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Are Members Losing the Cooperative “Savings” Game?

While the 2022 calendar has turned, we do not yet know the full results for the credit union system.  And how member returns may have ended up.

The number one economic topic in 2022 was inflation.  In response the Fed raised short term rates from 0-.25& to 4.25-4.50% in seven steps.   The rest of the yield curve rose although not  always in a parallel fashion. In some time periods,  the yield curve has inverted meaning short term returns exceed longer maturities.

Credit unions fund on the short end of the curve. Liquidity was, and still is, a top credit union priority.   At September 30, annual loan growth was 19.4% versus share growth of  just  6.5%.  Unrealized investment losses had grown to $40 billion, Total investments had fallen by over $100 billion.  FHLB borrowings were double the amount versus a year earlier.

So how did credit union member owners fare overall in this rising rate environment?  For the entire industry the year-to-date results through September show loan yields have risen, cost of funds has fallen by 2 basis points, and the net interest margin has increased by almost 20 basis points.  Rising loan demand was the primary reason for this margin increase.

The Top 100 Report a $51 Million  Decline in Dividends Paid

A commonly accepted truism in credit unions is that the larger the credit union, the greater the possible member value.

In 2022 Vanguard’s federal money market fund had a total return 1.55% rising from .01% in Q 1 to a 3.99% distribution at December 31, 2022.   These savers returns rose as did market rates.

For members of the top 100 credit unions there was a very different outcome.  In 63 of the largest credit unions the total dividend dollars fell by an average of 12%.  The total decline was $241.7 million versus the amount paid in the first three quarters of 2021.  For some the fall in rate was precipitous.  One credit union reduced total dividends by 46.3%; three credit unions reduced their dividends by over 30% versus the year earlier.

In contrast, thirty seven of the top 100 reported an average 21.7% increase in paid dividends.  One caveat: approximately seven of these increases were due to mergers or bank purchases which increased total shares by this externally acquired growth.  Their dividend payments may not be an apples-to-apples comparison.   However, ten credit unions in this group, all with only organic growth, reported over 20% increases in dividend payments.

When adding up the total dividends paid by the 100 largest credit unions through September, the combined result is a $51.2 million decline in member income on their savings.

The proviso:   The game is still has one quarter to go.  Some credit unions pay significant yearend bonus dividends and /or interest rebates.  These will need to be added in the final quarter.  With full year data we can also estimate the average dividend rates to compare with  alternatives during the year.

The Existential Question for Credit Unions

In the first three quarters of 2022, members are paying more for loans, credit unions are earning higher investment returns, salaries and benefits continue to grow, and total capital has  increased. However, many members are seeing a reduction in the dollars paid on their savings.

I will revisit these top 100 to see the full game’s results at December 31.  Did member-owners win or lose in this rising rate environment? Which credit unions navigated this rate transition most effectively for their savers? How did they do it?

Will members continue to “subsidize” the largest coops, many with increasingly public visibility, by accepting falling returns on savings? One money market fund today pays 4.25% (seven day SEC yield) with an expense ratio of only .10 basis points.  Will large shareholders start to move funds from their lower paying credit union money market products?

CEO’s frequently assert that member loyalty lasts for only 25 basis points.  The US economy has had historically low rates since 2009.  Lower inflation and the Fed’s “quantitative easing” have led to an unusual financial period where the cost of money was at or near zero.  Can credit unions avoid the “bubbles” created by this historically rare very low-rate environment?

Will CEO’s adjust their business models so that member savers can be winners in 2023?   So far the data show there is a significant gap  for coop owners to receive the results they will increasingly expect versus other options.

In 2023 will the largest 100 turn into leaders, or the majority continue as laggards in savings returns?

If many of these largest firms cannot remain competitive for savers, is the cooperative financial model at risk?

Or do these falling returns, just reflect management slowness in responding to the changed interest rate situation?

 

 

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A College Student’s First Credit Card

By Marit Hoyem

I am a junior at Williams College with a concentrations in communications and volleyball. Last summer I was an intern at Callahan & Associates, the credit union company.  One assignment was writing articles about the financial habits of my generation. Their needs, how they get information, and how credit unions can attract Gen Z by helping them be more confident about their finances, especially using credit.

My reporting  last summer taught me a lot. But then, I became a case study.

The Need for Credit

My search for a credit card began two weeks ago when I arrived home from college for Winter Break. I am spending the next semester abroad in Edinburgh, Scotland.  This change of location means that I won’t have a meal plan and other college expenses included automatically in the tuition payment.

To support this new far-from-home experience, I needed a credit card to transact easily in the local economy.  I wanted to start building my credit before I left the U.S.  to learn what living outside the Williams college prepaid “financial bubble” would require.

Looking for Options

First  I talked to my Mom and sister.  Both have several credit cards. We are all members of the same credit union. They encouraged me to look at our credit union as well as seek other options. What kind of benefits did banks target for college students?

I started researching online looking for the best rated credit cards for students, credit cards for people with no credit, and credit cards without foreign fees. The options were overwhelming.

When I decided to try an option, the application was pretty intimidating.  I didn’t have much of a job history other than summer internships and part-time campus work, and no outstanding credit.  I also felt uneasy getting a card from a bank or fintech with which I had no first-hand experience. How would they know I was reliable? Was there a catch in their offer?

I decided to ask for a card from my credit union where I had been a member since high school.

An option on my credit union’s website met my criteria:  no foreign transaction fees, no annual fee, and a high enough credit limit.  I set up an appointment with someone in the lending department where I could present my case. I believed that explaining my income, my semester abroad, and the need for the card now would be more effective in person.

The credit union offered a secured card backed with my savings deposit. I had to show my last “part-time” pay stub from school, which the loan officer used to determine my limit — needless to say it was not very high.

During my online searches, I found a card through Deserve and American Express. The program  is meant to help students build credit. What stood out is that Deserve has multiple cards designed for specific activities such as entertainment, women-owned business, or student loans.  The application online asked similar questions to my credit union, which made the process familiar. Within a week I heard back approved — with a much higher card limit than my credit union’s offer, and not limited by my monthly income.  The card should arrive  shortly.

Seeking Credit the First Time

This experience showed the benefit of getting a credit card at a young age. Seeking credit for the first time can be super intimidating.  However the sooner I start building credit and pay bills monthly,  the more comfortable I will be will using credit when necessary.

As a credit union member, it was easy to go in person and be approved because we knew each other. But that isn’t possible for many students who do not go home or have no credit union  nearby.

Most of my peers are likely to pursue their first card online.  To gain their business,  the institution  should  be able to walk with the novice student borrower through the process.

 

 

 

 

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A Caring Act and a Poem Decades Later

This poem is a story.  A moment when the author was a young boy on an army base and his father deployed.  A life changing event in  160 words.

Someone cared; the boy responded then with his only coin; and decades later, in this poetic remembrance.

Gratitude nurtured with a single act of kindness.

I add the author’s explanation at the end.

To the Young Second Lieutenant Standing Behind Me in Line  by Rob Greene

(at the Keesler AFB Post Exchange in 1987 (Biloxi, Mississippi)

No one looked after me or my brother back then, no CPS,
no Social Workers, the SP’s couldn’t be trusted,
the off-base cops even worse.

When the P-EX mini-mart clerk told me
I wasn’t supposed to be there
and had to leave my Pork & Beans

and bread on the counter, you caught up to me in the parking lot,
my items in your tote bag.
I got caught stealing a sleeved stick of butter

the week prior, but today had returned
with the Susan B. Anthony dollar coin I found in the gutter. All I had was that and my pocketknife for opening cans and gutting fish,

the reason my privileges were revoked.
I wish I had answered your questions—What’s going on?
Why can’t you shop here? Where are your parents?

before darting off into the night with the can and bread,
dropping the piece of money at your feet.

Greene explains how this poem came to be:

“This memory from 1987 came back to me in 2020 and I had to process it, so I made this poem. The female second lieutenant represents all those who tried to help me and my brother Chris at that time. I am especially grateful to the Santiagos on Keesler Air Force Base who first spoke to our father, who had just returned from a year-long assignment in Belgium so he could find us kids, who were living in squalid conditions on the streets of Biloxi for one long year.”

 

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Unions in Credit Unions

Labor unions have traditionally been seen as part of America’s older manufacturing  plants or where there are high concentrations of workers.  Autos, heavy equipment, steel, telecommunications, and transportation are industries where unions have been an key aspect of the workforce since WW II.

Gradually union efforts expanded to teachers, fire and police, and at the local state and national levels for public employees.   NCUA staff was unionized in  2013 under Chairman Matz.

Organizing has extended to NFL, baseball and virtually all player’s associations in professional sports. Graduate student staff at California’s state university system went on strike last fall.

The last two years have seen increasing efforts by employees to from unions, especially in the retail sectors.  The warehouse organizing at Amazon and Starbuck store-by-store votes, have been regular business news in 2022.

Hybrid work options and prospects of increased layoffs have led to organizing efforts in the heretofore non-unionized tech industry, including a small part of Microsoft’s empire.

Local circumstances as well as macro-economic factors have driven this effort.  Inflation has caused employees to be more aggressive in seeking higher wages.

There are more job openings than people job hunting. Yesterday’s monthly JOLT (job openings and labor turnover report)  showed 10.5 million openings, a level that has remained steady for more than a year.

Unions and Retail Services

One author has suggested that Starbuck’s unionization has been motivated by employee response to the firm’s modified corporate strategy.

This corporate transformation was necessitated by Covid driven changes in consumer commuting patterns and work place locations. Starbucks had positioned itself as the “third place” between home and office for people to gather.

Today the business model relies on transaction volume driven partly by a mobile app and instant pickup with fewer employees to keep costs down.

He describes the impact of this strategy shift in The Future of Retail is Happening at Starbucks Right Now. 

“The number of store employees has dropped dramatically.  Starbucks had 349,000 employees in 2020, which includes the period pre-pandemic, and 138,000 in 2021, but coffee is still flowing.

“Like any retailer, Starbucks needs people to do some work. Perhaps there are steps of the customer experience that could be replaced with software, but not all of it. If Starbucks is going to be successful with a reduced staff, it needs employees who know the stores, their customers, and operations.

“This is why many stores are fighting to unionize. Employees are demanding livable wages, dependable hours, and benefits. And it’s not like Starbucks is hurting. Store count and profits are up, while the company-wide payroll has fewer people. Yet the employees who still show up are struggling to get hours and benefits.”

A Top Ten Item

A Credit Union Times article by Henry Meier former General Counsel of the New York Credit Union Association, listed union organizing as one of the top ten trends to watch in 2023:

From Amazon to Starbucks, last year marked a movement toward unionization: Why would credit unions be exempt from this trend? This means that someone in your credit union should be familiar with the steps you can and should take in the event that your senior management receives notice of intent to form a union. This is an area of the law where a single misguided statement can result in loads of trouble.

This law firm’s new advertorial cited two cases of union organizing in a bank and coop in 2021: Big Labor Targets Banks and Credit Unions.

They point out these successes were in “union friendly” states at a time when there is more active NLRB support for organizing,

Credit Unions and Unions

A number of credit unions have had employee labor unions, some their entire existence.  717 Credit Union in Ohio was formed by a GM labor union.  Teachers,  police and fire credit unions in several states were formed by their professional associations.

Once in a while employees have ended their union affiliation. When a new relationship focused CEO came to State Employees in Michigan,  the employees disaffiliated some 15 years ago.

Both external economic conditions  and institutional strategy change–major mergers and bank purchases–are causing credit union employees to consider how to negotiate their future work opportunities in significantly altered environments.

In October employees at a Broadview FCU branch in Albany, NY announced their intent to form a union.  This occurred just months after the former State Employees FCU and Cap Comm CU had merged.

In the Times Union article,  the employees invoked both credit union design as well as traditional work concerns in these excerpts:

“Credit unions are a form of economic democracy where every member has equal ownership and one vote. We have concluded that a labor union is necessary in order to provide Broadview members — our financial institution’s owners — with high quality banking services,” reads the letter. “We are organizing due to inadequate pay and benefits, constantly changing schedules, understaffing which overwhelms us, and a lack of equality and a voice in our workplace.”

The article continues:

“The union letter was from member service associates and relationship bankers at SEFCU’s Park South branch on New Scotland Avenue in Albany. It wasn’t clear if the organizers, calling themselves, the Broadview Labor Organizing Committee, were affiliated with or had reached out to other regional or national unions.”

Credit Unions, Culture and Employee Unions

Many credit unions compete through superior personal service.  Employees are front and center of this effort.  Management constantly  nurtures this advantage through training and transparency.

If changes are undertaken and employees learn about their  new  priorities only as senior management announces them, a loss of agency can occur.   Why weren’t we asked?  How will this bank purchase affect our staffing?  What will happen to all the co-employee positions in a combinaton of sound, previously independent credit unions?

Unions and credit unions may increasingly go together.  After all, aren’t coops basically a member-organized union?

The best way to follow what  credit union employees are thinking is fully and regularly sharing  what management is thinking.

 

 

 

 

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Grace Notes

In music a grace note is a quick, optional note that the musician can play or sing, to add more color to the line.

While not essential to the harmony of the piece, it adds an unexpected ornamentation. And brief moment of beauty.

Grace notes occur in all areas of life.  Yesterday’s 65 degree temperature in the middle of winter, is a  grace note from nature.

An Employee’s Grace Note

At some point, all of us have seen or experienced  unexpected examples of pure kindness.

From the CEO’s Monthly staff update: “Weokie Credit Union partners with the Community Impact Fund to help members in need over the holidays.  It raised over $1,700 and adopted 14 families representing 33 individuals this season. Team members were asked to contribute and/or nominate an employee they wanted to assist.

All the recipients are anonymous, but the CIF received some messages from those  we were able to help.”

From his memo, this response struck me as an especially gracious one by an employee surprised by this unexpected gift:

This is so sweet!! I was not expecting this at all! I’m assuming someone nominated me? I’m not sure. I’m happy to let the other people who were nominated get a little extra if you would rather give it to them!

If you do want to send me the gift, just know I will use it to bless other families! Thank you for all you are doing to make the world a better place! We need more people like you!

We do indeed need more people like this person who believes it is more blessed to give than to receive.  A grace note of gentleness and kindliness.

 

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REAL Credit Union Stories

The stories we tell create our history.  They capture what is valued and honored.  They portray want we want to remember as individuals,  within an organization, or for a movement.

No two stories are identical for persons or firms.  Added together they are a kaleidoscope of what  credit unions have become and likely paths to the future.

Blogging is storytelling.  Today’s examples are from Day Air in Dayton, Ohio. They were selected by the CEO in his monthly update to  his team. The examples illustrate the credit union’s singular culture.

Using Stories

The CEO’s introduction: There were 25 service story nominations in December, bringing the total for the year to 232, just shy of the record set in 2021.  Please keep your eyes open to good news stories happening around the Credit Union – there are a lot of them….  Help us share those stories in 2023.

The Service Example

Palisha was commended five times this month by various members or associates. One of those comments included: “Palisha was very helpful and explained everything very well. She also gave me tips to help build my credit which I found out I was doing all wrong thanks to her.”

Partnering in the Community

We partner with various non-profits in the community.  One is the Artemis Center, which assists victims of domestic violence.  Their executive director sent this letter last week: 

“My name is <redacted> and I am an active participant in Artemis support group.

I was never involved in the finances in my almost 25 year marriage. I knew nothing about loans, money, mortgages or credit. My credit had been destroyed during my divorce. 

An advocate at Artemis referred me to Day Air. Not only did they (Day Air) take the time to help and explain to me what I needed to do with my finances but how to achieve them. For someone that was significantly financially abused for years, the help from Day Air has made a huge difference and impact in my life. 

As a single mom I am almost to the place where I am going to be able to get a home mortgage but would not be at this place if it was not for the referral to Day Air.

For people that have been significantly affected by Domestic Violence, this is such a huge relief to have businesses that are willing to help others in this situation. I just needed someone to give me a chance and guide me in the process of becoming independent. This will enable me to provide for myself and my children.

Thank you so much for partnering with organizations and businesses such as Day Air Credit Union.”    

Another Partnership: Trinity Success Story

We typically see success stories from Trinity Credit Management that result from associate’s referrals of members.  The following was the result of a member finding Trinity through our website.

“this was an outstanding outcome……$31,300.00 on 4 credit cards……26.1% interest we reduced to 7.2%……original monthly payment $1,112.28 (only $324.00 was applied to principal!!!!)….new payment down to $854.00 and this couple is on track to being paid in full at least 15 months sooner saving about $20,000.00…….”

This organization does great things negotiating on member’s behalf to reduce credit card debt.

The CEO’s Message

Mutually owned financial cooperatives and CDFIs (and Day Air Credit Union is both) play a tremendous role in the economic vitality of communities around the world.  The impact is measured in the number of loans made and number of people served, but also in many other, intangible ways. 

A mortgage or home improvement loan helps improve the quality of housing and can bring stability to a community.  A car loan or a car repair loan can be the difference in a single parent being able to get to work or take children to daycare or school.

A personal loan can help people avoid predatory payday lenders.  A small business loan can create job opportunities that improves the standard of living of the business owner, the small company’s employees as well as benefit its patrons. 

All of us at Day Air Credit Union represent the “George Bailey” (from the movie It’s a Wonderful Life)  in the lives of those who we help and serve.  Thank you for being part of someone bigger than each of us; a part of something that greatly contributes to the very fabric of our community; a part of something that really makes a difference in people’s lives. 

REAL Stories

These are REAL credit union stories to lead us into the New Year.   Daily we will read numerous reports and publicity about many cooperative’s milestones, and even sometimes, endgames.

The critical factor for each reader will be to discern for him/herself what is a REAL credit union accomplishment, or merely an event touted by “a credit union in name only.”

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The Most Powerful New Year’s Message-for Generations to Come

This 17-minute message from President Volodymyr Zelensky to his people and the world, is one of the most powerful speeches of my lifetime.

Listen, watch, and learn what transforms ordinary people into one common purpose.

(https://www.youtube.com/watch?v=XqNrvIHoY0g)

How Three Generations in a Family Cope with War in Kyiv (3 minutes)

(https://www.youtube.com/watch?v=3ikf-hTuIfE)

Today, we are all Ukrainians.

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A Poetic Thought Upon the Eve of a New Year

This poem by Jim Moore was written during the pandemic.  It references those experiences that give hope as we navigate the “light and darkness of our days and nights.”   A meditation for entering the New Year.

The Need is So Great

Sometimes I just sit like this at the window and watch
the darkness come. If I’m smart, I’ll put on Bach. 

I’m thinking now of how far it always seems there is to go.
Maybe it is too easy that I speak so often 

of late last light on a December day,
of that stubborn grass that somehow still remains green 

behind the broken chain link fence on the corner.
But the need is so great for the way light looks 

as it takes its leave of us. We say
what we can to each other of these things, 

we who are such thieves, stealing first
one breath and then the next. Bach, keep going 

just this slowly, show me the way to believe
that what matters in this world has already happened 

and will go on happening forever.
The way light falls on the last 

of the stricken leaves of the copper beech
at the end of the block is something to behold. 

 
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A Resolution for 2023

From the Fool in King Lear:

Have more than thou showest,
 Speak less than thou knowest,
 Lend less than thou owest,
 Ride more than thou goest,
 Learn more than thou trowest,
 Set less than thou throwest;
 Leave thy drink and thy whore,
 And keep in-a-door,
 And thou shalt have more
 Than two tens to a score.

Trow (v.) think, expect, believe