT UNIONS-DATA AS OF 09.30.23

Source:  Callahan & Associates, Peer Suite

The report states 56% of credit unions have at least one designation.  Th e most common is NCUA’s LICU held by 55% of all credit unions.  The other two designations require certifications. Hence only 9.1% of credit unions are CDFIs and just 2.7% are part of the Juntos Avanzamos network.

The LICU Advantage

The LICU status is by far the most popular and important classification. The status is assigned by NCUA to a credit union in which a majority of its membership qualifies as low-income as defined in Section 701.34 of NCUA Rules and Regulations.

The potential operational advantages include accepting non-member deposits, offering secondary capital accounts,  qualifying for exceptions from the member business lending cap, and participating in NCUA’s Community Development Revolving Loan Program.

The Callahan article points out that the 2,590 LICU’s range in size “from less than $100,000 (Holy Trinity Baptist FCU, $25,899, Philadelphia, PA) to more than $20 billion (Golden 1 Credit Union, $20.5B, Sacramento, CA).  In the $1B-$10B peer group, 60% are designated as a LICU.”

Of the 432 CDFI-certified credit unions which can access grants from the CDFI Fund, 95% are also LICU’s.

The pervasiveness of the LICU designation has been a focus for groups who oppose credit unions. One critical study by the Tax Foundation expressed the following opinion of the low income designation  in a January 30, 2024 article,   After 90 Years, It’s Time to Wean Credit Unions of Taxpayer  Subsidies:

“More than half of all credit unions have been designated “low-income” institutions, a meaningless term. This designation appears to be little more than a signaling device to allow credit unions (and NCUA) to claim they are serving underserved populations without having to provide any documentation to back it up. The Congressional Federal Credit Union, which serves members of Congress and their staff members, has been a low-income credit union since 2022. Members of Congress are “hardly low-income customers.” 

Diversity of Purpose and Operating Models

These charter variations create opportunities that a one-size-fits-all regulatory structure may not accommodate. Most credit unions were founded with a unique, and generally limited, field of membership that gave them a unique “persona.”  Over time most have moved far beyond this initial market identity.

As the evolution continues, the imperative of a unique identity becomes a challenge.  Business model and/or technical innovation are necessary but often not sufficient for competitive differentiation.

While much discussion of innovation focuses on technology or new partnerships, the option to modify a credit union’s organizational definition can be overlooked. Yet these choices may be more strategic in establishing a special market profile.  These designations are more than a brand; they are a commitment to a special expertise when serving members.

Other collaborative service networks besides those above have been or are being created.  These emerging organizations sponsor specialized products, virtual distribution options, innovative member services and even specialized support organizations such as Inclusiv (a CDFI) or the Global Alliance for Banking on Values.

The critical factor is choices of organizational design and networks.  The ability to draw upon many options, not just a single charter model, can help keep credit unions aligned with their member-owners changing circumstances.

 

 

 

 

In “The Prologue” to The Canterbury Tales Chaucer celebrate nature’s awakening life and, in humans, the need to once again gather together on pilgrimages.  “April” comes from the Latin aperire (to open) and apricus (sunny) as the month of the sun and growth. (Source: Jefferson Reads)

From “The Prologue” to The Canterbury Tales:

When in April the sweet showers fall

And pierce the drought of March to the root, and all

The veins are bathed in liquor of such power

As brings about the engendering of the flower,

When also Zephyrus* with his sweet breath

Exhales an air in every grove and heath

Upon the tender shoots, and the young sun

His half-course in the sign of the Ram* has run,

And the small fowl are making melody

That sleep away the night with open eye

(So nature pricks them and their heart engages)

The people long to go on pilgrimages …

Emily Dickinson’s poem of spring and the sacred:

A Light Exists in Spring

A Light exists in Spring

Not present on the Year

At any other period –

When March is scarcely here

A Color stands abroad

On Solitary Fields

That Science cannot overtake

But Human Nature feels.

It waits upon the Lawn,

It shows the furthest Tree

Upon the furthest Slope you know

It almost speaks to you.

Then as Horizons step

Or Noons report away

Without Formula of sound

It passes and we stay –

A quality of loss

Affecting our Content

As Trade had suddenly encroached

Upon a Sacrament.

Easter In Ukraine

A note from Music Mission Kiev

As Easter approaches, the joyous celebration of new life, hope, and renewal is juxtaposed against the backdrop of ongoing conflict in Ukraine. Yet despite the solemn realities of war, many still find comfort and fortitude in the timeless traditions and spiritual significance of Easter. It serves as a reminder of the enduring power of faith and the resilience of the Ukrainian people in the face of adversity. Hopefully, it will also magnify your own Easter celebration. The Orthodox Easter is celebrated on May 5th in Ukraine this year; more than a month apart from our March 31st Gregorian calendar celebration. For Christians everywhere, Easter marks the resurrection of Jesus Christ and signifies the triumph of hope over despair, light over darkness, and life over death. It’s a time when families gather, communities of faith come together, and hearts are lifted in praise. Hand-painted Easter eggs hold particular meaning in Christian symbolism. They represent the resurrection of Christ and are often adorned with traditional designs, each carrying their own significance. Triangles, for example, characterize the Holy Trinity.

 

(https://www.youtube.com/watch?v=98Qt6FJ-kz4&t=390s)