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An Analysis of the Proposed Spirit Financial-Credit Union 1 Merger. The Consequences for the Credit Union System

The problematic trend in credit union mergers are well documented:

  • Consolidation of healthy, independent coops undermines the sysem’s financial diversity and its  safety and soundness
  • Member-owners’ voices are left out-the unique democratic coop governance process is compromised
  • Consumer choice and value are reduced
  • Credit union competitive advantages for market penetration are destroyed as local leadership  and control of member savings is ended
  • Self-dealing and institutional enrichment stain the coop system
  • The use of banking industry market tactics to expand into multi-state or national charters destroys the unique cooperative purpose and design, This could result in the loss ofthe industry’s federal tax exemption

Mergers have placed the structure and character of the cooperative system at an inflection point. To understand the extent of the continuing appropriations of members’ capital and the closures of their independent charter, is best illustrated with a simple example.  One that has been replicated by a single credit union merger-predator over 20 times.

The Case Study

Spirit Financial Credit Union (Spirit) is a $70 million, single office coop located in Levittown, PA (pop.  est.  50,000) in the Philadelphia metropolitan area.  It is known as the first large-scale, mass-produced suburb of post-WW II America,

Chartered in 1953 as Fairless Employees Credit Union, its primary membership was serving employees of the United States Steel Corporation.  The charter changed to a community FOM for Bucks County in 2005. The name was changed to Spirit Financial in 2016 to reflect “our vision of helping this diverse community to achieve personal financial growth throughout all stages of life.”

Its mission:  “we want to be your trusted financial partner to help you achieve your financial goals. . . We are dedicated to building lifelong relationships with our members and to making a difference in the lives of the people we serve.”  (from website)

While two credit unions and several banks have branches in Levittown, Spirit is the only locally owned and controlled depository institution headquartered there.

Rock Solid Financials

At September 30, 2025, Spirit’s call report reported the following: $30.8 million loans (75% real estate secured), $59.7 million shares, $0 borrowings, and over $9 million in equity for a 13.2 % net worth/capital ratio. For the first nine months, the net income was $365K for an ROA of .70%.

This bottom line is due in part to an operating expense to average asset ratio of just 2.72% or one whole percentage point lower than its peers.  There are nine full-time employees earning an average annualized salary of $78K each.  With delinquency of only .39%, this credit union has rock solid financials.  Its history and track record make it an invaluable resource for the community’s future.

 A Full-Service Product and Delivery Profile for Members

This coop is a five-star example of what a credit union can be. Services include all transaction accounts, certificate rates around 3.75%, home and auto insurance, and safety deposit boxes. The credit union provides all online transaction and statement options, mobile text messaging and alerts, free FICO scores and a chat bot.  The lending options include all personal loans, auto and RV financing and a complete mortgage line including HELOC and smart equity refinancing. These product and services are available in person or in  virtual channels via home banking.

The Merger Proposal

On October 14, 2025, the 3,800 members were sent a Notice of Special Meeting to vote on merging this 72- year-old, single location credit union with the $2.0 billion Credit Union 1 (CU 1) headquartered in Lombard, IL, some 800 miles and over 15 driving hours away.

Given this credit union’s three generations of home-grown loyalty, its status as the only locally owned and operated financial institution, its full-service offerings and solid financial performance under local leadership, there is just one question: WHY should member-owners transfer all their funds and future to unknown leaders with no connection or even knowledge of this community? Why should strangers be given the keys to this credit union’s opeations in Levittown?

The Member Notice Explanation

The official member meeting Notice discloses no specific loan, share or fee improvements from the merger that members do not already have.  All nine listed “reasons for merger” are so general as to be meaningless, eg. “continued investment in the latest technology.”  The nine reasons are identical, word for word, to three other mergers CU 1 is currently undertaking in a 30-day period around Spirit’s member vote.

In fact, Spirit’s Notice omits one section that is in these other merger explanations titled “Changes to services and Member Benefits.” This omission suggests there are none to be gained.

There is zero evidence that Spirit’s Board and CEO conducted any due diligence of CU 1’s track record. Or its leadership considered other credit union alternatives in the immediate area—if it truly believed a merger should be an option. These would be minimal requirements to fulfill their fiduciary duties of care and loyalty to the member owners of Spirit.

The key question is what is motivating this takeover? There is one detailed explanation required by NCUA’s merger rule. These are in the  Merger Related Financial arrangements which provides an answer.

David Obarowski joined the credit union as CEO April 2017.  Prior to this he was EVP/Chief Operating Officer of TruMark Financial Credit Union, a $3.4 billion coop with 24 Pennsylvania branches and head office is in Fort Washington.

In just over eight years as CEO, this merger “sale” will provide him with the following financial benefits listed in the Notice :

  • A $200,000 bonus upon “merger closing.”
  • Continued employment with the CU 1 for a period of five years with annual salary increased by $52,381 Spirit’s 2024 IRS 990 filing shows the CEO’s taxable income as $258,414 (salary portion is $207,617).   With this increase added to his existing compensaton, this five-year payment will total between $1.250 million and $1.5 million.
  • Additionally, to support CU 1’s “strategic growth and partnership goals” he will receive an incentive ranging from $1 to $50,000 for each credit union merger partner he successfully attracts into the continuing credit union.
  • The CEO’s previously established SERP will become fully vested at $3.0 million, structured as $150,000 per year for 20 years starting at age 65. The SERP was entirely funded by Spirit.  Reviewing the call report for the June and September 2025 Employee insurance, the funding increase appears tp jave talem place in the 2025 third quarter.  It shows a  $2.139 million increase in this account, more thand doubling the June ending alance of $2.096 million. This suggests a last-minute funding effort as the merger was being planned. Moreover, the Serp contains “a change of control clause” which means the $3.0 million is fully vested on merging.  This change is an event largely initiated and directed by the CEO.

The total immediate financial benefit to CEO Obarowski is a minimum of $4.450 million plus additional bonus incentives. In only eight years as CEO in thia 72-year credit union,  he  has garnered a very golden parachute.

The termination of Spirit’s charter will give him between two and three times the total salary he earned as an 8-year CEO. It is equal to almost half of the Spirit’s total net worth.

Five other Spirit employees will receive  annual salary increases as high as $18,172 and retention bonuses of $6,177.  The salaries are to “align with that of similarly situated employees of the continuing credit union.” The CEO and five of the other nine employees receive immediate bonuses and salary raises.

The members whose loyalty and resources built the credit union receive nothing from their 72 years of common ownership and support.

The 3,794 owners’ entire savings, loans, investments and over $9.0 million of net worth is transferred to the complete control of CU 1. This is an institution about which they have been given no specific information about its business model, track record from other mergers or any descriptions of its leadership.

What Should Spirit’s Member-Owners Know About Credit Union 1

First, Spirit members should understand that as an Illinois state charter, post-merger, the CU 1 board   controls all the decisions made by the credit union.

All other charters, state or federal, ensure members can vote for in nnual director elections and most critically on the issue of merging.  Under an Illinois charter, members will be requested to give their voting power via proxy to the board.  This is  for all corporate decisions.

The result is that the board which controls all proxies, is self-perpetuating and not subject to the democratic process of one member one vote as in all other charters.

In Spirit’s case, members have no information that would enable them to make an informed decision about their future with CU 1.  By law and regulation mergers that close  a chater are so critical that all members, each with one vote, must decide the issue. But they have been left in the dark about what is really happening and especially CU 1’s business practices.

The official Notice provides only general phrases under the Reasons section of CU 1’s business priorities. Spirit members are given just two items of specific data. There is a geographic listing of all CU 1’s branch locations and a June 30, 2025 summary balance sheet and income statements with three performance ratios.  There are no concrete facts to suggest these offer any benefit to the owners of Spirit.

Both sets of fact raise questions why Spirit would want to be a part of this ever-expanding coop conglomerate. CU 1 lists 41 branches operating in ten states. In six states there is just one branch.  Spirit is the only location for PA, a presumption as members have yet to vote.

The relevant question is, do any of these other 40 locations in scattered throughout Illinois, Minnesota, North Dakota or Las Vegas provide any location benefit for Spirit’s members?  Moreover, this widely dispersed branch network suggests operational priorities and services will be standardized, not tailored to specific communities’ needs.

Just as the salaries of the Spirit employees will be conformed post merer, it is likely that all operational procedures take precedence over local  competitive circumstance or legacy services. For example, Spirit’s safe deposit boxes are a less common service for most financial institutions.  Will Spirit members lose theirs?

The Uncertain Financial Performance of Credit Union 1

The primary conclusion one draws from the June 30 financial numbers in the Notice is that Spirit is in a significantly stronger position at $70 million than the $1.9 billion acquirer.  Spirit’s net worth is 30% higher at 12.5% versus 9.56% at CU 1. The delinquency is one-fourth of that of CU 1 at .30% versus 1.24%.   And Spirit spends less of its revenue on operating expenses at 61% versus 68.5% for CU 1.  On fundamental measures of financial strength in the Notice, Spirit is markedly superior.

But a snapshot at one point in time does not begin to show the questionable financial strategy of CU 1. On October 2024 I published an analysis What to Do When Credit Unions Go Rogue? examining its business model and financial performance.  Here are excerpts from one year ago:

“The core of Credit Union 1’s growth efforts are mergers. The operational intensity of acquiring and converting 11 credit unions (six outside Illinois) and all associated member and vendor relationships in just over two years would be a major operational challenge for any organization. The immediate question is how will the members of the merged credit unions benefit?

Additional details frpm that article: The $12 million Synergy Partners CU, Chicago announced on October 17 a members’ vote to merge with Credit Union 1.  That would increase to 11 total mergers in only two and one-half years.  These will transfer over $650 million in total assets and over 62,000 members’ financial futures to Credit Union 1’s control.” 

Since that October 2024 analysis, CU 1 has announced another ten member votes of which over half are now approved and consolidation underway.

To succeed in this ever expanding acquistion campaign, the process is standardized with almost identically worded Member Notices.  In these diverse combinaations, CEO’s are given big bonuses, extended “employment” contacts (ten years in one case) while the members receive nothing. Spirit’s case just replicates these previous acquisitions.

A House of Cards

My prior analysis suggested that CU 1 is a financial house of cards.  For without these external financial boosts, it would have a declining balance sheet. It shows no organic growth from existing assets.   Its operating net income depends on merger gains in multiple ways: gains from the sale of buildings, loans and other assets acquired, equity added in mergers, and negative goodwill, that is the “excess of net worth” when assets are revalued at the combination.

In its September 2025 call report, CU 1 posted net income of $4.6 million for an ROA of .only 29%.  However as reported in the report’s detail, $4.4 million of income was from gains on sale of loans and gain from bargain purchase in mergers.  More critically, net worth has been increased by $48.3 million from equity acquired in mergers.  That is the capital reserves from other credit unions’ owners who received zero to  transffeer of their common wealth to CU 1.

In the first nine months of 2025, CU 1’s net worth has had no increase from operating income. Retained earnings have fallen by $8 million even when including non-operating income gains.  It is only the acquisition of $48.3 million pf other members’ collective equity that CU 1 has been able to maintain its net worth at 9.6% after adding $421 million more in merged assets.

In simple language other credit unions’ member owners are payng CU 1 to take over their opersions for free and whose  assets are essentail to maintain CU 1’s own financial standing.

This is a cooperative Ponzi scheme.  It  takes the collective capital from the member-owners of merged credit unions and pays them nothing.  CU 1 is unable to achieve an operating net income from the assets it manages.  Without the extraordinary gains from these “free” wealth transfers CU 1 would be showing operating losses.

The increase in its balance sheet is just consolidation not market growth. A consolidation fueled by incenting other credit union CEO’s and boards to hand over their entire operations and net worth in exchange for personal benefit payments as described in Spirit’s case.

The Cooperative Graft Game

These mergers are a graft of member assets initiated by those in positions of power and responsibility.  It takes two parties to do these deals, one to intiate and the other to accept the personal benefits for giving up their stewardship of their member-owner s’ financial asssets.

CU 1 has initiated over 20 of these acquisitions. The graft isn’t just of credit union members’ financial wealth  but of each credit union’s long standng  role and contribution in serving their communities..

In Levittown, the community loses its only locally owned financial institution, control over the use of its residents’ savings and future lending priorities as well asd local leadership.  The post-merger pattern in  CU 1’s consolidations is to slowly liquidate buildings and land for gain, close branches, lay off employees and convert as many members as possible to virtual status. The benefits of local presence and relationships are terminated.

All these takeovers are cloaked by a PR patina of     CU 1 promotional endorsements, stadium and venue naming rights, sports team affiliations and market publicity in areas sometimes with no connection to its branch locations.  For example the recent increase in  Mountain West Basketball promotional support are for a conference in states in which the credit union has one branch so far.

Prevously employed CEO’s who received extended employment contracts, but are no longer in a CEO role, are encouraged or incented to entice other credit union CEO’s to follow their example..

The Spirit board and CEO have transferred their member-owners to a “cooperative cleaners” operation. The board did not even bother to compose their own Member Notice and just copied what CU 1 provided them with zero documented due diligence.

Similar Graft Induced Mergers Underway

There are three other CU 1 initiated member votes at the same period as Spirit’s. They are GU FCU in Rome, GA on December 11,  at USE FCU, Chicago, IL, on December 2, and at First Area Credit Union, Saginaw, MI, on January 14, 2026.

This multi-state  hustle campaign destroys these independent credit unions operations.  They end their legacy relationships of service and local leadership.  It ultimately undermines the cooperative system’s unique competitive foundation of local knowledge. leadership and long-term loyalty.

These repeated takeovers demonstrate that democratic member control is meaningless. CEOs can undertake whatever their ambition takes them with non-functioning board oversight. The regulators aren’t just asleep at the switch; they are enablers routinely approving Member Notices devoid of  meaningful information, or filled with misinformation. Members  see through these pro forma explanations  that violate common sense.  (See two comments posted below by Spirit members).

Mergers Undermine Credit Union Uniqueness

Mergers are not a market growth strategy for an organization  or the coop system.  No new members are gained, no loans are added and local footholds often closed. The idea that these acquisitions are new growth is a false concept peddled by consultants and other enablers. It is merely consolidation, an effort to dominate rather than serve. Coop merger math is simple:  1 + 1 = 1.

These transfers of cooperative wealth  enrich only the enablers. They would not happen if credit unions operated in a free and transparent market.  In a real market, there would be competitive offers  for these valuable franchises. But these are back office deals, negotiated and sealed witn legal.greements in private.  The required details are blessed by passive regulators before being  sprung upon the members at the least minute.  Their approval by voting is completed in less than 60 days with litle opportunity to challenge the egulatory approved summary information mailed.

The absence of transparency and dialogue with members undermines any possible discussion of alternatives or of the deal itself.  Spirit’s website makes no mention of the merger proposal or vote.  The local press is apparently unaware and uninformed.

By keeping these deals away from public visibility, the perpetrators count on member just checking the Yes box on the mailed ballot.  This is the is the  method by which almost all members vote.  The only information is in the Notice along with the Board’s recommendation to approve the action. In peson attendance at the Special Meeting becomes a mere formality, not a democratic meeting forum.

Saving the Common Good

These coop merger transactions are private takings of common wealth.

Until the public and the members are informed of the perverse and sometimes corrupt practices fueling these acquisitions, the greed of a few will continue to stain and compromise the system’s future.

At some point members will rise up as they learn more about  these enormous “free” wealth transfers.  These efforts are  now in the hundreds of millions and even billions of member owned institutions. At some point member-owners’  ire wll casue them to seek redress from the perpetrators through either political or legal actions.

And if local media and/or national business publications) begin examining these multi-million dollar self-dealing payouts and the billions of asset transfers without owner compensation, it may   cause the latent democratic member spirit arise to stop these cooperative graft schemes.  The democratic check and balance with, each member with one vote, is the supposed difference in cooperative versus for profit design.

Can credit union  democracy  save itself?

Two Spirit Member Posted Comments from NCUA’s Website

Member Brian Stuart comment:   I am voting against the proposed merger of Spirit Financial Credit Union with Credit Union 1. Credit Union 1 is based in Lombard, Illinois. All of its branches are in Illinois. There is no advantage to the Spirit Credit Union member to merge with Credit Union 1. Merging with Credit Union 1 would take away the local Bucks County focus of Spirit Financial Credit Union, which should be its mission.

If Spirit Financial Credit Union would want to merge with another local Bucks County credit union, I would be in favor of that merger.

Member Joann Glasson:  As a long-time member of Spirit Financial Credit Union, I am sad to see this merger occur when the CD rates are so much lower at Credit Union 1 and the loan rates are so much higher at Credit Union 1.

We are retirees with large deposits at Spirit that we will be forced to move if the merger is approved. This merger is not a service to the members of Spirit Financial Credit Union

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A Cooperative System Vision Gap & Learning from our Past

Whether one calls the current period a time of transitions, transformation or just multiple uncertainties, there is a sense that national and credit union futures seem to be nearing a precipice.

Washington’s political divisions are heightened by increasing consumer anxiety.  Economic uncertainty is created  by the federal government’s policy shifts and attacks on opponents, ending key social programs and assaults on leading private institutions.

Trump 2.0 is not the same as the first term.  He is turning the entire executive branch into his personal fiefdom installing loyalists in every department and  agency of the federal  bureaucracy.  That is, when their functions are not being downsized to feebleness.

NCUA is no exception to Trump’s government onslaught. The lone republican board member became Chair on January 20th.   His two democratic colleagues were subsequently fired so the White House could directly control NCUA actions.  This ending of an independent agency’s leadership is now in the hands of the Trump dominated Supreme Court.

Chairman Hauptman’s term expired in August.  At the same time the agency initiated a reduction in force that led to at least 20% of staff leaving.   The agency now holds no regular board meetings.   Regulation is by rote or reptition rather than design or intent. The role of NCUA is at best cloudy and at worst, irrelevant to credit unions’ future.

The largest trade association ACU  has a new CEO, Scott Simpson, a veteran of the league system.  He is introducing himself to credit unions speaking of unity, advocacy and defending the status quo.   The credit union Defense Council (DCUC) is trying to position itself as a new national voice for the industry with daily press release postings.

With the economy and consumers both showing contradictory signals, the momentum for America’s economic outlook seems fuzzy even with record stock market highs.

In this period of transition in both public policy and AI generated business disruptions, credit unions third quarter results showed stability and resilience.  However there are multiple concerns rippling across cooperative waters as the industry’s new national leaders take over.

Symptoms of Growing Coop Fissures

  • The absence of a vision for credit unions’ unique capacity and purpose to address urgent member needs:
  • The merger frenzy based on a faulty premise, which is that  mergers are growing the movement’s  market share. Rather it is simply consolidation largely fueled by CEO ambition and in a number of instances personal greed.
  • The absence of new coop startups and the steady decline in credit union charters and local presence;
  • The exclusion of member-owners from any meaningful governance role or even awareness of democratic coop design.
  • The use of member funds to purchase whole banks often at premiums to prior market valuations.
  • The lack of credit union initiated and controlled innovations and instead relying on third party vendors for both operational orginations and enhanced member value creation.

Hope For  a Cooperative Future Vision

Those in leadership  can wait and watch.  Try to keep pace by doing more of the same.

And, hold tight until market forces or political challenges force a change of direction.

Or, create a new cooperative vision that becomes a rallying point for those concerned about current trends,

 A Lesson From the Past

Credit unions have been mired in uncertainty before.  Sometimes the confluence of external events; other times by internal shortcomings marked by grasping for false advantage.  For example the effort to convert to mutual bank charters in the first decade of this century—an option taken by over 30 credit union CEO’s, of which only one survives today.

History suggests the gift of cooperative hope is more likely to come from the passion of insiders rather than the hired experience of other industries.  These Insiders should  know cooperative history, its multiple strengths, proclaimed values and commitment to member and community wellbeing.

Moreover any “updated” vision must be fought for, not just proclaimed.   It wil require repeated articulation and conversation to define a better direction than following the status quo crowd.

Last week I posted the final video, Edition XX from NCUA’s Video Network created during the Callahan era from Oct 1981 through May 1985.   The 30 minutes is a summing up of the major internal changes that took lace during this initial period of deregulation.  Three themes stand out:  change requires will, teamwork and documented results.

But the real foundation for the successes in this final video was laid in the first film the network distributed  in cooperation with the Illinois Credit Union League: Deregulation-What Does it Really Mean?

This initial communication presented a new regulatory policy and the approach for how it would be pursued—cooperatively and in dialogue.   The panel includes the NCUA Chair and General Counsel, three credit union CEO’s and Jim Barr who was CUNA’s Washington spokesperson.

This video portrays what is required to state and implement a path of hope and progress in an era marked by uncertainty, rapid change and new leadership.

The video is an example of leadership in a cooperative system.  It is as relevant today, as when it was created over forty years ago.

Here is the link.

https://youtu.be/S09QkeNYgBU

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The Greatest of These . . .

Thanksgiving is about gratitude.  The many moments in life that we experience joy, hope, and beauty.

Appreciate the special  comfort from being with those for whom you care and who care for you.

May your sense of purpose and goodwill be renewed.  Gratitude will make everyone around you feel love.

 

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An NCUA Camelot Era

Everyone has highs and lows in their personal and professional endeavors.

Some  of my most fulfilling moments were the ten years Ed, Bucky and I worked together in credit union regulation.  First in Illinois, and then at NCUA for three and a half years (October 1981-May 1985).

One of the educational communication efforts we launched was the NCUA Video Network.  The initial film was in partnership with the Illinois Credit Union League, What is Deregulation?, periodic productions chronicle NCUA’s priorities and information vital for credit unions to be aware of.

The final Edition XX was called The Callahan Years.  It is a live, unscripted interview by a moderator with Ed, Bucky and me.  It responds to criticisms, some voiced about our leaving two plus years before Ed’s term expired.  More importantly, it is a discussion of the many ways the agency changed to meet the new era of open competition versus government assigned charter franchises.

This 30-minute review captures the joy and learning that happens when people work well together.  I was fortunate to be a part of a team that stayed together even as we went our separate ways after founding Callahan & Associates in 1985.

The ten years we spent learning from each other  and from movement leaders was a Credit Union Camelot experience for me.

Listen to this summary of this pivotal period in NCUA and credit union history.  It is a moment of remembrance and thanks for this special professional interlude.

(https://www.youtube.com/watch?v=DrfG5PiObB0)

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A Week for Giving Thanks

In life, both  fiction and for real, we often do not know the full story until the last chapter.

Yesterday, a funeral service filled with gratitude opend this new week for my wife and me. Not just a memorial service, but also “The Celebration of Life and Service of Witness to the Resurrection.”

What do those last four words mean?

Funerals are brief and often insightful summaries of what made the person unique-not just as an identity, but also for a life lived.  The full story completed.

For non-family members, the service provides a brief glimpse of the arc of a person’s life by those who, in most cases, knew them best.  When one is not family, we often are only aware of brief moments of familiarity that rarely capture one’s full story.

Gratitude

This service was for a mother of two girls, who divorced in the early 1970’s, raised the family  by herself while earning an MBA and pursuing a career.  Life was filled with job changes and relocations to make ends meet.

My wife and I only knew her as a grandmother, who sang in the choir, volunteered in the Opportunity Shop, and was a full time caregiver for her grandchild, raised by her own single mother.

Her life was defined in her family’s remarks, as one of unconditional acceptance of others, care and service to the community.

Not Owners, but Stewards

There is a saying among farmers that the land they cultivate is not theirs.  They are stewards of the legacy they inherited. They are not owners free to do whatever they want with the property.  Rather their ultimate obligation is to manage the land so the legacy continues to benefit future generations.

This is similar to the belief motivating and sustaining many credit union leaders past and present.

But it also portrays one of life’s realities for all.

How one spends their most precious asset, their limited years, becomes their legacy.  Family will recall, as they did on Sunday, the  experiences that influenced them as children, grandchildren pr as a brother.

In the service bulletin was a note that offered suggestions if someone wanted to make a donation to honor the person’s memory.  Chosen by the family, this list is a glimpse pf the person’s priorities in life:

  • The Hunger Program of the Presbyterian Church
  • The Lupus Foundation of America
  • Your local food bank.

This is how the family  suggests others support the values the person lived in her life.

This list is for gifts of thanks giving. It is how the family wants their mother ‘s actions and priorities remembered.  And passed on.

This Sunday service was not just a celebration of past deeds  It was a pivot to  how a person’s example will continue to shape the future. Through family and friends.  It is why funerals matter.  We will all have one.

 

 

 

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Nature’s Wardrobe of Fall Colors

Fall brings new options from nature’s closet-some staying on from summer and others new. My wife wants the yard to display color in every season.  Here are samples from nature’s local outlet of the fall line.

My Star mangnolia in full dress mode

The last rose of summer

Pansies in a flower box should winter over

Fall camilias are the star of this season 

Yuletide camilia just starting to bloom

Nandina or heavenly bamboo berries

Summer chrysanthemum in container-bring in or recyle?

Ready tor fall

 

 

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The Power of People in Community

Last Sunday evening Joan and I attended a fund raising dinner for Ukraine hosted by St. John’s Episcopal Norwood in Bethesda. The meal was prepared and served by the women of St.  Andrew’s Ukrainian Orthodox church in Silver Spring.

Over 60 people attended with table centerpieces in yellow and blue bouquets and small Ukrainian flags.

These periodic events are led by two St. John members who formed  a Ukrainian support group years earlier after Russia’s invasion.  They share information on the country’s trials of war.  They have raised funds for replacing a neo-natal unit in a children’s hospital, tourniquets for civilian casualties, microscopes for high school science classes as well as sending surplus Halloween candy  to be delivered by Christmas.

As official US government support has waxed and waned, these people to people efforts have remained constant.

This evening’s focus was to raise money to help purchase an evacuation ambulance, especially equipped for rapid response of civilians and soldiers injured in war.  The vehicle would be assigned to the Medical Unit, 12rh special forces Azov Brigade.

The Azov brigade became known for its stand during the months long siege at the Mariupol Azovstal steel plant in 2022,  The evening’s theme:

“We cannot bring back the fallen. But we can honor theirmemory by saving and protecting the living.”

A New Lifeline via Community

To buy and equip an all-terrain ambulance in Ukraine would cost $14,000.  Yesterday the St. John’s leader Sandie emailed the group that the entire amount had been raised with more for medical supplies.

This was the response from Olena who organized the women of St . Andrews, who brought the dinner, when she heard the outcome:

This is truly groundbreaking! 

This vehicle will mean life; it will be equipped and is meant to go to the darkest and most hopeless places of war to bring back survivors. It will bring a mother back home, reunite a son with his parents, it will work hard to make sure families are reunited.  

Having received so much feedback from Ukraine about someone’s last words over the radio knowing they would not be rescued and were going to die, we can honestly say this is a new lifeline for some. This will mean fewer cases of the last words to the loved ones over the radio.

We thank you, Ukraine thanks you, families and children thank you. We are the kind strangers that carry out this mission and once again we made this happen, as a community. 

A Sunday evening meal shared with people committed to doing good for another country that many may never visit.  It is a reminder that when giving, we often receive much ourselves.

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Helen Keller on Credit Unions

One of Helen’s observations was,  “The only thing worse than being blind is having sight but no vision.”

I received an email last night announcing a merger of a top ten credit union and one of the fastest growing credit unions (their term) in their market.

The release contained this triumphal statement:  The combined credit union will serve 1.8 million members and operate more than 80 locations under BECU’s charter with more than $33 billion in assets. This will make it the fourth-largest credit union by asset size in the U.S.

The email also included a slick PR poster that  made it appear that this was a done deal, between the two firms.  The member-owners apparently have no say or voice.

This “fait accompli” approach suggests the continuing credit union has not looked at the track record of large credit unions whose growth strategy is mergers.  They might want to review PenFed’s recent history as a start.

Only Two Turnovers from Failure

This haughty announcement also confirms the observation that every organization is only one or two CEO turnovers from failure.   This was by a credit union leader who had witnessed countless changes in his four decades.

Failure in his view was not financial, but the end of an independent, sui generis, credit union.  It occured as subsequent leaders lacked commitment to, and often knowledge of,  the organization’s founding principles.

In tlhis case the continuing credit union had been led for over three decades by a CEO who could have chosen to merge multiple credit unions supported by his single sponsor.  But that was not how he thought coops best served their members.

I’m sure there will be more to learn about this transaction as we get past the “people helping people”  claptrap.   With this swaggering start, the rest of the story will likely become another case study of credit union CEO’s and boards implementing “The Art of the Deal.”

 

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The Special Importance of Today’s Trendwatch Call

One consequence of the 44 day federal governement shutdown is the absence of timely macro data on the US economy. Fortunately for credit unions there is another option to track the state of the movement.

Each quarter after the vast majority of credit union call reports have been filed, Callahans offers a preliminary financial and operational analysis of important industry trends.

Today at 2:00 PM EST the firm’s Trend Watch broadcast will give the September 30, 2025 year-to-date performance numbers.  It’s free. You can sign up here.  (link) or directly enter (link)

Three Reasons Why This Update Matters  More Now

  1.  With NCUA short-handed, this will be the first and most timely status report on the state of the industry–the positive trends and areas of concern.  Individual credit union reports are available to be  downloaded from the Peer analytical tools offered by the company.
  2. Although the federal government has reopened, normal monthly economic reports on jobs, unemployment, GDP growth and inflation for the months of September and October were not produced.  In some cases the missing data points may not be replicable because they rely on contemporary personal interviews with households during the month .

Another example from yesterday’s Marketplace Daily Wrap:  “The last time the Census Bureau gave its monthly report on retail sales in this country was two months ago. Those figures were for August.

We don’t know when we’ll get those figures for September and October, as the Bureau works through the data release backlog caused by the government shutdown.

3. Because there is a gap in macro economic trends and recent data, analysts must rely on the private sector, especially company’s quarterly reports.  These will be the primary data source  to evaluate the economy’s overall trends, especially consumer spending.

This week third quarter financial results from  several big retailers, Home Depot, Lowe’s, Target and Walmart will be announced along with their future outlook. Their revenue and profit trends will be vital to interpret consumers’ economic resilience.

Those firm’s nationwide sales  will indicate whether consumers may or may not be tightening their wallets in the short and medium term.

Credit unions provide valuable insight especially  on the lower and middle parts of the income spectrum.  What are savings trends?  Are loans increasing and in what categories?  Are there signs of consumer financial pressures from delinquency numbers in credit cards, indirect autos or even student loans?

The Value of Context for Local Outcomes

Credit unions serve very specific or small areas of the consumer economy.   Their local circumstances may not follow national macro trends.  That economic diversity is critical to overall system soundness.

But knowing the system’s year over year growth rates and other critical trends can provide  important perspective for the remainder of 2025, as well as next year’s budgets and plans.

When traditional data sources are lacking, a credit union advantage is their willingness to share with their peers how they see priorities for the future.  Callahans will be the first chance to view this across the entire spectrum of credit union place and asset size.

Tune in at 2:00 PM.  Send in your questions or comments via the chat.

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IRS 990 Filings Should Be Required for All Credit Unions

Last week a proposal that federal credit unions be required, as state charters must now do, to file an annual IRS 990 was reported.

There is useful information in the IRS form that is not available elsewhere, including details about the compensation of the CEO, senior managers and board (when applicable).

Here is a link to a sample for the largest state charter SECU-North Carolina at their fiscal yearend, June 30, 2024.  The initial pages are similar to call reports. Additionally, many yes-no questions about governance link to data in the subsequent schedules.

This full report would be even more valuable if the data of the two federal credit unions closest in size, Navy and PenFed, were available for comparison.

One part of this initial data includes the question about the disclosure/availability of thefiling to the public.  Most credit unions only check this option:   Upon request  In other words, filed, but not readily available.

Information not provided in other required call reports includes:

Schedule I:  Cash grants and Other Assistance to Domestic Organizations and Domestic Governments.

Schedule J: Compensation-Officers, Directors, Trustees, Key Employees, and Highest Compensated Employees.   Also, Loans to and/or From Interested Persons including those funding split dollar life insurance-a retirement benefit described at the end of this post.

Schedule O:  Supplemental to Form 990 includes information on governance,  elections, salary oversight process et. al.

Should Federal Credit Unions Be required to File this IRS form?

I believe it is in the interests of individual credit unions and the industry that federal charters be required to file the same data as state charters.

Here’s why this filing should be standard operating practice.

Transparency is critical to democratic governance and accountability for credit unions’ elected leadership.

Compensation for CEO’s and senior staff (and when permitted board members) is the single most important indicator of personal stewardship of members financial assets.

It is vital in organizations that receive a tax exemption to maintain accountability in return for this benefit.  Especially so when most credit union competitors pay taxes.

State charters have been disclosing this information for over five decades. There has been no downside from the practice.  Public disclosure is a responsibility in return for this significant exemption.

There are problems with the practice, however.  The due date for filing is the 15th day of the fifth month after the fiscal yearend.  That would be May 15th or November 14th for December or June fiscal years.  Many credit unions seek an extension; for example the SECU report was filed on May 29, 2025, versus the November deadline.  This means the information is often a year old.  Ideally the report would be sent to all members in their Annual Meeting information, as part of the year’s financial report.

Filings  Reviewed as Part of Examinations

Also when seeking specific reports via public sources such as Pro Publica, it is not unusual to find that some credit unions are apparently not filing.  There appears to be no regulatory enforcement or review to see if the information is correct.

Failure to file for three consecutive years results in a revocation of a credit union’s tax status-certainly a safety and soundness problem. No state charter should be approved for merger unless the most recent IRS 990 is available, as that information is critical to understanding the required Member Notice compensation disclosures.

Credit unions should support this 100% public filing for the movement.  That would demonstrate public responsibility and respect for the member-owners.

 Summary of 990 Filing Requirements for Credit Unions

All state-chartered credit unions that are tax-exempt under section 501(c)(14)(A) are required to file an annual information return with the IRS (either Form 990, 990-EZ, or 990-N), with the specific form dependent on their financial activity.

There is no asset level that completely exempts them from this filing requirement.

The specific form to be filed depends on an organization’s gross receipts and total assets:

  • Form 990-N (e-Postcard): For organizations that normally have annual gross receipts of $50,000 or less.
  • Form 990-EZ: For organizations with annual gross receipts less than $200,000 and total assets less than $500,000.
  • Form 990: For organizations with gross receipts of $200,000 or more, or total assets of $500,000 or more.

Federal credit unions, in contrast, are exempt under section 501(c)(1) and are not required to file an annual information return with the IRS.

Failure to file the required return for three consecutive years will result in the automatic revocation of the organization’s tax-exempt status. The IRS provides resources on the Form 990 series filing requirements on its website.

Split Dollar Life Insurance-Employee Benefit Description from SECU NC’s latest 990 IRS filing.

SPLIT DOLLAR LIFE INSURANCE: THE CREDIT UNION HAS GRANTED NONRECOURSE LOANS FOR LIFE INSURANCE PREMIUM PAYMENTS TO SELECT MEMBERS OF SENIOR MANAGEMENT. THESE LOANS ARE COLLATERALIZED BY THE ASSIGNMENT OF THE CASH SURRENDER VALUE OF EACH RESPECTIVE LIFE INSURANCE POLICY. THE POLICIES ARE OWNED BY THE EXECUTIVES AND THE OWNERS HAVE SOLE CONTROL OVER THE LISTED BENEFICIARIES. UPON DEATH OF THE INSURED, THE PROCEEDS FROM THE DEATH BENEFIT OF THE LIFE INSURANCE POLICY ARE USED TO PAY THE OUTSTANDING BALANCE AND ACCRUED INTEREST OF THE LOANS. THE LOANS ARE CONSIDERED NONRECOURSE AND AS SUCH, THE CREDIT UNION HAS RECORDED THE BALANCE AS THE LOWER OF THE OUTSTANDING LOAN BALANCE PLUS ACCRUED INTEREST, OR THE CASH SURRENDER VALUE OF THE LIFE INSURANCE POLICIES.