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One CEO on “Hearing the Truth”

“In a leadership role, it’s crucial to surround yourself with individuals who are comfortable telling you the truth. People naturally want to please the boss and tell them how great they are and might hesitate to disagree or deliver unpleasant information. It’s important to create a safe space where people feel comfortable voicing their opinions and assisting in decision-making.

“Everyone has a little bit of an ego. It’s nice to hear that praise, but that can make it too easy to believe everything is going well, so you must actively seek out different perspectives.

“Now that I’m in this role, I realize the importance of this kind of transparency. I knew it before, I’ve supervised hundreds of employees and billions of dollars in business, but now that I’m in the CEO role, I can see it even more clearly.”

Jenny Vipperman, President and CEO, ORNL FCU

Source: creditunions.com: CEO Onboarding

 

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Signs of New Life and a Late Bloomer

An enclosure from a friend who said her church just endorsed this new credit union.

The cold last night did not stop the early daffodils.

Or crocuses.

A late bloomer indoors.  A December amaryllis from repotting last year’s bulb, but just deciding now to bloom.

 

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DIXIE DIGEST:  A Family Portrait of NCUA’s Region III

An 8-10 page monthly printed internal newsletter, Dixie Digest, was published by Region III staff for a number of years in the mid 1970’s.

Unlike many semi-official government publications, these updates focused solely on the people in the Region.  Their retirements, vacations, new hires and occasional conferences.  No numbers, no exam or rule updates.  Just stories, sometimes irreverent,  and plenty of pictures, many submitted by the staff.

One editor, or compiler of this family work album, was Mike Riley who oversaw the production for at least two year (1976-1977) when he was in the Atlanta regional office.  After Mike’s death in January, his wife Lori shared his collection of issues with me.

They are a delightful record of a culture of fun, respect and occasional visits from the powers that be in DC.  It also is a valuable insight into the early careers of many later leaders of NCUA.

The Editor’s Ambition: “Scoff or Twitter”

The monthly issues also reflect a very humorous, even playful, wit by Mike.  His editorial credo on the front of an issue was, “The Bill of Rights guarantees a Three Press.”   Everyone thought typo, and so Mike explained his moto:

“In order to pride a bicentennial flavor to the newsletter, I made up a slogan.  However, it was evident that this brilliant pun was not completely acceptable to the masses as they did not understand it.  It is now obvious in retrospect that an explanation should have accompanied it.”

He then describes the first ten amendments to the US Constitution and the importance of the first on free speech.

“As most of you know, the Atlanta region of NCUA is numerically classified as three (3). Thusly it would not be unusual to state “This is Region III’s newsletter. By combining two different meanings into one word, we had hoped to make you scoff or twitter.  So the “Three” press was purely an attempt at bicentennial humor.”

NCUA Leadership Changes-DC Visits

In the next several years there would be three quick changes at the top of NCUA.  In April 1976, the first and to that date, only Administrator of the Bureau of Credit Unions, General Nickerson, submitted his resignation to the President.

The August 1976 edition featured a visit by the General’s successor Austin Montgomery.  It was a pictorial record (often with Montgomery’s pipe in hand) of the visit and this summary account of his activity:

“Mr. Montgomery arrives in Atlanta on Tuesday night, July 20, and had dinner with RD and Mrs. Gansfried.  On Wednesday morning, he toured the office and met with each member of staff.  He later gave an informal talk to the staff and expressed his views on the credit union movement and his management philosophy.  He answered questions on a wide range of topics.

In the afternoon he met with League personnel and State Supervisors.  All ten states in the Atlanta region were represented.  He spent Thursday visiting the Georgia Credit Union League and a credit union where an examination was in process.  We were most pleased to have his visit and were impressed with his open, frank manner.”

The January 1978 edition featured the visit of the newly appointed NCUA’s first Chairman, Larry Connell.  Accompanying him was Eloise Woods who had been chair of the National Credit Union board of advisors, which was discontinued when the three person NCUA board was fully staffed.

Pictures and Stories

These official visits were not the prime focus of the newsletter.  It was the employees who often contributed the many black and white photos for which Mike would create irreverent captions.  On one birthday party celebration he wrote of those shown: Ed’s birthday cake. Henry is blessing Ed and Foster Bryant is praying. (one must see the picture)

And there are stories by and about examiners.

Examiner Ron Coleman who recently oved into Jackson MS was immediately initiate into the ranks during a visit in the Mississippi Delta near Greenville, MS.  The first night we were on the road, the hotel clerk gave Ron a key to a room that had already been rented and occupied.  Ron became aware of the problem when he unlocked the hotel room door and cane face to face with a tall, husky and less-than-pleased construction worker who was at that moment in less than fully clothed condition.  Fortunately, Ron survived and was able to obtain another room at the other end of the motel.   

A Record of Early Professional Experiences

I did not arrive at NCUA until late in 1981.  Every current and future regional director and many head office personnel came from Atlanta during my tenure.  Among the names are Bob Boone, Bernie Gansfried, Steve Raver, John Ruffin and Mike Riley.  It was an ideal training ground for a long term career.

In the future I will share several excerpts which capture an office culture of more than the official triad of “Service, Supervision and Support.”  It was a group having fun, sharing their lives and work together, all of it captured by the keen wit of Mike’s eye and pen.

(editor’s note:  I enjoy looking at records of credit union and NCUA’s earlier years.  Often these documents have little relevance and value when their complier moves on.  Please let me know if you have some of these potential treasures in your living or storage spaces.  And thanks Lori for sharing Mike’s compilations.)

 

 

 

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“Doing Your Bit”-A Duty Every Generation Encounters

The Black Man’s Bit

by Leslie Pinckney Hill  published in 1921

“Leslie Pinckney Hill was born in Lynchburg, Virginia, on May 14, 1880. He attended public schools in East Orange, New Jersey, before graduating Phi Beta Kappa from Harvard University with a bachelor’s degree in 1903. He earned a master’s degree a year later.”

In the foreword in the book this poem appears, Hill wrote, “Nothing in the life of the nation has seemed to me more significant than that dark civilization which the colored man has built up in the midst of a white society organized against it. The Negro has been driven under all the burdens of oppression, both material and spiritual, to the brink of desperation, but he has always been saved by his philosophy of life. He has advanced against all opposition by a certain elevation of his spirit. He has been made strong in tribulation. He has constrained oppression to give him wings.

“In such poems as  ‘The Black Man’s Bit,’  I have desired to exhibit something of this indestructible spiritual quality of my race (during WW I). I trust that there may be in all at least an implied appeal to that spirit of human brotherhood by which alone the world must find the path to peace.”  (Source: poets.org)

O there’s talk from school to pulpit, and the barber’s place is rife,
And the shoe shop and the supper table hum,
With the tale of Dixie’s black men who have shared the mighty strife
For that freedom of the better time to come.
Every mother’s eye is brighter, every father’s back is straighter,
And our girls are tripping lightly in their pride,
And by none except a Teuton, or a slacker, or a traitor, 
Will the right to their elation be denied.

They said they were too slow, too dull, too this and that to do it,
They couldn’t match the method of the Hun,
And then to arm a million—why, the land would surely rue it
If a million blacks were taught to use a gun.
But right won out, and they went in at all detractors smiling;
They learned as quick as any how to shoot,
They took the prize at loading ships, and riveting and piling,
And trained a thousand officers to boot.

And when they went ’twas with a boon no others had been bringing,
For whether with a pick or with a gun,
They lightened every labor with a wondrous sort of singing,
And turned the pall of battle into fun.
O the Frenchman was a marvel, and the Yankee was a wonder,
And the British line was like a granite wall,
But for singing as they leaped away to draw the Kaiser’s thunder,
The swarthy sons of Dixie beat them all.

And now that they have helped to break the rattling Hunnish sabre,
They’ll trail the Suwanee River back again
To Dixie home, and native song, and school and honest labor,
To be as men among their fellow men.
No special thanks or praise they’ll ask, no clapping on the shoulder
They did their bit, and won, and all men know it
And Dixie will be proud of them, and grown a little older,
And wiser, too, will welcome them and show it.

A Contemporary Moment

I read this poem about wartime duty and on Monday, received these two pictures from an event at the Lincoln Memorial.  It honored wounded Ukrainian soldiers sent to the US for treatment.

Hill’s words again:

“He has advanced against all opposition by a certain elevation of his spirit. He has been made strong in tribulation. He has constrained oppression to give him wings.”

And wiser, too, (we) will welcome them and show it.

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Wisdom for Life from Children’s Stories

The Giving Tree by Shel Silverstein

Time to say ENOUGH!

This children’s book is overtly about the relationship between a tree and a young boy.

He first asks to pick the apples from the tree to sell.  The tree says OK. He then requests to take  branches to build a house. Again the tree agrees.

As the boy grows older the tree lets the boy take its trunk to build a boat.

For some this is a heartwarming tale that explores the selfless nature of unconditional love.  It is a relationship of tree and a boy, a metaphor that teaches valuable lessons about the joy of giving and the importance of gratitude.

For others the morale is more straightforward and simple: it teaches the dangers of being selfish.  When life has no boundaries, we just take and take until we end up destroying the source of our well-being.

Current day readers have generated interpretations far removed from what may have been the author’s initial intention.  Some argue the boy’s behavior is narcissistic and the tree an enabler.

The power of a good story is to draw forth multiple reader reactions.  So at the risk of some reader’s understanding of The Giving Tree, I want to apply its lessons for credit unions.

A Metaphor for Credit Union Behaviors

I believe one takeaway is that the current view of some credit leaders that theirs is an organization with no limits (internal or external), subverts and could destroy the integrity of the cooperative model.

There is no logic or reason between cross-country mergers or even those many states and miles away eg. Maine and Illinois. The continuing credit union’s home market and legacy has no relation to the newly acquired members or local community.

These deals corrupt the merger process making the executive sellers rich and the members poorer. The member-owners who are victims in these  financial empire building combinations are asked to give away their accumulated value for nothing.

The justification for buying banks, sometimes completely out of the credit union’s market, is also suspect. These bank owners often reap above market returns.  The credit unions readily pay premiums to bank owners, but acquire members’ accumulated wealth in mergers for free.

Both cases use members’ mutual savings accumulated over decades to enable corporate ambition, not improve member benefit. The intangible value and goodwill that created this common wealth becomes the means of transforming the coop’s purpose into a market-driven, tax exempt financial hybrid.

Instead of a more equitable and just financial system,  the result is a greater concentration of wealth and power often outside all local connections–the antithesis of the cooperative model’s intent.

There is no virtue in being a tree and allowing someone to take away everything created until there is nothing left.  The free market defense of these open-ended expansions, destroys the mutuality on which credit unions depend.

The irony of these takeovers is that they eliminate the critical source of credit union’s abundance-the trust and belief by member-owners that coops are different.

Boundaries are critical for knowing when to say yes and when to say no.  It’s time for credit unions to say enough!  Let’s remember who we are and how we earned our standing.

The Dish Ran Away

Silverstein was not the only author offering  wisdom in a children’s idiom. If one looks at Mother Goose’s brief verses, they can be applied to many areas of our behavior.

Here’s one that is may also be relevant to the above concerns.

To See Such a Sport

The Cat and the Fiddle

Hey, diddle, diddle!

The cat and the fiddle,  

The cow jumped over the moon;

The little dog laughed

To see such a sport 

And the dish ran away with the spoon.

A nonsense poem to teach children rhyme and verse with familiar words?

Or, might one ask who is the Cat playing the fiddle?  Who is the dish running away with the spoon?

Does this seeming blather suggest the pretense that buying and selling  cooperatives is somehow benefitting members?

 

 

 

 

 

 

 

 

 

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Ukraine in the Third Year of Russia’s Invasion

President Zelensky’s assessment: we are 730  days closer to victory.

I have periodically commented on this war with pictures and accounts from the country.  I believe the Russian invasion of Ukraine February 22, 2022 is an event that will affect Americans for a generation.

A Tutorial Question

My undergraduate major was in international relations.  I took a course two years later at Oxford on European international evens between  WW I  and WW II which explored the origins of the second world war: inevitable or not?

For the final paper my tutor assigned the question, Did the conquering of Poland  (by Germany and Russia) so radically alter the European balance of power that a negotiated peace was  an impossibility from a political and military point of view?

The question arose because there was a period   after Russia & Germany’s division of Poland that brought a relative calm.  This seemed to indicate that further Nazi aggression westward might be avoided, even though England and France had declared war on Germany after the Polish invasion.

My tutor was a graduate student, Martin Gilbert, who had been asked to complete Churchill’s biography after his son Randolph was unable to do so.  I  had to leave college   early(Uncle Sam calling) before he could go over my essay in person.  He wrote me a one-page cover letter as well as marking up my paper.

In his letter he suggested the following  event might  have been cited, which he was aware of because of his work on Churchill’s papers:

You might note that when Russian invaded Finland,  many  western observers hoped to  turn  the war (vs. Germany) against Russia.  The idea being that if France and Britain were at war with Russia, Hitler might join in and the “western” war forgotten.   But these were wild imaginings that would not come to anything—although the Supreme War Council (UK) discussed an Anglo-French war on Russia very seriously in December 1939. 

What does this have to do with Ukraine?   Simply there will always be a time of calm or uncertainty when some will push to accept the current status to avoid further conflict.  One has to understand the nature and motivations of an adversary, not hope for peace at any price.  Churchill never doubted who Hitler was.

If we leave Ukraine and believe we can avoid the consequences of our abandonment, we will, in my view, be involved in greater international crises in the near future.

Why believe that a positive outcome is possible?

A View of a Journalist who Adopted Ukraine

Francis Farrell is an Australian who went to Ukraine a month prior to February 2022.  He became a full time correspondent for The Kyiv Independent a daily digital news organization.

Here are his reflections on this anniversary:

I want to just mention a few little things, a couple of little observations about the Ukraine we live in today.

People sometimes say that life in Kyiv goes on as if there is no war. In my circle of male friends, almost everyone is learning how to build and fly drones, preparing to take the plunge into the military sooner rather than later.

People sometimes say that donations are down. All over my social media, I see the opposite: Ukrainians have built a practice of splitting up large fundraisers between friends, using cards with slick graphics, and see donating not as charity, but as civic duty.

People sometimes say that internally displaced people are being left behind. My friend, alongside a full-time job in marketing, has established a non-profit resettling people they evacuate from front-line settlements to villages in the rear, offering them free housing and revitalizing local economies.

People sometimes say that the free world is abandoning Ukraine. In the space of the past week, three more countries have signed security agreements with Kyiv, and more are on the way.

All we need is for someone on the other side of the Atlantic to shake some sense into a certain House Speaker and Putin will be fuming.

And, of course, people say that Ukraine can never take control of the skies, and that F-16s won’t make a difference. Well, Ukraine is now shooting down Russian planes at a rate not seen since the early months of the full-scale invasion, including, oh hello, what looks like a second priceless A-50 early warning and control jet just a few hours ago!

That’s it from me for now, I was never great at giving lavish speeches on big occasions.

I don’t know what the third year of Russia’s full-scale war against Ukraine will bring.

A lot of pain and a lot of pride, probably.

What I do know is that I am so grateful for all of you who are still with us, with Ukraine and with the Kyiv Independent. Good night

Pictures of Hope, Courage and Sacrifice

Sunflowers

School goes underground

Blown bridges to protect Kyiv in initial days of war

Evacation from Bakhmut

A military cemetary outside Kyiv

The Gerdan Ensemble in a concert of Ukrainian folk and dance music Sunday at Chevy Chase Presbyterian Church. All standing for the Ukrainian national anthem.

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How to Steal a Cooperative and Get Paid $60 million for Doing So

Preface:

This is a long blog, so I will summarize the main points for readers.

  1. Four senior employees and one newcomer of 121 Financial Credit Union will receive a minimum of $9,416,600  in future guaranteed salaries and benefits for merging their credit union with VyStar.  The required disclosures were less than a tenth of this number.
  2. VyStar is a credit union in a financial stall. Peak shares occurred in the first quarter of 2022 at $11.2 billion; at yearend 2023 they were $10.1 billion.  At that point, VyStar reports total borrowings over $2.6 billion including $200 million (corrected from earlier  billon) in subordinated debt to boost its capital ratio.  It bought a $280 million Florida bank in 2019 creating $28 million in goodwill, which suggests a price of approximately twice book value.  It announced its intent to purchase HSBI in 2021 for approximately 1.8 times book.  The transaction was cancelled in mid 2022 for failure to “receive timely regulatory approval.”
  3. In this merger, Vystar eliminates its very effective local competitor that has managed to secure 38% of its members who also have VyStar accounts.  And it gets paid $65 million in new capital versus giving cash to the credit union owners, as would be the case for bank owners, at multiple of their book value.  At year end 2023, VyStar’s ROA was .18% and its ROE 2.6%-both in need of this instant boost from this free gift of $700 million in assets.
  4. Other than the five employees listed, the remaining 130 are guaranteed nothing as they become a very small part of an organization which has 2,260 employees and whose locations will overlap some of 121’s existing branches.
  5. The members no longer have a choice of credit unions. This matters. In 2023, 21% of VyStar’s funding was from borrowings and $10 billion (79%) in member shares.  However when expensing the funding, the credit union paid 53% of its costs to the lenders and only 47% to the members whose savings are provided 80% of funding    VyStar is in thrall to external funding.

In contrast, 121 Financial has borrowings equal to 14% of its funding liabilities.  However, it paid 60% of its funding costs to members and 40% to lenders.  Members no longer get to choose the better deal which is why these combinations are accurately described as anti-competitive.

  1. NCUA is mentioned twice in the merger document. First as a place to post comments “to share with other members”– a digital and street address is given.  And again when “NCUA regulations require merging credit unions to disclose certain material changes in total compensation or benefits” the implication is that the regulator has reviewed the disclosures and announcement and that everything is being done according to Hoyle.

That is not the public rhetoric of Chairman Harper, who sees himself as an exemplar of consumer protection. Just last month in a credit union conference in Hawaii he talked forcefully about the need for credit unions to reexamine their overdraft fees (over which the agency has no authority) and reduce them when they unfairly charge members for the service.

The new board member Otsuka is a lawyer and has worked at the FDIC.  She should understand what the “slow walking” by regulators of an application, for example to buy a bank, means.  Also the fiduciary standards of directors for the “duty of care” and “duty of loyalty.”

An Election with No Vote Tally

Both may hide behind NCUA’s standard position, “well, the members voted for it.” However when members who opposed the merger asked to watch the votes as they were counted, the answer was no.  When they requested the final tally, the answer from staff was the vote would not be released and the ballots had been destroyed.

Once again democracy, in this case, credit union cooperative democracy goes to Florida to die.  Abetted by those appointees who champion the rights of consumers.

Why I am Writing about This

After the vote was announced I received two calls in early February from 121 members who were very, very angry.  They had put up spirited opposition including a website Stop the Merge and spent their own money on advertising.  They claimed to have been threatened in their employment if they continue to speak out after the vote.  All of their results from a mock online poll showed members opposed.

They had spoken to NCUA before the vote and had calls returned, but not any longer.   Their anger was palpable; they trusted no one; they did not have the ability to make their own case rationally.

They saw this event as a breach of trust by the credit union officials and the governmental oversight system that was supposed to protect them.  Neither caller had first hand knowledge of the credit union system or its press.  All they wanted from me was a lawyer’s name because they said a local firm wanted $25,000 to investigate and perhaps take up their case.

Was I a lawyer? No, a blogger.  “Oh, so you just want to make money off our story.”  I had to shout back to get them to start a dialogue, but said I would look into it.  The result was my blog Are Credit Union Members “American Idiots’?

These two members believe, and I think rightly so, the democratic system that they tried and supported has let them down.  They  played by the rules.  No one will listen to their cause, and it is hard, because they are very exasperated; perhaps a little paranoid.  They certainly feel alienated from the powers that be. And they are right to feel this way.

Information about the two credit unions continues to come in, but here is what we know so far.

The Rest of the Story

What follows is details to support the summaries above.

Who would not be attracted to a credit union whose mission statement is:

Growing together, prospering together.  

To empower our team to deliver innovative solutions through one-to-one service by focusing on he unique value of every member.  

To ensue organizational stability and financial wellness in our community since 1935.

Their home page video promises members they will be “a credit union for life.”

https://121fcu.org/about-121/

But its 89 year-long role as “Jacksonville’s hometown credit union, dedicated to delivering highly personalized financial services that benefit our members and community” is about to end on March 1 when the merger would be consummated.

In April 2023 the executive team of  121 Financial Credit Union first announced the credit union  would merge with VyStar Credit Union, also headquartered in Jacksonville.

Rarely do members join a credit union based on size, which is the prime difference between these two organizations.  Members choose based on convenience, price and service.  When they see and experience a local institution that expresses their hopes, as in the mission statements above, they become believers.  In this case for 89 years.

Many 121 members who were especially loyal strongly opposed the plan to end the charter. They took action and talked to NCUA about the process.  A number put up a website, Stop the Merge, complete with local advertising and publicity urging members to turn down the plan finally disclosed in the formal Member Notice Mailed dated November 30, 2023.

Why Did Management Choose to Give Up their Charter?

The Notice has not a single example of a better rate (savings or loan), fee or product that would benefit 121 Financial members.  There is lots of rhetoric about a bigger organization with a list of VyStar branches.

121 Financial is capable of offering the same system benefits VyStar promises.  In examples of community support, the much smaller credit union features its alliance with  the local  Jumbo Shrimp, a Triple-A minor league affiliate of the Miami Marlins.

Why This Merger is Occurring

I believe that when the full amounts of payments guaranteed to the five senior leaders in the form of salaries, bonuses, severance, and retirement are added together, the answer is simple: personal greed.  These five give up all their current credit union leadership positions, which they had held for less than five years, in return for “special project” roles. The remaining employees are guaranteed nothing.

The members lose everything they spent 89 years building.

$9.5 Million in Guaranteed Payments

But wait—doesn’t NCUA require that “certain material changes in total compensation and benefits of 15% or more of the five most highly compensated employees have received or will receive in connection” to be disclosed?  That is the literal requirement but obscures the full payoffs management has negotiated for itself when leaving their positions of responsibility.

David Marovich, CEO,  appointed full time CEO in March of  2020.  In a press interview (below) said he began merger discussions with the board in the fall of 2021.   The disclosures list a five year contract with a $16,000 salary increase, 2 first year bonuses totaling $245,00 and a supplemental retirement plan (SERP) for five more years at 40% of his final year’s salary.

Using the credit union’s IRS 990 filing for 2022 for these senior salaries, the minimum total payments  for this work and SERP is a minimum of $3,209, 600.

Paul Blackstone, COO since January 2020.  Receives a five-year contract with a $95,000 salary increase and two first year retention bonuses totaling $252,500, and a SERP that pays 35% of his final year’s salary for five years.   The minimum of these payments is $3,867,908.

Cyndi Koan, CFO since December 2019.  Receives a three-year contract with two first year retention bonuses totaling $70,000.  Total minimum payments $1,168,102.

Cathy Hufstetler,  Senior VP Lending since September 2019.  Will continue through conversion then retire and receive a one year severance of $273,000 and two first year bonuses totaling  $56,000.  Total minimum payments $602,000. She began at 121 Financial (Telco) in June 1991 and is the longest serving of the five employees listed.

Nichole Le Blanc, Executive Assistant to the C suite.  No start date given but  her previous experience listed in the Notice, leads one to believe it  to be very recent.  Receives a five-year contract with a $5,000 salary increase and two first year retention bonuses totaling $18,000.  Estimated minimum payments $569,000.

The total (salary data is from 2022) of these five guaranteed positions is a minimum $9,416,600.

In addition It should be noted that in 2022 the credit union began a SERP plan for the four senior positions that will fully vest all earned benefits upon merging.   In addition they will also receive all other retirement benefits that all employees of 121 Financial will vest  upon the charter closing. This is why Hufstetler, above,  has no retirement benefits from the merger. because of her 121 benefits package.

The Remaining 121’s Staff

The 121 website lists 17 employees (out of 140) in leadership positions.  Only the five most highly compensated are required to be disclosed according to NCUA’s rules.  So the others may have received a temporary incentive other than vesting 121 benefits.  It is not clear why Le Blanc, the apparent newcomer, was included in the guaranteed benefits given her relatively brief time at the credit union.

The average salary and benefit for VyStar and 121 Financial employees is the same for both credit unions at $97,000.   According to the notice VyStar committed to retain all 121 employees but for how long and under what work responsibilities will be determined.   For all seven 121 Financial locations, the only promise is that all “will remain open for a period of time” which does not sound very permanent.

Given the logic of acquisitions and the need for VyStar to turnaround its deteriorating performance, often the quickest savings is from employee attrition. The 121 employees may have other job opportunities, but they will lose their earned and established professional agency in joining an organization of 2,260 employees.

Will Members Get A better Deal?

A review the financing and business strategy of the two credit unions shows one is hellbent on geographic expansion in FL and GA with more branches-or acquisitions.  The other is Jacksonville’s home grown institution.

One relies on outside borrowings, the other on member funding. With 38% of 121’s members also with VyStar, they have elected to have a choice.  Now that is ended.

Moreover there is a question as to how this data was obtained.  Consumer privacy regulations would normally prohibit either credit union from accessing this information from public sources  no matter which credit union ran this comparison.

What Kind of Credit Union is VyStar?

VyStar’s business model is the antithesis of 121 Financial.  It is the country’s 13th largest with $13.6 billion in assets or twenty times the size of 121.   Both credit unions report very similar financial performance ratios at yearend 2023 with 121’s net worth and ROA running slightly above the larger credit union.

With 926,588 members and 91 branches compared to 49,000 and 7, VyStar’s strategic priority is growth.  Bank acquisitions and credit union mergers are one aspect of this effort.

In August 2019 the credit union announced:

VyStar received approval from the Florida Office of Financial Regulation (FLOFR) to significantly expand its field of membership by 27 counties – more than doubling the original 22 counties – to include all 49 counties of Central to North Florida. . .. In addition, VyStar received approval from the Georgia Department of Banking and Finance and the FLOFR to expand into four Southeast Georgia counties: Camden, Charlton, Glynn and Ware.

That same month VyStar announced the purchase and assumption of the $280 million Citizens State Bank in Perry, Florida.   Terms were not announced.  However, the credit union carries a $28 million goodwill intangible asset which occurs when an asset is acquired in excess of its book value.

In March 2021 VyStar agreed to purchase the $1.6 billion Heritage Southeast Bank (HSBI)in Jonesboro, GA, for an estimated $196 million or 1.8 times tangible book capital.  This effort was cancelled a year later due to the inability to receive timely regulatory approval.

In 2022 the credit union announced the addition of 15 more counties in FL and GA to its FOM.  In January 2023 it announced the merger with First Coast FCU, an $11.3 million firm.

Why This is a Great Deal for VyStar:  The Art of the Steal

In April 2023 when VyStar and 121 Financial announced their merger intention, the American Banker used the headline VyStar Credit Union to Merge with Local Competitor.

In addition to eliminating this local “home grown” competition, VyStar needed this $700 million to keep its growth ambitions going.  For the three years ending 2023 VyStar has had zero share growth, marked by a decline of 5% in 2023.  It has to do something so it turns to another acquisition to juice its growth.

In this way VyStar can instantly add $163 million in investments, $485 million in loans, $24 million in fixed assets (7 locations) and 50,000 member accounts.  And the best part is it will get paid $63 million in member capital for taking this long time operating entity off the hands of its existing leadership.

If this had been a bank purchase, the amount that would have to be paid to the owners would have been at least 1.5 times book or over $90 million in cash payments.  Why would a credit union ever buy a bank when you can steal a credit union?  Just arrange a couple of new senior positions for the senior team.  Can you imagine a bank’s owners giving their shares away free to another bank?

VyStar receives a free capital infusion and a $700 million operating entity.  The credit union’s owners whose loyalty and financial relationships built this very successful organization, receive nothing.  What’s worse, any member could have joined VyStar at any time they thought it was a better deal.  Instead the evidence suggests VyStar members go to 121 Financial because they prefer its local focus.

Should Credit Unions Care?

The easy answer is to keep one’s opinion silent.  This does not involve my members.  But this and similar precedents will end up destroying the reputation of thousands of credit union leaders who try to do the right thing, in the right way.  Because something is legal, does not mean it is right.

Note from two CEO’s joint press interview.

From an April 20,2023 article in the Jacksonville Daily Record by reporter  David Crumpler:  (Wolfburg is VyStar’s CEO)

Wolfburg said the merger “developed organically.”

He said the credit unions have long had a good relationship that existed when he joined VyStar in 2018 and was “started by our predecessors.”

Marovich said he and 121 Financial board members “have been working on this for about 18 months.

“I think our board felt that this was a good time (to think about a merger) and tried to determine who would be the best partners for this.”

The release said all 121 Financial members and its 140 employees will be invited to join VyStar.

“We do not want to disrupt the employees,” Wolfburg said.

“Those are employees who built that institution and who make the brand what is it, and have relationships with businesses and clients.”

There are no plans to make any decisions about keeping or closing branches over the coming year, Marovich said.

“VyStar has a good presence of branch locations, and expanded access was one of the things we’ve talked about,” he said.

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Reclaiming Civility in American Politics

Last night I attended a forum where Spencer Cox, Governor of u Utah and Wes Moore, Maryland’s governor discussed the idea to “Disagree Better.”  That is the initiative Cox has put forth in his term as chairman of the National Governor’s Association.

The effort is to model how leaders in positions of accountability can avoid polarization and conflict even when they disagree, but instead learn by listening to contrary points of view.

Cox initiated this approach to leadership in this joint campaign ad in 2020 with his democratic opponent:

(https://www.youtube.com/watch?v=w5_ajRH0QN8)

The two governors are supporting the Disagree Better theme by telling their learnings from each other’s policy successes.  They shared multiple examples from addressing childhood poverty, transgender rights,  and a “year of service” for high school graduates.

Their bottom line is that everyone wants to be heard—it’s the most fundamental principle of democratic governance.  Leaders need to model the ability to listen and the importance of showing up or a “presence” even if not in supporter’s districts.  They suggested  most issues are not binary, that is a right or wrong solution, but are open to multiple outcomes.

An example of a civic initiative by Moore was the year of service Maryland offers to high school graduates who may not wish to go on to college or work immediately.  Participants can choose from multiple areas of interest from environmental to personal care roles.

His observation is that “service is sticky.”  It can lead to lifelong friendships (eg military service), builds community and creates the capacity to unite to solve problems later.

In their interchange they talked how to avoid the public polarization on which much of media today thrives.  How do political leaders become the adults in the room when national politicians thrive on creating conflict?

Their response:  Never forget who put you in the position you hold.  People became angry when they feel they are forgotten.  Each of us stands on the shoulders of others who brought us to this point.

The Credit Union Lessons

Moore’s description of how ”service is sticky,” is exemplified in the most successful credit unions.  They raise up their members in the community and become an essential part of its character.

But I think the example of open, public dialogue that draws from each person’s leadership experience approach to their role, is one credit unions can learn from.

NCUA legal counsel has interpreted the law to say that two board members may not speak to each other except in the context of a public meeting.  But what if the public board meetings are not real conversations, with members reacting and learning from each other’s positions?  What if they are just written recitations of decisions arrived in advance?

The Kabuki theater of today’s public process minimizes  the professional capabilities of board members and of the professionals who are supposedly briefing them.  Instead staff read prepared answers to questions given in advance.   Credit unions and members deserve to see their leaders as actual leaders, not performers looking at slides or presenting prepared remarks.

The Public Forum

Another opportunity for real dialogue between credit unions and NCUA is the GAC.  When I was at NCUA, it was routine for CUNA’s governmental affairs committee to hold their pre-conference sessions with Washington staff and credit union members from around the country.  Ed Callahan, Bucky and I would be invited just to listen to these legislative and regulatory priorities or concerns.  Not to speak, unless asked, but to listen.

After presenting the annual Chairman’s update at theGAC, Ed and senior NCUA staff would then sit in the Hilton’s café space at tables talking with all comers—often for hours.  Impromptu conversations about whatever people wanted to say.

Today those opportunities are rare.  In discussing NCUA issues my experience has been that the dialogue often is about who is wrong or right.  It is not a search for options, or a better or more just solution.  It becomes a defense of the status quo.

This inability to learn by listening carries over to staff.  Following a board meeting last fall I wrote to ask for clarity on a single number—was the ratio on an annual basis or for the entire period? After hearing nothing for several weeks, I followed up and was told PACA had to approve the response.   The explanation came a week later.  The answer was at best unclear, and could have been taken care of in a 30 second phone call.

Whether one is an elected governor or an appointed NCUA senior leader, the most important role is modeling the behavior that you believe consistent with democratic governance.

Do you want to learn by listening or instruct by preaching?  Are you open to meeting with those who disagree, or just exchange written communications restating positions?  Are democratic norms encouraged or priorities set by a political agenda?  Do we remember we stand on the shoulders of those whose work preceded ours, or do we think the present belongs wholly to our dispensation?

Polarization or civility – can the cooperative system be the example that demonstrates  the values that America urgently needs for democratic institutions to succeed?

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The Wisdom of Uncertainty

A poem/prose reflection on knowledge by Marie Grace.

Cloaks of doubt

“The only true wisdom is in knowing you know nothing.”
Whispered Socrates, setting minds aflutter,

In a world brimming with false certainty,
We don cloaks of doubt, savoring questions
Over answers, seeking what life’s truly about.

We laughed, a stream over convention’s pebbles,
“Knowledge is an ocean; we are islands of invention.”
Together, diving into ‘whys’ and ‘hows’ so deeply,
Where mysteries sing lullabies, secrets are kept in sleep.

We built boats from books, paddles from thoughts profound,
Sailing waves of wonder through ‘oughts’ typhoon-bound
“Is the sky truly blue, or is it a mood’s reflection?”
Pondered aloud, our journey was an intellectual confection.

In the world’s library, we wander as tomes,
Not to fill pages but to roam where curiosity combs.
Each sunrise is a chapter; every sunset is a verse.
Our story unfolds gently and beautifully.

“Perhaps ignorance is not just a void.”
We mused, “But a canvas, vast, to be joyfully deployed.”
We painted dreams in unknown colors.
We danced to mystery’s tune, seeds sown in others.

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The NCUA’s  Double Failure of Fiduciary Responsibility

In last Thursday’s Board meeting the NCUA  members twice failed in their fiduciary role as directors.

The first shortcoming is specific.  It was their collective unexamined and unquestioned acceptance of  the continuation of the current NOL for 2024 and the failure to vote on the upper limit one way or the other.

The NOL sets the fund’s cap for retained earnings each year.   Any net income above that amount must be distributed back to credit unions as a dividend.

This was a fundamental part of credit unions agreeing to an open-ended 1% funding of insured shares to provide a stable NCUSIF revenue base.  So essential was this understanding that it was put into the revised 1984 Title II statute at 1.3%-only to be modified by CUMAA in 1997.

This design is the cooperative alternative  to the failed premium models the other federally managed funds used—and still use today.  This yearend 1.3%  had been the traditional limit until 2017 when the board raised it to accommodate the merger of the TCCUSF’s surplus.

When credit union performance and fund net income do well, then credit unions share in the success.  When there are unexpected crises, then credit unions can be assessed a premium.

As reported, 2023 was one of the best years in the fund’s history.   Actual credit union losses were just over $1.0 million in a year the FDIC had spent over $761 billion in “receiverships costs” through just the first nine months.   The NCUSIF’s yearend NOL was 1.3%, or 3 basis points higher than staff had projected only three months earlier-a significant miss.

(note:  for credit unions’ concerns about this change, see NCUA’s summary of comments on the 2017 change at the end of this post)

Staff’s Failure to Document a Higher NOL

Every year since 2017 the staff has provided the board their internal modeling assessment following a policy laid out at that time.   But not this year.   At a time when all of the objective data shows the fund more than well capitalized for any contingency, the board did not even raise a question about the missing documentation and why the actual 2023 yearend outcome should not be more than sufficient going forward.

Staff’s dereliction was pushed aside by CFO Shied saying that there was a need for more analysis.  However when one revisits the model’s disclosed  inputs for the previous two prior years’ NOL (2022 and 2023), those numbers do not support the presentation that the NCUSIF floor of 1.2% would have been reached in an adverse scenario,  These models, fully run, provide no support for a 1.33% NOL cap in those years.  And certainly not in  2024.

If their models had showed otherwise, staff would have presented it along with the assumptions used. Here for comparison is the official Board position on risk modeling in December 2021 when setting the NOL:

The unprecedented share growth related to the pandemic resulted in an equity ratio of 1.26 percent as of December 31, 2020, and an equity ratio of 1.23 percent as of June 30, 2021.

The Board does not agree with arbitrarily setting the NOL. The NOL represents the level of equity the Share Insurance Fund should have to meet the policy objectives based on a robust modeling of risk. 

A $525 Million “Premium Tax” On Insured Credit Unions for 2024

The failure to lower the NOL to its long time, proven upper limit set by all previous boards until 2017 will likely cost the credit unions a dividend in 2024.   Each 1 basis point above 1.3% in 2024 will equal at least $175 million.  By not lowering the cap, the NCUSIF will hold onto $525 million or more that should have been paid to credit unions.

The most disappointing response was by Vice Chairman Hauptman.   He had been a board member for each of the three prior NOL settings in December 2020, 2021 and 2022.  He had no problem approving the staff’s recommendation even when a fellow board member in 2022 suggested a lower limit of 1.3% was adequate.  This year he feigned ignorance  of his prior votes, saying he didn’t know what the right number should be  !.34 or 1.35 or 1.36!

Hauptman compounded his recently acquired amnesia with a total misunderstanding of the fund’s financial model.   The model does not require a specific level.  Under GAAP, a loss allowance for both specific and general insurance losses has already been expensed from retained earnings-a level that auditors review.  But in addition there is a ten basis point range of .2 to .3 of equity plus the current year’s earnings to cover any additional losses. That 10 basis point now totals $1.75 billion of capital. The NOL is only the upper  CAP on this wide range of equity.

Chairman Harper and newcomer Otsuka each  voiced similar themes.

Since joining the NCUA board Harper has made no secret of his intent to remove all current statutory limits on NCUA’s oversight.  He has repeatedly cited the FDIC’s options as ones he would like to have for the NCUSIF.  This year as the FDIC again struggles, he did not repeat his admiration for the FDIC’s premium model.

Harper’s basic regulatory philosophy can be summed in one word, MORE–more resources, more rules, more personnel and more of whatever anybody else does or has, and NCUA does not.

His longstanding dour forecasts suggests  a lusting for real industry problems to be able to justify NCUA’s existence-and his role.  This behavior began even before he became chairman.  Here are some early comments of his outlook for the credit union’s system:

At June 2019 board meeting:   With the recent inversion of the yield curve, we know that a recession is coming, we just don’t know exactly when and how severe.

December 2019 OpEd in CuToday:

We know that a recession is coming. . . That’s why we should fix the roof before it rains by implementing this rule (RBC) at the start of 2020. 

February 2021 speech to the DCUC after becoming chair:

As the COVID-19 pandemic rages on, we must smartly, pragmatically, and expeditiously address the economic fallout within the credit union system. To that end, when I first became Chairman, I issued my Commander’s Call to the agency.”

August 2021 DCUC speech:

But, I must caution everyone that we are not out of the woods just yet. Credit union performance will continue to be shaped by the fallout from the pandemic and its financial and economic disruptions.

With pandemic-relief efforts like supplemental unemployment benefits, foreclosure prevention programs, and eviction moratoriums coming to an end, many households could face financial stress in the coming weeks and months. This could lead to higher delinquency and charge-off rates and potential losses for credit unions — and even failures.

September 2021 Board meeting:  But, nevertheless, we ultimately should expect delinquencies and charge-offs to rise in the months ahead, and all credit unions should pay careful attention to their capital, asset quality, earnings, and liquidity. To protect the Share Insurance Fund — and, ultimately, taxpayers — against losses, the NCUA needs to stay on top of these emerging risks and problems in the credit union system.

Harper’s modus operandi (MO)when presenting the state of the credit union’s system is to focus on risk, uncertainty and fear.

And he was true to form this in this meeting. After acknowledging all of the  Fund and credit union strengths, his traditional downbeat forecast about how things can only get worse from here followed:

“While we should recognize those positive things, today’s presentation also illustrates why we cannot become complacent in the supervision of federally insured credit unions, In recent quarters, the NCUA has seen growing signs of financial strain on credit union balance sheets and consumer financial stress. And, we continue to see that financial stress manifest itself in the number of credit unions and the percentage of assets held by composite CAMELS code 3, 4, and 5 credit unions.”  Etc

Board member Otsuka took her cues from the chairman, apparently oblivious to the lack of any staff documentation for the NOL and the 40-year history of the fund’s  1.3% cap proving more than sufficient in all economic environments and CAMELS distributions.  She said:

“The percentage of shares held by CAMELS 3 credit unions has more than tripled in the last two years and more than doubled this last year. . . . I understand we had few credit union failures this year and that the necessary reserves decreased in part due to greater economic stability forecasted in the macroeconomy, but this is a concerning trend that I will be focused on as the year progresses.

This may be one of the moments where it is good to be prepared and think about the “what ifs.” While there are several positive factors to be encouraged about, there are some worrying signs as well. “

In these comments, the members fail to note that it is the Agency’s supervision and examination activity that is the primary means of for managing individual credit union risk taking-not the NCUSIF.  The Fund comes into play only when this most critical activity fails in its oversight role.

Board Members Fail the NCUSIF’s IRR Oversight

CFO Schied repeatedly cited liquidity and interest rate risk (IRR) as the dominate factors in CAMELS downgrades.

But none of the board members noted that the NCUSIF portfolio has been underwater since December 2021-which means its own interest rate risk management has been at best poor, at worst nonexistent.

Two directors commented, without even a note of irony, that going back into a ladder strategy that resulted in the Fund’s illiquidity and years long below market performance, was the right thing to do.

Interest rate risk management is the number one responsibility of the fund.   It determines both NCUSIF liquidity and adequate levels of income.

No one mentioned the one year shortening of the Fund’s weighted average duration which is the vital component of IRR.  And a major factor in the gain in interest revenue in 2023.

This silence continued as staff announced its next investment will put the fund back on the same ladder pattern that has resulted in 2 ½ years of underperformance  in this current rate cycle.

The Second Failure: Board Governance

In 1977 one of CUNA’s primary legislative initiatives was to replace the Bureau of Credit Unions single administrator ovesight with an independent agency and a three person board.   There was concern that a single administrator, even with an industry advisory board, might not be responsive to the growing industry’s needs.  In other words an unchecked supervisor.

The public governance process in a Board meeting is a critical demonstration of the effectiveness of the individual member’s and their collective capability.   Reading from prepared scripts with questions already written out, is neither transparent nor a model for board conduct.

Why can’t members just have a normal conversation with the staff most responsible for the areas under review versus a designated spokesperson reading responses for which he has no direct accountability (eg. CAMELS scores)?

How Democratic Design Falters

This President’s day weekend we honor the political example of two American leaders for very different reasons.

From essayist  Gleaves Whitney:  George Washington earned the respect even of his former enemy, King George III, by doing something exceedingly rare in history: When he had the chance to increase personal power, he decreased it — not once, not twice, but repeatedly.

During the American Revolution, Washington put service before self. His personal example was his greatest gift to the nation. It has often been said that the “Father of our country” was less eloquent than Jefferson; less educated than Madison; less experienced than Franklin; less talented than Hamilton. Yet all these leaders looked to Washington to lead them because they trusted him with power. He didn’t need power.

In all of the history of the NCUA board, I know of but one, who voluntarily left their position before their term ended.   Power, prestige and position are addictive.  What’s missing is performance.

From Abraham Lincoln in January 1838 to the Lyceum club in Springfield, Ill on “The Perpetuation of Our Political Institutions”  as summarized by Heather Cox Richardson:   “The destruction of the United States, he warned, could come only from within. “If destruction be our lot,” he said, “we must ourselves be its author and finisher. As a nation of freemen, we must live through all time, or die by suicide.” . . .

“He warned that the very success of the American republic threatened its continuation. “[M]en of ambition and talents” could no longer make their name by building the nation—that glory had already been won. Their ambition could not be served simply by preserving what those before them had created, so they would achieve distinction through destruction.”

Contrary to the statements of the  three board members, their primary fiduciary duty is not to the NCUSIF.  It is to the member-owners of credit unions.  The Fund is only one of many tools and roles the NCUA has for creating “a system of cooperative credit” for the United States.

The Fund was not even formed until almost 40 years after the Federal credit Union act was passed. It was put on a sound financial basis 50 years after the Act.  And it is arguably the least important resource as more than 90+% of all credit unions are safe and sound, not due to insurance, but from supervisory examinations.

The  Board’s failure to formally review the NOL was by design.  It violated a fundamental agency commitment when the legislation creating the new structure was implemented.  Informed governance  oversight is missing. Paraphrasing Lincoln, The greatest threat to the NCUSIF is not from external threats to credit union solvency but from internal NCUA mismanagement by intent or simple inexperience. 

And that is how freedom is lost, one small step at a time.  This time it is NOL review.  And next?

Harper has made no secret of his intent to reshape the NCUSIF in with the FDIC’s premium options.  Hauptman can no longer claim ignorance of previous precedent and practice.  Otsuka must decide if she wants to  be merely an echo for the Chair or really dig in and learn about the history and uniqueness of cooperative design.  Then truly express her own independent judgment.

The NCUA board was set up with democratic intent, to be a check and balance on agency or individual interest overriding that of credit union members.   The design does not guarantee this will happen.  Rather it is the conduct of those in their chosen positions of authority that will ensure this structure truly protects members best interests.  That is the governance model every credit union is expected to follow.

Additional References

Credit Unions Comment on NCUA’s Raising the NOL in 2017 from NCUA staff summary:

Federal Register Notice October 4th, 2017

Around 55 percent of all commenters expressly opposed any increase to the normal operating level. However, around 90 additional commenters urged a ‘‘full rebate’’ of Stabilization Fund equity, implying they also opposed any increase to the normal operating level that would decrease a distribution in 2018 or beyond. Many of these commenters contended no increase could be justified because a normal operating level of 1.30 percent had been sufficient to withstand the financial crisis. A large number of these commenters (as well as some that supported an increase) were concerned the Board would never again decrease the normal operating level if it increased it in 2017. Many commenters that opposed any increase to the normal operating level urged that, if the Board did increase it, the increase should sunset after one year and the Board should then substantiate any extension of a normal operating level above 1.30 percent. Some of these commenters suggested increasing the normal operating level would erode the NCUA’s motivations to control its operating expenses and that the NCUA’s operating budget and the overhead transfer rate had consumed most Insurance Fund investment returns in recent years. A common thread in the comments was that failure to return all Stabilization Fund equity would be contrary to prior assurances and promises from the Agency.

Some commenters contended an increase to the normal operating level would be akin to credit unions over reserving for loan losses, a practice NCUA examiners generally advise against. They noted the strength of the credit union industry, the recent strengthening of the NCUA’s regulations related to capital, and more stringent supervisory tests as additional firewalls that reduced the need for an increase to the normal operating level. These commenters often pointed to loss estimates related to the Legacy Assets as a basis to doubt the NCUA’s projections of the Insurance Fund’s performance.

Staff response for those citing the Corporate Crisis as a reason for increasing today’s NOL:

Other than the $1 billion capital note issued to U.S. Central Federal Credit Union, no material expenses related to the conserved and liquidated corporate credit unions were paid from the Insurance Fund. Immediately after Congress established the Stabilization Fund, the Board transferred the $1 billion capital note receivable to the Stabilization Fund, at which time the Insurance Fund received full payment on the capital note from the Stabilization Fund.