Watermelon Flavored Oreos Offer Insights into Individuals’ Behavior

In June 2013, Nabisco’s Oreo, the best-selling cookie brand in the world, introduced a “refreshing” new product extension.

The new Oreo had a watermelon flavor filling to create an association with its summer market launch. The internal flavor coloring aligned well with its Golden Oreo product. Children were a prime target because of their willingness to try new flavors.

One does not have to be a market research guru or have a sweet tooth addiction to suspect this might not be a great consumer success.

On Twitter, responses ranged from, “These sound heavenly,” to “i looked up ‘abomination against nature’ in the dictionary and there was a picture of watermelon oreos.

One media outlet asked its Facebook followers for comment and received a deluge containing one word, “Eww.”

An econlife review opined: If you really want that “fun, summer flavor,” stick with the real thing and dive into an organic watermelon. They’re limited edition summer treats too, with much healthier benefits.

Harbingers of Failure

Marketers study failures, not just success stories.

In a 2015 paper, marketing scholars from MIT, Northwestern, and Hong Kong University of Science and Technology looked at consumer demand for new products. After gathering data on 8,809 new supermarket products, 439,546 transactions, and 77,744 customers, they concluded that success didn’t necessarily equate to sales growth. The explanation was that consumers who liked the items most were not representative of the total market.

Analysis identified these buyers as exhibiting what marketers labelled “Flop Affinity.” These are people who buy something that really doesn’t resonate with the majority of the market, such as Crystal Pepsi or Lemonade Doritos. These individuals are also more likely to buy a type of toothpaste or laundry detergent that fails in the broader the market.

Traditionally, companies want increased demand. But demand is about more than the quantities; it involves knowing who likes your product. If sales increase because “harbingers of failure” purchase something that most would avoid, then a firm can have a flop on its hands.

But just as important, an NBC story on the study found these group preference choices work the other way around. The data found those “who tend to purchase a successful product like a Swiffer mop are more likely to buy other ultimately successful products, like Arizona Iced Tea.”

The Watermelon Oreos Phenomena in other Contexts

Researchers are exploring how widely this “harbingers of failure” pattern applies in other areas, from everyday shopping selections to financial markets.

Is the concept applicable to behaviors other than choosing consumer products? Do credit union leaders tend to join with others around similar performance patterns?

Can the Watermelon Oreo research also identify behaviors or mindsets that exist within organizations; that is, micro-cultures that can compromise or promote purpose and performance?

Responding to External Demands for Change

In addition to ongoing market competition, every institution today is confronting external pressures for change. These range from the operational pivots responding to Covid to the social and political demands for accelerating equity and economic inclusion.

Northwestern’s Kellogg School identified a range of leadership responses ranging from the least to most meaningful when an organization reacts to external demands. Least effective were public statements of support. The most consequential was finding champions for the cause within the organization and tasking these internal believers in the change to develop the organization’s response.

The Watermelon Oreos case suggests that people’s choices, even if popular in the moment, are not indicative of long-term success. Winners tend to align with other winners in their behaviors whether within an organization or in the distribution of consumer preferences.

Effective leaders put those who believe in the required change in charge and not let the doubters harm their brand or organization’s reputation.

Credit Unions’ Annual Meetings in a Zooming World

The digital experience as a result of Covid lockdowns is so pervasive that demographers are calling current school age children the “zoom generation.”

But all generations are learning to navigate this ever expanding medium. Zoom and all its online counterparts are becoming embedded in every traditional social, educational and entertainment activity.  Church services, weddings, funerals and all kinds of family interactions have online expressions.

Colleges offer not only virtual classes, degrees, and lectures for current students, but also reunions inviting thousands of alumni.  They can participate by submitting short video updates instead of the traditional “class notes.”

Most employers have transitioned all routine office functions to virtual –hiring, staff meetings and all aspects of customer interaction.  Firms specializing in travel now offer virtual tours, some live and others recorded.

The Annual Meeting

One required credit union activity that has gone virtual is the annual meeting.  For many credit unions the event is a mere administrative formality.  Minutes approved, reports read or referenced, and election by acclamation as the number of board openings equals the nominations.  Everything is over in minutes.  The required quorum is largely staff and board.

Last week I watched Patelco’s annual virtual meeting, it’s 84th. Most of the agenda followed the in-person format.  The primary item was  CEO Erin Mendez’s annual update lasting almost 20 minutes.  It went far beyond the Annual Report.  The presentation was comprehensive, concrete and comparative.  Patelco’s financial performance was juxtaposed with credit union and banking peers, a truly professional accounting.

Her speech is worth listening to should Patelco post the video.

The Power of the Medium Still Evolving

Zoom communications offer a much more dynamic opportunity than just translating the current process into a new media.  Rather it is an opportunity to connect with members in totally new ways.  And thereby enhance the member-owner relationship.

But for zoom to transform this member experience, we have to get the old ideas and ways of thinking about this required event out of the way.  In addition to the virtual broadcast, other new capabilities via zoom include:

  • Expanded reach into every home and geographic area with internet, far beyond local members;
  • Instant feedback from attendees via polling and chat comments;
  • Breakout rooms for members to converse with specific credit union experts;
  • Speakers from any location, live or recorded;
  • Video can be integrated into the event;
  • Recording is simultaneous so the event is available anytime and is more complete than summary minutes.

These interactive capabilities are regular features in many zoom academic sessions.  They enable a learning experience much more effective than a one-way lecture.  One professor has encouraged his students to participate actively in the chat window using hashtags: #question; #debate to bring in real diversity of thought; #aha if you have an insight to share; #onfire if you desperately want to get into the conversation right now.

The “Woodstock” of an Annual Meeting via the Internet

Last year Warren Buffett held Berkshire’s annual meeting virtually.  Normally over 40,000 attend in Omaha, NB which has earned the occasion the title of “Woodstock for Capitalists.”  In 2020 the  entire agenda was broadcast live on Yahoo finance and attracted hundreds of thousands of viewers and participants  from around the world.

This year’s meeting will be held on Saturday May 1.  The three-part event Yahoo Pre-meeting Show at 1:00, Question and Answer Period 1:30 – 5:00, and the Formal Shareholder Meeting 5:00 – 5:30 will all be live at https://finance.yahoo.com/brklivestream.

Buffet does not use the full array of digital options listed above.  However, he is an example of a CEO’s total public access and accountability that is unusual today.

The event demonstrates Buffett’s ability to pivot and leverage the power of an enhanced virtual platform for the required shareholder’s meeting.  Buffet began his leadership with Berkshire in 1962.  If this 90-year-old can master the power of this virtual evolution for his shareholders, should credit union leaders aspire to do any less?




The Members’ Vote: A Reminiscence on Patelco’s Annual Meeting Day

Patelco Credit Union’s 2021 Annual Meeting is being held today virtually. The following is an excerpt from a Credit Union Times story of December 17, 2002 about the credit union:

SAN FRANCISCO-Patelco Credit Union caught the eyes of the credit union community in 2002 when it announced its plan to convert from federal deposit insurance to a private fund.

Patelco’s members overwhelmingly passed the measure to convert to the American Share Insurance fund with 40,734 votes in favor out of a total 66,755 or more than 61%. Only 20% of the credit union’s membership or 38,241 total votes were required for the decision.

Patelco’s conversion was spurred by the credit union’s $480 million in uninsured deposits, which was only growing with the current flight to safety. ASI provides primary deposit insurance coverage up to $250,000 per account and does not limit the number of accounts an individual can have insured. The National Credit Union Share Insurance Fund provides just $100,000 in coverage per account for a limited number of accounts per member.

Additionally, “one size fits all” regulation from NCUA through the NCUSIF was also cited at Patelco’s Web site. The conversion of the $2.9 billion credit union is the largest to date.

While acknowledging the conversion as an individual credit union decision to convert, the switch was not particularly well received by the NCUA Board members. . .

A Reminder for Today

The members’ voice is empowering when called upon.

The NCUA Board’s Actions Positioning the NCUSIF for the Future

The NCUSIF’s 1984 Annual Report describes the founding actions positioning credit union’s Fund and the cooperative system for the future.

“Between July and October 1984, the NCUA board considered at great lengths how to implement the deposit plan.  Every effort was made to listen to credit unions and their representatives,  Whether by phone, letter or in person, communications were continuous, spirited and open. Because of this input, a very workable plan for all was reached when the board adopted final rules at its October 9, 1984 meeting to implement the capitalization legislation.

First, the board waived the entire 1985 insurance premium.  Second, it ordered the distribution of $81 million in Fund equity.  This amount constitutes the Fund’s equity in excess of the 1.3% fund equity insured shares ratio the board established for the Fund, once the 1% deposit was received.   Because of these actions, credit unions will only have to transfer 85% to 90% of their initial deposit obligation to the Fund yet it can carry the full 1% asset on their balance sheets.

(Editor’s note:  credit unions transferred only .89% of insured shares and were credited with 1%-the Fund’s first dividend)

Because of this legislative achievement by the credit union movement and the regulatory approach taken to implement it, the Fund contains some very advantageous structural improvements:

  • The insurance fund will be fully capitalized at all times;
  • Fund growth will automatically parallel credit union growth;
  • Congressional concern about the Fund’s adequacy and the need to build public confidence in it will likely lessen. Future legislation will probably focus on the FDIC and FSLIC (which happened often);
  • The numerous operating options within the new deposit plan framework provide future flexibility for credit unions and for the Fund;
  • Credit unions will have a direct financial stake in the operation of their Fund.

In 14 years, members of federally insured credit unions have gone from the least well protected depositors in financial institutions to be the best protected.”

Source: National Credit Union Share Insurance Fund 1984 Annual Report, pages 6 and 7.



Experts Predicting Doom–A Perennial Practice

The year 2007 was not a down year for credit unions. Slow sure, but there was no talk of an economic collapse on the horizon. And the housing market was booming.

Nonetheless the temptation is always present to burnish one’s reputation by forecasting doomsday. The issues and trends pointed to by these speakers are not false. Rather the straight line conclusion that everything is going to fall apart because these concerns will go unaddressed, is where the logic fails.

Regulators have a particular attraction for using this clarion call. They are supposed to monitor risk, but sometimes the futures they portray seem more to justify additional resources, not from  experienced insight.

Responding to challenges, seen and unforeseen, is what every manager tries to do. So listen, but then apply common sense.

Words: The Blogger’s Tool Chest

The initial premise from Joseph Pearce

“One of the most important treasures to desire is the possession of words. Words are necessary because they are the very things with which we do our thinking and liberate us from the slavery of ignorance. We can only make sense of the world, and our place within it, if we have the vocabulary to articulate our thoughts. It’s not simply that we need words to communicate with others; we need words, first and foremost, to communicate with ourselves. If we are unable to make sense of the complexity of our situation because we do not have the words in our mind to articulate what’s going on in our lives, we are doomed to the sort of frustration which leads to despondency and despair, and rage and violence which are their toxic fruits.”

I have forgotten the following writer’s names.

Words 1: Changing Minds

We all have filters, [such as] What do I already believe? Does this new idea or piece of information confirm what I already think? Does it fit in the frame I’ve already constructed?

Ideas that don’t fit easily will require me to think, and think twice, and maybe even rethink some of my long-held assumptions. That kind of thinking is hard work. It requires a lot of time and energy.

Words 2: Rules and Extreme Cases

A sagacious legal maxim states that hard cases make bad law. If we make a generally applicable law(or rule) to counter an extreme or extremist circumstance, we risk removing freedom from all people in order to restrict the freedom of the extremist.

Words 3: Generosity and Wealth

Generosity is simultaneously a moral and a material imperative, especially among people who live close to the land and know its waves of plenty and scarcity. Where the well-being of one is linked to the well-being of all. Wealth among traditional people is measured by having enough to give away.

Words 4: God’s Question to Job

The question:  Where were you when I laid the foundation of the earth? Who determined its measurements-surely you know?

We manage the contributions, loyalty and human capital of our founders going further back than our initial chartering dates—generations helping generations. It takes a community to create a credit union. We see in our time how this founding effort has been paying forward, establishing our present public standing. Whenever an enabling legacy is honored, this renewed awareness generates deep gratitude, even awe.




Jim Blaine’s “Inaugural” Address

As the CEO of America’s second largest credit union for 37 years, Jim Blaine had the unusual skill of translating simple cooperative concepts into profoundly valuable benefits for members.

Every member received the same rate for the same kind of loan.  Believing home ownership was vital to members’ financial security, he designed a 100%, non-conforming first real estate loan for any member with a simple explanation: “Why compete with the government?” (Fannie/Freddie conforming products)

He railed against FICO-determined lending decisions and risk-based loan pricing. This early use of “artificial intelligence” offended his belief in the uniqueness of each person.  Character and judgment, not computer algorithms, should be the basis for granting credit to members.

Words Matter

In addition to steering State Employees North Carolina Credit Union, Jim was a wordsmith.  His blog, and his talks, were audacious, controversial, fun to read and based on core principles.  “Sometimes wrong, but never in doubt” was his tagline. His writing style and graphics were intended so that a reader immediately got the message.

He understood that a leader’s influence was in direct proportion to one’s ability to communicate. To the entire crowd: fellow-believers, opponents, the uninterested and the unwashed, meaning those who corrupted cooperative values for self-interest.

Some of his most scathing and widely read observations were about NCUA, a government agency which believed that its core purpose was to tell credit unions what to do, or not do.  Examiners would constantly challenge Jim’s traditional implementation of credit union purpose.  He would use the agency’s own words and facts to demonstrate the lunacy of their demands.   When he dared to break the code of silence NCUA imposed on examiner ratings and publish his credit union’s score, the regulator wreaked vengeance on the entire North Carolina state-chartered system.

Jim’s most enduring gift to the “movement” may be his writings.  As Churchill stated: “Words are the only thing that lasts forever.”

The Course to Be Pursued

In an inaugural address more than 157 years ago, the speaker gave “a statement of a course to be pursued.” That course concluded with this purpose:  “with charity for all; with firmness in the right, as God gives us to see the right, let us strive on to finish the work we are in; to bind up the nation’s wounds. . .to do all which may achieve and cherish a just and a lasting peace among ourselves. . .”

Lincoln used 722 words in 1864.  Jim’s 503 words address the legacy Lincoln hoped the civil war would resolve.

Jim speaks to the goal of a “lasting peace among ourselves” based on economic fairness and justice, core principles of the cooperative ideal. Diversity, equity, and inclusiveness are matters of the heart, much more than policy; something to practice in your life, rather than just preach.

Jim followed his own drummer when leading his credit union.  I believe these latest words will inspire all and even provoke some to answer his closing call for individual acts of rebellion!

Blaine’s “Inaugural” Address

(March 18, 2021)

“I am truly grateful to the African American Credit Union Coalition for this honor. The organization is remarkably successful and on the rise! I have known many of its leaders for a lifetime and have often sought, and even heeded, their advice! We shared a common bond – a belief in credit unions.

My life has been centered around my family, my wife Jean, and credit unions. Why credit unions? Because I could never accept that in America those who had the least and knew the least should pay the most for financial services. I believe that credit unions were created to correct that injustice. In the words of Thomas Paine – a true revolutionary in all respects – “I have always objected to wealth achieved through the misery and misfortune of others”.

That economic injustice continues to thrive in our financial system today. Credit unions remain the alternative, the best hope, the answer.

We all confront an uncertain future, and many folks would like to rewrite the past. You and I know we cannot change the past. But if we have credit union leaders with integrity, courage and character; we most certainly can reshape the future…but changing the future is very hard work. Arthur Ashe, the great American tennis player, described the credit union leaders we need. Ashe said: “True leadership is not the urge to surpass all others at whatever cost, true leadership is the urge to serve all others at whatever cost.”

One  word of caution as we look to the future and choose our new leaders; let’s make sure that diversity, equity, and inclusion is not a false guide, a false prophet. Can we really tell how diverse a credit union is by looking at the faces of our boards and leaders? Choosing our leaders by their race, their gender or their age is the old way – more of the same. We need a new way for credit unions.

And, the new way is to judge people not by how they look, but by how they think. As a famous preacher – I believe his name was King – said over fifty years ago: “Hopefully my children will be judged by the content of their character.”  Yes, let’s truly diversify and choose leaders based upon the content of their character. That is a more difficult, complex task, but our future depends upon it.

By the way, if you want to get a jump on reshaping the future, try starting a little personal revolution of your own. Next time you are filling out a form and come to the question of “Race?”, drop down to “Other” and write “Human”. When you reach the ethnicity question, drop down to “Other” and write “American”. And of course when you reach the question on “Sex”, drop down to “Other” and simply write in “Yes!”….and the world will begin to change!

Onward and upward – for all!… With the African American Credit Union Coalition leading the way!

Thank you again for this honor.”



An Insightful Co-op History Lesson

This week I listened to a 55-minute lecture on Rochdale and the Early Cooperative Movement.  Presented by the National Farmers Union, the speaker, Erbin Crowell, is an expert in the history of cooperatives.

The Rochdale reference is a name familiar to persons working in credit unions.   But the reasons for its pivotal place in history are rarely told.  Moreover, it was only one example of decades-long efforts by social innovators to improve the lives and status of the English working class.

These multiple reform theories included socialism, capitalism, mutual aid societies and cooperatives as England transitioned to an industrial, post-agrarian economy. One very successful  capitalist Robert Owen promoted both factory reforms and utopian socialism.  He attempted to establish his vision of an experimental socialistic community at New Harmony, Indiana in 1824.

This lecture describes the context in which Rochdale became a lasting cooperative example.  He mentions the Cooperative Group’s role in Great Britain today.  One learns that cooperative principles were not an initial framework for Rochdale, but rather assembled  only in the 1930’s in the US.

Taking this 55-minute journey will provide more than a glimpse of the past.   It presents the  cooperative concept as an evolving one, not a static design limited to traditional segments of an economy.



Rex Johnson (1943-2021) Part 2: Putting “Credit” Back in “Credit Unions”

A CEO reflects:

“It is an honor to comment on a wonderful man who has been the most influential mentor in my career. Rex taught all of us the unique way of being significant in individual lives. At Utah First, you see Rex’s influence in every employee. We don’t judge members; we look for the opportunity and good in every relationship. Bad things can happen to good people and we try to look beyond the moment and provide the chance for everyone to be their best. This is Rex to his core. We will miss our dear friend but find comfort that he lives in all of us each day.”

– Darin Moody, President/CEO, Utah First Credit Union

Rex’s Entry into the Credit Union Story

In 1979, the Illinois credit union system was at a critical turning point. The 1,035 Illinois charters was the largest of any state. Wisconsin at #2 had 633 charters.

Illinois charters served over 1.4 million members and held 7.2% of all state-chartered assets in the country. In August 1979 a recodification of the state’s credit union legislation (first passed in 1925) was approved by the legislature to respond to the onrushing disruptions in financial markets and the economy ushering in the era of deregulation.

Short term Treasury bill rates spiked in 1979 at over 15%. Disintermediation of deposits from the regulated rates paid by depository institutions was redistributing consumer savings into unregulated money market mutual funds.

In addition to this unprecedented rise in short term rates, labor strikes directly affected many of Illinois’ largest credit unions. There was a 58-day strike at United Airlines in the spring. In the fall, almost all of the farm implement companies saw labor shutdowns—first at John Deere plants, then Caterpillar Tractor locations, followed by International Harvester work sites.

At the end of the year, Chicago’s school system troubles caused payless paydays for the teachers and their credit unions. Eight of the state’s largest 15 credit unions served members who had been on strike, faced layoffs or were suffering from the economic slowdown.

Key Illinois Credit Union Trends

Of the 1,035 charters, only 56% (580) had NCUA insurance. Share growth at 6.4%, was half of the 1970 decade’s 12%. Members earned on average 6.8% on savings and borrowers paid 10.9% on loans. Loan rates were capped by a 12% usury ceiling. Average capital was 7.6%. Delinquency rose to 3.2% at year end.

Lending portfolios were almost all consumer loans. Regulations required credit unions to have over $1.0 million in assets to make real estate loans or issue share drafts. Of the 310 above this asset threshold, only 23 reported real estate loans. They totaled $66.2 million, or just 3.7% of all $1.8 billion loans outstanding. In this same asset group, only 49 credit unions offered share drafts which amounted to just 1.7% of all member savings.

The system’s loan to share ratio stood at 93.5%. Rules limited unsecured loans to a maximum of $5,000, secured loans to $20,000 and real estate loans to $50,000. Credit cards were nonexistent for most consumers from any financial provider.

Illinois federal and state credit unions combined reported total members of 1.5 million, or 10.3% of the state’s total population of 11.3 million. However, these 1,477 credit unions provided 13.5% of the state’s consumer loans, just behind the 15% share from consumer finance companies. Credit unions’ share of the deposit market was 4.2% compared to 30.4% for banks and 65.4% for thrifts.

The Personnel Upgrade

To respond to these seismic changes in financial services, the Credit Union division’s annual budget was $633,000, entirely funded by exam and supervision fees from credit unions. The division’s Chicago and Springfield offices employed 32 personnel including 22 field and review examiners. The division conducted a surprise exam and a full exam for every credit union. To set contact priorities, the semi-annual call report was automated. Credit unions were sent the same financial five-year Financial Performance Report examiners were given to monitor trends

Other division activity, including administering 25 mergers, 13 liquidations and 3 new charters during the year, plus implementing a landmark recodification expanding credit union powers and upgrading regulatory oversight.

That was the “day job.” The division’s managers spoke at trade association events, chapter dinners, CUES training conferences, attended a minimum of seven Advisory Board meetings and two “Days with the Director,” one upstate and the other down. Nationally, Illinois became an active member of NASCUS. I was the first state regulator chosen for the newly formed Federal Financial Institution Exam Council (FFIEC) coordinating the implementation of truth in lending legislation. The division followed the establishment of the NCUA’s CLF. Caterpillar Employees Credit Union was the first borrower to use this new cooperative liquidity option.

A critical priority for Ed Callahan, Director of the Department of Financial Institutions (DFI), was upgrading the performance of all field and professional staff. In the credit union division, CPAs were hired to supervise field staff and all examiners were required to have or obtain accounting credits. New managers were recruited from outside government to supervise the Chicago and Springfield Offices.

This is when Rex Johnson entered the credit union story.

The ad in the professional job listings in the Chicago Tribune was for the Chicago Office Manager of the Credit Union Division of DFI. The position’s requirements included an undergraduate, preferably an MBA degree, and management experience in banking or finance.

Rex met none of the listed criteria. No college, no finance courses. Just a dozen years making and collecting mostly unsecured consumer loans, working his way up the hierarchy of Household Finance Corporation (HFC & “Friendly Bob Adams”). His performance in multiple branch assignments in North Carolina and Virginia earned him a promotion to run an HFC’s branch in Chicago near the company’s headquarters.

Rex passed on the DFI ad. However, his wife Connie urged him to apply because he enjoyed managing people. She believed the prestige of working for the State would enhance his professional opportunities.

The DFI’s general counsel Bucky Sebastian initially interviewed Rex, outside business hours at a 24-hour diner, to avoid jeopardizing Rex’s HFC career. Was his asserted capability “for real?” It was. When I talked with Rex, so persuasive were his answers, I hired him with one condition: that he get a degree–as part of DFI’s program to upgrade the professional skills of all staff.

Rex immediately looked into night school to get an undergrad BA. He did not find that option appealing because much of undergraduate coursework had no direct job application. We then met with the Dean Vennie Lyons of Northwestern’s evening MBA program (in which I was enrolled) to see if Rex might qualify. Dean Lyons while open to the possibility, also suggested Rex consider Northwestern’s new Executive MBA program which offered a more structured and traditional academic model.

This “executive” program targeted mid-career professionals working full time with weekend meetings in a class size of 25 who would learn together for the entire 2-year program. Each class was admitted as a group with a common curriculum. Lyons said the program might consider one or two “high risk” applicants in each class from persons who did not meet the normal academic and experience requirements. Rex was accepted, received his Masters in Management (MBA), and years later told me, “it was the hardest thing I ever did.”

While Chicago supervisor, Rex brought his lending insights to help examiners and also added a special capability when instances of fraud were uncovered. Most wrongdoing involved key personnel, often the CEO, in smaller shops. If not tracked and resolved quickly, the future of the credit union could be jeopardized as most small credit unions were run by few employees.

When an examiner found false accounts, unreconciled bank statements concealing theft, or other misappropriations, the agency’s job was to restore sound operations rapidly. Most credit unions had no share insurance. The fidelity bonding company was reluctant to pay quickly for “unfaithful performance” claims without full evidence of the loss.

Upon receiving the examiner’s findings Rex would go to visit the suspected bad actor. His goal was to persuade the person to cooperate to quickly resolve the situation. The best way to do this was to obtain a written statement outlining what the person had done. He would explain that by confessing their errors, a person could be at peace with their conscience.

He succeeded every time. With the signed document in hand, the credit union’s board understood the need for new leadership and the bond company responded quickly upon receipt of the state’s exam findings and written confession. The credit union could continue normal operations and avoid being bogged down reconstructing records to find which accounts and transaction were false or real.

Moving on to Baxter as the Founding CEO and Spreading the Lending Gospel

In 1981 Director Ed Callahan delivered a new charter to Baxter corporation which wanted to provide credit union benefits for their employees. Later the company’s executives asked Rex to interview for the CEO’s role of starting the credit union even though still lacking a college degree. He was chosen to organize this new charter startup, a processing taking over a year. As CEO he grew the organization to over $ 300 million in 1994 when he left to become a full-time lending consultant starting his own firm.

By experience and conviction, Rex believed the most important activity of a credit union was making loans. He brought his years of hands-on lending and collections from HFC to promote lending as an “art,” not merely filling orders. The “art” required learning a person’s whole story to understand their character, the basis for sound credit judgment. Always look for the good, not for reasons to turn down a loan, he would later tell students.

While growing Baxter as a lending machine with a loan to share ratio at 85% or higher, Rex spread his gospel into the broader credit union community. He even worked with NCUA to produce a special edition for the agency’s Video Network showing examiners how to evaluate loans.

He wrote lending case studies for the monthly Callahan Report addressing all aspects of loan decisioning and oversight. The titles summarized his main point: “Don’t let Ratios Turn Loans Away,” “Five Focal points of Every Application,” or “Get control of Your Decision making.” In September 1988 Callahan’s and Rex coproduced a Special Lending Workshop, called, It’s Time to Fight Back-Increase Loans, Stop Bankruptcies and Inspire Staff.

These cases studies and loan management skills became the basis for Callahan’s publishing, A Passion for Lending, and its sequel, More Passion for Lending. The cases were drawn from the dozens of credit union consulting projects Rex completed on weekends while still CEO at Baxter Credit Union.

In February 1994, he left Baxter (now BCU credit union) to form Lending Solutions, Inc and devote the rest of his career to helping credit unions better serve members diverse borrowing circumstances.

His Skill as Teacher and Preacher

While continuing to do individual credit union consulting, he converted his observations into five-day workshops called the University of Lending. Loan officers, CEO’s and even directors would attend.

A key to the success of these week-long workshops was that attendees worked with real loans from their own credit union. not just Rex’s vast collection of cases.

In these classes, Rex would do live phone calls using recent turndown examples from attendee’s loans, to show how an apparently “unqualified” applicant could be prudently helped. Once done, he would close the call by saying, “Now that I have helped you, if you would like me to assist any of your friends or family in a similar situation-just have them call me at this number.” He would then hang up the phone and predict he would receive callbacks within the hour. He normally did.

He would also do live collections calls in the class. He would often get an answering machine and would leave a message, asking the borrower to call him saying, “I have great news for you.” When an attendee asked what the great news was, Rex would say, “I won’t know until I have talked to them when they call back.”

These high wire live performance demonstrations helped convince credit unions that they too might adopt Rex’s approach. That is, everyone has a story, find out their circumstances, and look for the good. Before Rex’s teachings, loan staff were often taught to be “order takers,” responding only to the member’s request, and overlooking many other ways a credit union could improve the member’s financial life.

Rex honed his lending skills in the trenches. He was always willing to put his words into practice. Before visiting a credit union, he would ask them to send a sample of 20-30 recent applications including turndowns, charge offs and newly approved loans. Out of these small samples he could create concrete examples showing ways credit unions could better serve members and make the credit union financially stronger. His ability to demonstrate his approach created believers who were frequently hesitant to change long standing policies endorsed by examiners.

Rex had high energy and was competitive. In the first five months in his own business, he consulted with over 100 credit unions. He worked seven days a week pushing himself and seeking the same effort in his colleagues.

At Lending Solutions, he developed all channels to spread his wisdom: publications filled with case studies, videos, webinars where attendance might exceed 1,000; the 20 or more week-long in-person University of Lending programs each year; individual credit union loan consulting and workshops on the road; and a joint venture to establish a 24-hour call center so credit unions could outsource lending decisions after hours, during peak periods or for other support calls.

An Evangelist Who Believed Credit Affirmed Members’ Hopes

Rex’s life captures many qualities of the iconic American spirit of the self-made person. He had no advantages of personal circumstance. Moving from one opportunity to another he believed in the power of word of mouth. He was his own best salesman while convincing others they could do the same.

Credit unions were a fertile environment for his many talents. His passion was lending because it gave people hope. Every member he believed had some good credit points even when recent history might suggest otherwise.

He entered the industry when credit was extended based on character or the credit union’s often advantaged position with payroll deduction or being tied in with a member’s employment. As consumer lending accelerated after deregulation, the process became more controlled by policy parameters, FICO scores and automated response fulfilling members’ requests.

Rex put the member back at the center of the lending decision. Document why you made the decision, he would say, not that you followed policy. His cases and videos are still relevant today.

But an even greater aspect of his legacy is the tens of thousands of credit union employees and directors who attended his multiple events. These students have undoubtedly helped millions of members benefit from Rex’s lending gospel.

In a recent Zoom call where his passing was announced, some reactions marked impact:

  • He taught you to go deep and understand each person’s story.
  • I attended his lending school and then sent all my loan officers-it changed the way we loaned.
  • You can see a spike in our lending level after our annual training sessions, and it stayed.
  • We set up a requirement that any loan decline had to be reviewed by a senior manager; (Rex believed 80% of credit union turndowns were fundable)
  • He changed our mindset; he was one of a kind.
  • Rex’s training brought humanity into lending; strongly supported C and D applicants.
  • Eye-opening. He showed us that lending is a judgment business.

For the thousands who knew Rex personally and experienced his presentation gifts, all would agree that he put the “credit” back in the “credit union” story. Every member should be grateful for that reawakening.

Two “Cases” Highlight Rex’s Influence

With all of his lending skills, story-telling and positive spirit, Rex’s success came from an instinctive insight about people: everyone’s need for mutual connections to feel fully valued. His lending philosophy recognized this compelling human reality—the same motivation that causes individuals to organize credit unions in the first place. It is as simple as “people helping people.”

Rex believed case studies were the most effective means of showing his lending philosophy. Following are two personal accounts demonstrating this ability to inspire individuals.

His Last Engagement 

Dana Garrett. President/CEO
North Memorial Federal Credit Union

I hope it is okay to reach out via email. I feel more articulate in writing than verbal, especially in light of the loss of someone so impactful to both our industry and my personal career path. My voice still tends to quiver when remembering and talking about someone I was lucky enough to call a mentor and friend.

Rex Johnson is the person I credit with turning my “job” as a green New Accounts rep into a career- moving all the way up into a credit union CEO role. Many years ago, Rex, on a consulting visit to our $70M credit union in Colorado, told my CEO I was wasted talent behind a new accounts desk. As a result, I was one of the first to be given the opportunity to attend Rex’s University of Lending school in Illinois.

Rex’s passionate interpretation of the movie Patch Adams and its application to credit union member services appealed to me and brought home the philosophy of “seeing what no one else sees.” This philosophy has followed me throughout my 25-year career in credit unions. 

In my current credit union, this is most evident in the creation of our BIG PICTURE LENDING program. We believe our members are more than their credit score. We work to understand their full story and provide relief where many have been turned down. We have seen credit scores improve and members who felt they may never qualify for a mortgage now realize the dream of home ownership.

Rex’s philosophy is engrained in our lenders and all credit union staff. We knew that to provide loans to higher risk borrowers we would need buy-in from the top down. So we engaged Rex to speak to our Board and staff at a team building event. It would be the last engagement he agreed to, according to Scot Vackar at Lending Solutions. Our entire team at North Memorial FCU became instantly bonded to Rex, his dynamic and unforgettable personality as well as his philosophy. His loss has been felt across our entire organization. 

Our industry has lost a pioneer and the void will be impossible to fill. His legacy will live on in Lorrie as well as Ed, Jack, Bob, Scot and the entire team at Lending Solutions. His many U of L graduates will continue to be ambassadors for his work and belief in credit union members.

There is part of me that still believes I am doing what I am doing because Rex “saw what no one else saw” in me. J

He Was My Patch

Kara Reno, Loan Officer,
CSE Federal Credit Union, Canton, Ohio

Thank you for reaching out. Where to begin? A sentence or two would just not be enough. He was my friend, my mentor, my cheerleader. To say he will be missed is an understatement. His being placed in my life was one of the best things that has happened to me.

Over 16 years ago was the first time I attended one of his schools. We all know Rex teaches a little differently. The first part of the day is watching the movie Patch Adams. He stops the movie at pivotal parts that he feels should be highlighted and are important to help you think differently, live differently, work differently. To see what no one else sees. Then the 2nd half of the day is textbooks and numbers.

When I got back, I presented the CEO with what I thought we should do. I was so excited I couldn’t talk fast enough. I was flipping through my notes, reading him quotes, and telling him my ideas faster than he could process what I was saying. He told me he would think about it. The next day I went back into his office again to see if he was done thinking about it. I told him we have to do this, trust me, I know it will work, please let Rex come here and talk to the board, let’s change what we are doing, give it a chance.

It worked!! We did this, Rex did this, success!! A success for our credit union and our community. I will miss his lectures to me about how I made a difference, telling me I’m special, how smart I am, and most importantly telling me I’m one of his favorite people…..He will always be one of my favorite people too. The person always in my ear telling me “you did this, you made this happen, you changed people’s lives for the better.” The person that NEVER let me down. Over 16 years of some of the best times, conversations, and memories. I will miss having him around to believe in me. I will miss Rex.

Rex Johnson (1943-2021) Part 1: The Player-Coach

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

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

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

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

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

The Case Study-The Core of His Teaching Method

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

Just Starting Out-Who Will Trust Me?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

A CEO on Rex as Coach

By Karen Church, CEO,
ELGA Credit Union

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

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

He was a phenomenal credit union leader!

A Brief History of Elga Credit Union

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

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

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