Chip Filson
The Seated Boxer, an iconic ancient Greek work of art, shows a grizzled veteran of the ring, equal parts resigned and ready to spring into action.
What I like is a sense of respite from competition, the powerful athletic physique and the tiredness that surrounds his humanity. Is he a winner this day? Are there more fights to go? How will his efforts be remembered?
These are questions that all of us encounter, in literal or figurative ways, in our daily efforts.
There have been pivotal years in credit union history, none more so than 1984.
NCUA and credit unions celebrated unprecedented market place, legislative and industry financial success. NCUA issued over 100 press releases over the 12 months. These announcements covered credit union performance, agency initiatives, and multiple press and political comments on the cooperative system. Here is a very small sample, in date order, of these Agency communications:
Jan 4: American Banker reports credit unions grow faster.
Jan 11: CLF pays quarterly dividend of 9.0%.
Jan 16: NCUA Acts to recover Penn Square losses
Feb 15: Credit Union Stamp Released in Massachusetts
Feb 29: Symposium on College Student Credit Unions
Mar 6: Financial Performance Reports a Hit
Mar 9: NCUA Board to Meet in Tucson
Mar 14: Credit Unions Fastest Growing Financial Institutions
Mar 21: Callahan Testifies Before Senate Banking Committee on Insurance Fund Capital
Mar 24: NCUA to hold First Conference of Federal and State Examiners
Apr 4: Banking Committee Approves Capitalization Bill
Aor 18: NCUA Names Koppin Supervisory Examiner of the Year
Apr 30: Credit union Statistics for March
May 15: NCUA Central and Regional Office Realignment
May 24: NCUA Investment Hotline Unveiled
May 30: Credit Union chartered for Cannon Hills Employees
June 19: 50th Anniversary Celebration
June 22: President Issues FCU Week Proclamation
July 18: President signs Bill to Strengthen Insurance Fund
July 26: NCUA 1985 Budget down 4.9%
Aug 21: FCU Growth Surges at Midyear
Aug 31: Two Per Credit Union Limit Placed on Las Vegas Conference
Oct 9: Board Adopts Capitalization Rule
Oct 12: Credit Union Membership tops 50 Million
Oct 22: Credit Unions Most Popular Financial Institutions
Nov 15: Board Slashed Operating Fee Scale 24%
Nov 23: Seger, Breeden, Connell, Pratt Announced as Speakers at Las Vegas Conference
Dec 18: American Banker Reports CU’s Growing Faster than Thrifts
Over 70 additional releases about key Agency and credit union events were issued.
All of these releases were amplified in the monthly NCUA News sent to all credit unions as shown in the samples below.
Additionally, NCUA created a Video Network in which the Agency communicated significant changes and events both internally and with credit unions. Here is the brief opening segment of an hour long video introducing the recapitalized NCUSIF.
(https://www.youtube.com/watch?v=Wsq74FkMrPQ)
In 1984 there were over 16,000 active credit unions. All FCU’s were examined annually overseen by six regional offices and a staff of just over 600. The brief excerpts above of the Agency’s wide-ranging activities and reports are a tiny sample of the interactions and communications with the credit union system, Congress, the White House and the public press.
These events occurred in the third year of Ed Callahan’s chairmanship which began in October 1981. The NCUA board, Bucky Sebastian, Executive Director, and the Senior staff believed that public service is a public responsibility. Senior employees were available, willing and eager to engage with all constituents. And most importantly. accountable to those who entrusted their funds and members’ futures to the regulator for oversight.
A highpoint of this interaction was the December 1984 National Credit Union Conference organized and led by NCUA with the support of the credit union system. It was a first for NCUA, and the largest conference ever held at that point in credit union history. The event was a coming together to celebrate the cooperative system’s growing relevance and success. And to share views about the future of the movement by all those who were dedicating their lives to their members’ well-being.
In 1984 as this year, there was a Presidential election. Everyone remembers the outcome. NCUA’s leadership and its results in 1984 are a reminder that good government is also good politics. An example especially relevant now, four decades later.
Fall, the time for harvest from the land. Future Farmers of America’s (FFA) greenhouse in Rensselaer Central High School, Indiana.
“Growers for Life.” Fall mums for sale, $10 each at the local Saturday farm market.
Pumpkins, the uniquely American fruit. Anything that starts from a flower is botanically a fruit.
Corn, all colors.
Gourds, technically fruits, but realistically fall table decoration.
An enormous sunflower head-a seed bank.
To Autumn by John Keats (1795-1821)
Season of mists and mellow fruitfulness,
Close bosom-friend of the maturing sun;
Conspiring with him how to load and bless
With fruit the vines that round the thatch-eves run;
To bend with apples the moss’d cottage-trees,
And fill all fruit with ripeness to the core;
To swell the gourd, and plump the hazel shells
With a sweet kernel; to set budding more,
And still more, later flowers for the bees,
Until they think warm days will never cease,
For summer has o’er-brimm’d their clammy cells.
While there are almost daily familiar rhetorical press releases announcing new merger intentions, actual causal motivations are rarely plainly stated.
Descriptions from other areas of economic activity provides some of the reasons for this ever increasing aspect of cooperative evolution.
CEO’s love unjust gain because money is their highest trust.
There’s nothing wrong with actively working (read: contributing actual value to others) and making a good living from it, but it’s wrong to turn a profit off the time, talent, effort, and creativity of others simply because you wield a capital advantage over them.
Where nothing is forbidden, nothing is required.
Executives are absolutely at a loss of what might happen if they stopped exploiting a gain off of others.
And the ultimate outcome for the member owners:
The chasm between credit union’s design and individual member benefit gets wider and wider.
A critical distinction of the cooperative model is its local advantage. News commentators assert “all politics is local.” Military leaders call this capacity “boots on the ground.” Credit unions described this organizing concept as their field of membership.
When events and institutions affect where and how one lives, that makes their impact personal for individuals. The capability of credit unions to be seen as a long standing participant of the community they serve, creates generations of loyalty. And in the examples below, superior performance.
As part of the net promoter score process, the credit union invites member comments on their experience. Here are two member notes the CEO recently shared with his team:
Reenetry
1.Day Air Credit Union met me where I was in my walk after being a returning citizen through the Montgomery County reentry community. I was full of fear and didn’t know anything about handling finances or money or getting to where I needed to be in order to be able to get loans and start a business.
Day Air Credit Union along with several individuals from the Montgomery County reentry community helped me succeed in my walk and in my business. Thank you so very much.
Don’t Sell Out
2.You guys help me through a situation, that even though you knew how I got there, you knew it wasn’t my fault (100% my fault) … You guys knew it was technically fraud against me. You did not have to help me, but you did, so that deserves a 10 in my book.
It shows the character of the people in your organization. You guys really are there for your members, it’s kind of like what families and friends are supposed to be, no judgment just being there when someone needs them to be and just doing the right thing. even if that right thing is to just be there to listen about someone’s life that has turned into a freaking dumpster fire… really you guys have been great. You’ve got a customer for life. Unless you sellout; other than that, a 10 in my book.
Through August 2024, the $847 million Day Air reports an ROA of 1.47%, share growth of 7.54%, net worth of 13% and an operating expense/asset ratio of 2.43%.
The following is a release from First Harvest describing a New Jersey wide effort in which credit unions will collect canned food donations for local food banks. This ad hoc network effort relies on the dozens of local branches as drop off and collection centers. Another example of the advantage of a local presence and personal interaction with members.
First Harvest Credit Union, Affinity Federal Credit Union, and EdiFi Credit Union have come together to launch the New Jersey Credit Unions Food Cooperative and have engaged 27 New Jersey credit unions to participate in the initiative and help address the growing hunger crisis in New Jersey.
All participating credit unions and their select branches will serve as collection locations, allowing for broader geographic coverage across New Jersey, which will support dozens of food pantries and organizations throughout the state.
The program runs from October 1 through November
To donate, credit union members and residents throughout New Jersey can find a participating credit union listed below, and its nearest branch to drop off non-perishable food items. Each credit union branch will directly support a food pantry or organization within the community it serves.
First Harvest President & CEO Mike Dinneen notes: “As credit unions, we are always stronger when we partner together. New Jersey has over 130 credit unions, serving a wide variety of rural, urban and suburban communities. One thing that is consistent is the food and affordability crisis that is impacting all of our residents.
Credit unions have an inherent mission and proven ability to take the reins when there is a need to help those who are underserved or in need, and I am proud to stand with these amazing New Jersey credit union leaders and implement this important member-driven mission.”
The twenty-seven participating credit unions are then listed. Local matters. That is how most of us ground our lives and cooperate with others in community.
On Tuesday Oct 1, remote virtual voting for SECU’s (NC) 2.8 million members’ annual director’s election will end. Mail ballots must be postmarked by then, but in-person votes can still be cast at the Annual Meeting on October 8th in Greensboro.
I summarized several issues between the two slates of four candidates a week ago. For I believe the significance of this unique event extends far beyond SECU’s members, North Carolina and into the entire credit union system.
Member-owner voting on anything, except a credit union’s demise via merger, is extraordinarily rare. This example of the member franchise being conducted demonstrates that elections in large credit unions are feasible.
Members now have a say via voting about the credit union’s future. It challenges the current routine practice of self-perpetuating board oversight with no member-owner input. This latter approach is, unfortunately, the process followed by most credit union at the moment.
Facebook posts with social media ads are being run by both sides. The four member nominated SECUforALL site includes dozens upon dozens of member comments and videos. It is updated daily. For example, it now includes “links to local news outlets providing lists of trusted charities and relief organization accepting donations” for North Carolina victims of hurricane Helene.
These members and many former employees have criticized the announced annual meeting rules which limit member participation and comments compared with prior practice. Their posts also pointed out that the credit union is paying for the incumbents slate’s ads on social media.
I believe both sides would agree with Chairman Moon’s video election comment that “The power of your vote cannot be overstated. Let your voice be heard.” That’s why this election is about more than choosing between two slates of candidates. It illustrates what the member-owners’ role in a credit union is supposed to be.
Cooperative design inverts the traditional structure of financial services leadership. In long-established and certainly modern day financial firms, power is concentrated, either in the hands of those at the top or those who contribute the most capital (ownership stake).
In credit unions power flows up from the bottom, from the member-owners. This was the intent of the democratic one-person-one vote election for directors at the required annual meeting.
This grass roots, member-driven founding became so successful, credit unions began hiring full time managers. Growth and expansion accelerated after deregulation. Successive leaders grew increasingly distant from their credit union’s founding generations and motivations.
This ever widening scope of operations separated management and boards from routine interaction with members. Today’s leadership teams who benefit from the legacy of hundreds of millions in assets, believe it is now their sole prerogative to configure the organization apart from any prior commitments—even to the point of merger and charter dissolution.
The boards of large credit unions have become insulated, like a private group who amplify and reinforce the instincts of this self-selected few. It is their authority to alone shape the future. The unique coop design is now turned upside down mirroring the current structure of for-profit financial organizations. Here is a comment from another credit union’s member on the SECUforAll site:
Credit unions were created to break from the traditional way financial services were practiced: for example, paying interest on share draft accounts; offering skip-a-pay and loan rebates; permitting cosigners as “collateral” for loan limits. Or to use the biblical phrase, “overturning the tables of the money changers” providing consumer financial options.
As credit union’s market ambitions grew, the prevailing ethos became “to beat the competition, a credit had to become the competition.” And their leadership and advice was increasingly drawn from that perspective, not from the legacy culture that built the system’s present financial standing.
SECU’s election choice is between two visions of what a credit union is. Most large credit union leaders believe the power of the organization rests at the top. Success entails unfettered growth, seeking mergers and/or buying assets such as banks, and using all the tools of financial leverage such as subordinated debt, third party originations and borrowing, should shares fall short.
However, credit unions were founded on the principle that power was created by empowering others. Credit union pioneers believed the wealth of an organization was measured by how much it was shared, not how much the firm accumulated. That the strength of a coop was in trusted relationships, not superior financial ratios. Member service and values is how to attract committed employees. not bonuses.
The outcome of this year’s vote will likely resonate far beyond Greensboro and North Carolina. If ten thousand, a hundred thousand or even more members see their democratic ownership role more clearly, every SECU meeting going forward will have a more engaged participation. And the credit union system will have an example of what modern day cooperative governance can be.
I will publish the link to the October 8 SECU Annual Meeting when it is available.
From the President to the Treasury Secretary (1936):
In the first years of implementing the 1934 Federal Credit Union Act, oversight of the emerging federal option was placed in the Farm Credit Administration. The FCA’s publication, Cooperative Saving, was a quarterly sent to all credit unions about how to set up and run a credit union. William Myers, the FCA’s administrator, wrote this statement in the July-August 1938 first issue.
Note the “Memorandum-The Basis of Credit Union Success” is addressed to all FCU members. And his statement, “If anyone should ask for the reason for this success. . . I should refer them to you.”
Aligning NCUA with administration on priorities is critical to legislative change, such Congress’s 1984 restructuring of the NCUSIF following cooperative principles. The White House’s Assistant to the President David Gergen, acknowledges NCUA’s role for “restraining excessive government spending.”
When members, regulators and the Administration’s priorities are aligned in support of cooperatives, credit unions “will continue to flourish greatly as one of the hopeful and lasting institutions of American life.” It has happened before.
Today credit unions operate in two financial worlds. One is the so called “free market.” This is where open competition, winner-take-all, buying and selling happens. Members/consumers make their buying decisions comparing options. The winners are firms with superior value propositions including better products, service, convenience and sometimes marketing.
This is the market credit unions enter when buying banks or investing in other firms (CUSO’s, Fintechs) to advance their credit union’s competitive position. Corporate transactions are marked by due diligence assisted by external experts, and financial projections with ROI’s and cash flow forecasts. Often these deals are subject to close regulatory scrutiny in addition to buyer and seller’s close analysis.
Transactions in credit union’s “off market” financial activity are not based on transparency, superior performance or even shareholder/owners best interest. This is the “insiders game” of private deal making, self-enrichment and public misinformation and rhetoric to benefit the players’ personal agendas.
Today this is the world of credit union mergers. It is increasingly a cesspool of pretend member advantages disguising payoffs to facilitate changes in control of sound long-serving institutions.
There is no owner payment or recognition as occurs in the “free market” transactions. In fact these are totally “free” transfers in which the continuing credit union is paid to take over the business. The owner’s net worth is transferred intact to the acquirer. This is the complete opposite of an open market transaction. It would never happen in a fully transparent actual market sale.
The critical question for the credit union system’s future is why aren’t members paid for their ownership interest when there is a change of control. It happens some with market facing events, but never in mergers. Without any payments upon a charter’s dissolution, member-ownership is a fiction.
Credit unions do know how to value a financial institution, their own coops and other for profit firms.
Credit union capacity and interest in buying other financial institutions, particularly banks is ever-increasing. These all-cash purchase and assumptions totaled 16 in 2022, 11 in 2023 and at least 17 announced so far in 2024.
In most purchases, the transaction price ranges from 1.5 to 2.0 times book value. Where the bank is publicly traded, the offers always exceed the last market quotation prior to the sale announcement. Here is an example.
Yesterday the $9.2 billion ESL FCU announced the acquisition of the $401 million Generations bank (Nasdaq: GBNY). Prior to the announcement GBNY’s one day high for the past year was $10.76. Today, post announcement, it closed at $15.75 per share.
In the announcement the bank estimates the range of final cash payments for each share to be $18-$20. From the joint press release: “ESL Federal Credit Union will pay Generations $26.2 million in cash and Generations Bank will retain its equity at the effective time of the P&A Transaction.”
Generations Bancorp has 2,241,801 outstanding shares of common stock. If $20 is the final disribution per share, then the bank owners will receive a total of $44.8 million, that is their equity and ESL’s $26.2 million payment.
We know there must be some pretty sharp financial analysts at ESL which is paying $26.2 million cash for an institution whose track record includes the following:
The example of credit unions paying cash in a bank P&A, effectively a liquidation, demonstrates credit union’s willingness to analyze market value and to pay up for performing financial assets. In these deals, there is no charter acquired. just an operating business.
Moreover each of these transactions is reviewed and approved by at least three very interested parties:
The point of this example, and almost 50 recent bank acquisitions is that credit union’s know how to value the potential future ROI of a financial institution’s assets.
So how might this skill apply to valuation of a credit union? While there are not many recent examples, there is one thoroughly documented transaction.
In 2006 the sponsor of Nationwide FCU announced its intent to buy its credit union to accelerate its banking operations. Founded in 1951, the single sponsor credit union was almost an extension of the insurance company. Almost all of its members were Nationwide employees, former employees or retirees and their families. The CU’s employees were all Nationwide Insurance employees and the CU performed very few of its administrative functions on its own.
The first question for the members was: “Will the 45,000 owners of the $564 million Nationwide FCU be offered enough money for their credit union?”
The credit union’s key numbers at December 2006, right after the vote were: Assets $564.1 million; Loans $ 418.3 million; Net Worth $61.5 million (12.7%); shares $489.3 million; and Members, 45,002. Nationwide was the 4th largest of Ohio’s 495 credit unions.
Further comments from an August 8, 2006 Credit Union Times article about the sale:
“When what is happening in so many other merger and charter conversions amounts to little more than thievery, the fact that Nationwide was willing to try to do the right thing means a lot,” said Jim Blaine, CEO of the $13 billion State Employees’ Credit Union.
Blaine said that his comments and support for the purchase reflected the degree of transparency that the CU has offered. “If that transparency were to diminish, if the CU were to hold back on letting its members and the public at large know about how it and Nationwide Bank arrived at the $79 million price tag, then the deal might face more of an uphill climb,” Blaine explained.
The final member Notice disclosures were significant including full details of merger costs, loss of member control, and that taxation of the bank might lower returns to savers. The article continues:
McCune and other banking analysts note that a premium of even 150% or 200% of equity for an independent CU might not be out of line and would still be considered inexpensive compared to the prices commanded by independent thrifts. . .
“The phenomenon (of a credit union sale) is more likely to remain an occasional development where banks might approach CUs which have access to particular markets or market niches and where CU members would be willing to sell. Everyone has a price,” the analyst noted,
The Nationwide sale was approved by a wide margin in as reported in this November 7 article:
CEO Paula Edwards said that almost 17,000 of the CU members took part in the election and that almost 90% of the members who voted cast ballots in favor of the merger.
Approving the deal means that Nationwide’s members will receive $79 million total, or roughly 15% of their account balances as of the end of March of this year as the price for the sale. The new bank will benefit from the purchase by having a readymade customer and deposit base that would have taken it months or years to develop otherwise.
Members were returned all of their cooperative capital plus an estimated premium of $17 million more. This represented a gain of approximately 15% on their individual share balances. In banking sales, this valuation is often referred to as the deposit premium when valuing a transaction.
According to CU Times, there were some who thought this transaction could be an example for additional deals.
Some view the Nationwide deal as the model for the potential takeovers of credit unions. Nationwide was a very unique case, , , CEO Paula Edwards is one of the true good credit union people and had little choice in that deal. The reasons behind it can be thrown out, but what can’t be thrown out is the premium on capital Nationwide Bank was willing to pay, that’s the potential model going forward.
“This proposed merger ensures credit union members receive a financial benefit in the transaction. Nationwide has agreed to give members a payment for their ownership interest in the credit union,” said NFCU CEO Paula Edwards.
On May 7, 2018 Nationwide announced it was getting out of the retail banking business.
The insurer said Monday that it has decided to move away from operating as a full-service, federally chartered retail bank — the kind of place where people cash checks, sign up for CDs and the like. Instead, it plans to focus its bank-related services on those that support its retirement-plan business.
Implementing this intention, Nationwide made a follow on announcement August 3rd, 2018:
Nationwide has taken a big step as part of its plan to get out of the retail banking business.
The insurer said Friday that it is selling $3 billion in deposits at Nationwide Bank to BofI Holding, the parent of BofI Federal Bank, in a deal that is expected to close before the end of the year. The sales price was not disclosed.
BofI Federal Bank, based in San Diego, is a nationwide bank that provides financing for single-family and multifamily residential properties and small and medium-sized business in certain target areas.
Even selling to a new charter or transferring control does not assure financial longevity.
There are two immediate conversions from a credit union charter that will entail a valuation with potential member payout.
June 23, 20 24 the FDIC announced the following:
The FDIC approved a deposit insurance application submitted by Thrivent Financial for Lutherans in relation to a proposed Utah industrial bank, Thrivent Bank. The FDIC also approved a related merger application that will permit Thrivent FCU to merge the operations of its existing credit union into the newly formed Thrivent Bank.
The newly approved Thrivent Bank will not operate physical branch office locations and intends to deliver all bank products and services exclusively online, offering a diversified loan portfolio centered in consumer loans and funded primarily by core deposits, following a traditional bank business model. Thrivent Bank will offer products and services without regard to religious affiliation.
Thrivent FCU has total assets of $930 million and a net worth of $129 million . What will member-owners receive in this sale to an industrial bank charter formed by the Sponsoring company? Will it follow the Nationwide payment precedent?
The second event is the combination Arrah Credit Union with the $378 million, mortgage centric, Pittsfield Cooperative Bank. The details are in this August 14, 2024 Credit Union Times report:
Chartered in 1929, Arrha’s 27 employees operate three locations, and manage $110 million in loans, $122 million in total shares and deposits, and $12.4 million in equity, according to NCUA financial performance reports. The credit union posted a loss of $9,222 at the end of the second quarter.
The process to combine is very cumbersome. A minimum of 20% of the eligible members are required to vote for the transaction to proceed.
Arrha’s NIMRA application, under review by the NCUA, included 15 different documents and statements such as the merger plan, the proposed merger agreement, a copy of the bank’s last two examination reports, copies of all contracts reflecting any merger-related compensation or other benefit to be received by any director or senior executive, a statement of the merger valuation of the credit union, and a statement of whether any merger payment will be made to the members and how much of a payment will be distributed among members.
The question raised by these two current events, the growth in bank purchases and the Nationwide sale and other conversion precedents is why aren’t credit union being member-owners compensated today? When members are asked to approve the transfer and control of all their assets and common wealth to another credit union via merger, shouldn’t they be treated as least as well as when credit unions pay out bank owners?
Its time for those who believe in a cooperative system to take a stand and ensure that intra-industry mergers reflect the same process and member-owner payments as every other credit union financial transaction requires.
Without change, the industry will be in a race to the bottom. As I described yesterday, one predatory credit union, PenFed, has cancelled 30 long serving credit union charters via merger between 2003 and 2022. Even as PenFed hits a financial stall, this activity is being imitated by others daily.
Credit unions want all the authorities and options to compete in the open financial markets, but not when it comes to their own brethren. These industry predators want the opportunities of the free market, but not the responsibility of transparent dealing and ownership reward when taking over another credit union.
These “off market” dealings are corrupting leaders, perverting normal financial practice and encouraging credit unions to go out and “roll up” their kindred in bigger and bigger combinations. This trend is subverting not just the traditional practice of market based firms, but driving a consolidation eliminating one of the most stratgic advantages of a credit union charter: local control, investment, relationships and community building.
Why can’t the Nationwide outcome be the standard for all credit union mergers as well. From the above event:
what can’t be thrown out ( of the outcome) is the premium on capital Nationwide Bank was willing to pay, that’s the potential model going forward.
Shouldn’t that be the model today for all change of control credit union transactions?
The opening paragraph provided the details:
Pentagon FCU was approved to acquire its third credit union in the past six months, the $26 million Fort Hood Military FCU, in Fort Hood Texas, NCUA said Tuesday. That follows two December acquisitions for the $5.8billion credit union, those of $46 million Fort Shafter FCU in Hawaii and $13 million Coast Guard Employees FCU in Maryland.
This twenty year old description was before mergers of sound, long serving independent credit unions became much more widespread. A decade later credit union system CEO’s, consultants and regulators openly promoted these acquisitions as a quick and easy alternative to internal organic growth. After all isn’t success just a factor of size?
This industry competition for acquisitions was based on offering private personal inducements for CEO’s and senior managers. The practice became so blatant that in 2017 NCUA passed a rule to bring more transparency to the process. The rule didn’t slow the wheeling and dealing. It may have even legitimized these payoffs.
Now credit unions could routinely add wording to the required Notice and Disclosures of these payments and state that the regulators have approved the merger subject only to the member vote.
Two weeks ago I described the final step in PenFed’s 2021 merger with the $36 million Post Office Credit union in Madison, WI. In August 2024 PenFed announced the closing of its only office in Madison. Since the 1934 chartering, Post Office’s 3,153 members (at time of merger) had received personal service. No more.
I called this closure the final step in “asset stripping.” This is the practice in a takeover acquisition to maximize the profit and eliminate any future investment or expenses. All of Post Office’s resources, reserves, member accounts were transferred to the control of the Virginia based PenFed. There is no longer any local presence, nuance or leadership roles in the community. With this branch closure, all member relationships are now virtual and remote.
Last week the land and building of the former Post Office location were put up for sale.
An internal view.
When the merger occurred, Post Office’s call report showed these assets with a book value of $589,222. The real estate listing on September 17, 2024 had a list price of $1,260,000. This is an increase of $671,000 (113%) in the three and one half years since the merger. The net gain on sale all goes to PenFed as “other operating income.” This is the final liquidation step of this 90-year old credit union which had 22% net worth at the merger date.
Paying nothing in these acquisitions for total control of all of another credit union’s members’ net worth and reserves makes these takeovers a very profitable practice. Systematically stripping out all of the most valuable assets for maximum cash value puts the icing on the cake. No worry about local commitments or member and community relationships.
Such takeovers are a common strategy in for-profit companies. However in credit unions there is no acquisition cost, just a few crucial payouts to the CEO and perhaps, other senior executives whose approval and pitch to the Board is required. It is literally free assets for the taking.
This practice is becoming more widespread. It is self-immolation, a systematic institutional dismantling of the credit union system driven by greed and personal ambition, not member benefit.
In many situations today, the merger destroys the local advantages, loyalties and relationships that are the foundation for credit union’s success. The acquiring credit union’s field of membership, or market focus, has no center or rationale. There are no “network effects” for branding or service delivery that would create operational efficiencies. Most critically the headquarters and leadership is hundreds or thousands of miles away. Local familiarity is all lost.
The consequence of credit unions preying and suborning their fellow CEO’s and boards is systematically demolishing the credit union advantage at both a market level and in the public’s eye. The coop model is seen as no different from other financial options. Especially in an era when virtual relationships are available from all financial providers.
And a credit union’s values are the same as every other market participant. The winner takes all.
The rationale is that growth and size will guarantee success, an assumption frequently at odds with the facts and members’ experience. Size does not automatically correlate with efficiency, growth or other financial metrics let alone operational excellence.
Penfed pulled back from the American Banker’s “binge” strategy during the initial years of this century. It should be noted that the three mergers listed in the article were all military bases. One could argue that these were natural affiliations consistent with with PenFed’s focus and traditional brand. In 2010 there was a single merger with the $11.6 million Tripler FCU in Hawaii. And then a lull until 2015.
In 2015 PenFed undertook an aggressive acquisition campaign that lasted until 4Q 2022. They took over 25 credit unions located in 14 different states in under eight years. The majority had no military affiliation, such as Post Office, McGraw Hill, Sperry Associates and Progressive.
Progressive, a New York state charter with a single office focused on taxi medallion lending. This merger of a “troubled” institution resulted in a gain in the year acquired; more importantly it gave PenFed a field of membership open to anyone in America (the old Progressive state charter’s FOM).
The combined assets of these 25 acquisitions at the time of merger was almost $3.0 billion. As in Post Office’s example, control over all the assets, reserves, allowances and member relationships were transferred to PenFed’s head office. In some instances such as the very successful $265 million Perry Associates single office credit union, the office was closed immediately after the merger. The employees were let go, and all members forced into a virtual, remote service model.
This systematic dismantling of credit unions and their successful local market positions is being emulated by other credit unions. The hunt is supported by a host of hanger’s on who benefit by facilitating this organized tear down of the cooperative alternative.
In many of the combinations below, the members, if a merger were really necessary, would have been better off with a local option familiar with their market and bringing real operational synergies. But in these private deal makings, the largest payoff to the CEO wins. And besides no one ever looks back to see what happened. Except for the members who begin to vote with their feet.
One could still ask however if the strategy works as a growth enhancement to normal organic tactics. When PenFed completed the final Allus acquisition in 4Q 2022, it reported total assets of $35.9 billion.
At June 2024, PenFed’s total assets were $33.5 billion. It would take more time to calculate all the other merger downsides such as local branches closed, the employees laid off and the number of members who left after being turned over to an organization with which they have no connection. In its initial merger frenzy, PenFed’s growth looked easy and free of any cost or risks.
However members soon see the asset stripping and the absence of local leadership. Moreover, PenFed lost every credit union’s most important strategic advantage: the hard earned, unique value of long lasting member relationships.
When CEO’s care more about themselves then they do for members’ well being, the difference that makes cooperatives successful is gone.
PenFed is not alone in its disruptive wasting of long standing successful cooperative charters. The question for those who believe in the unique role and purpose of cooperative design, is whether this faux capitalistic model becomes the norm for the system. Or like all false idols, will be defeated by the example of those who think the credit union model is first and foremost for members’ benefit, not managers or boards’ personal ambitions.
Whatever your political interest or views of specific crisis, I believe Ukraine’s President Volodymyr Zelenskyy, is a statesman for all seasons and time.
In honor of his visit:
(https://www.youtube.com/watch?v=N7cPNrpwfs0&list=RDGMEMMib4QpREwENw3_jAc0YgNw&index=5)
This message and photos from a friend in Ukraine.
Her parting words: Ukrainian people are used to death and tragedy but are holding on to life with all their strength…
As important as this November’s Presidential and congressional contests are, an even more critical election for the democratic credit union system is underway at SECU North Carolina.
For the second year, there is a contested election to the board of directors. At SECU’s October 2023 annual meeting three member-nominated candidates won seats from three incumbents. This year four seats are open. The four board selected incumbents are opposed by a four member-nominated slate that includes three former SECU senior employees.
This event is historical for SECU and the credit union system.
Absentee online virtual voting ends October 1. Both sides are promoting get out the vote campaigns. The credit union has added a webpage with descriptions of the election steps. Linking to the Learn More tab presents a two minute video from SECU Chair Mona Moon explaining the board’s nomination process and the virtues of their four incumbent candidates. There is a second video with brief profiles and statements of these four, but not videos for the competing slate.
In addition to the four incumbents’ use of this “home court advantage” in presenting themselves , the credit union appears to be buying ads supporting their election on social media. Here is an example with the SECU logo:
The member nominated slate is also active with a Facebook social media site SECU for All.
The site’s purpose is:
The member-nominated candidates are the underdogs in this race—up against a $50 billion SECU led by a board & administration that’s spending your money to suppress members’ voices and prop up these incumbents.
Help us spread the word! EVERY SINGLE VOTE MATTERS!
This Facebook landing page shows widespread grass roots participation as well as material for supporters’ use with their friends. An additional site is a SECU for All resource with links to bios, letters sent to local news outlets and other campaign material.
The over a dozen letters to local newspapers are first hand member testimonies of support. This effort has prompted local press coverage as appears in this excerpt below.
The SECU for All site includes multiple single and joint video statements from the four candidates explaining why they are running and their top priorities. Many direct endorsements from former employees and/or current members are posted.
Other credit union CEO’s sent endorsements such as a video from Latino Credit Union’s co-founder with this intro:
The SECU member-nominated Board candidates are honored to have the endorsement of John Herrera, a true leader for the credit union cause. In addition to being a 31-year SECU member, Mr. Herrera co-founded the Latino Community Credit Union as well as serving on the NC Credit Union Commission and the National Credit Union Administration.
The four incumbents speak in general terms about “serving all the members,” but do not offer any specific changes or priorities that members might relate to. It is certainly expected that incumbents would support the status quo.
The challengers have published five priorities:
1) End Risk Based Lending. Restore the same, best rate for every member.
2) Restore competitive savings rates for every member.
3) Restore the commitment to “Do the Right Thing” for every member.
4) Restore the local focus. Local communities, local jobs, local decisions for every member.
5) Restore the employees’ faith in fairness, equal opportunity, and quality service for every member.
In addition, they question several areas of financial performance including low share growth, the need for competitive rates, rising delinquencies and growing loan charge offs. Some of these critiques are presented in the former CEO Jim Blaine’s blog SECU-Just Asking.
The members’ choice between the status quo versus the challengers’ positions should certainly generate more owner interest in their credit union. Who knew we could vote on the direction of our credit union?
Most importantly the election process will help clarify fundamental questions for SECU’s volunteers and senior management.
How does the leadership of a cooperative differ from traditional financial organizations? What are the candidates’ views of a credit union’s fundamental purpose and unique role, if any?
Should members have to “earn” their worth to have an equal standing for services?
Is the primary objective to serve the members’ needs or to promote the institution’s market success? As one candidate remarked in his video, “to take care of the members, we have to take care of the organization.” Are these duties separate or one?
For decades America’s competitive market dynamics for both individuals and organizations have promoted a culture of “always wanting more.” Greater growth, higher income , increased prestige and enhanced political and social power. Outcomes that often come at the expense of others.
Both candidate groups want SECU to succeed. The question the members will be able to address is how this greatness is going to be defined.