Call this the credit union oral history sequence – Blaine, Bucky Sebastian, now Gary Oakland who took over BECU, with around $700 million in assets, in the mid 1980s and when he left in 2012 it had become a $10 billion+ credit union, one of the nation’s very biggest.
How did Oakland do it? In this podcast you will hear his recipe for credit union success which, put simply, is make the member the center of this universe. When the member is served, the credit union will thrive.
“It’s all about the member,” said Oakland.
Oakland sees a bright credit union future – but he wonders about the arrival of bank trained executives and how that background will impact credit unions.
A break that came BECU’s way was when the big bank in Washington State, Seafirst nearly went belly up in the 1980s – and was saved from that only when Bank of America took it over. That gave BECU smoother sailing in its quest to be dominant in its state.
Oakland says he is proud that he left BECU with a small credit union attitude in a big credit union body.
Ten times so far this year a credit union has bought a bank, according to Credit Union Times’ count. Some deals are small – Verve for instance paid $43 million to buy South Central Bank in Chicago.
Some are bigger such as Arizona Federal Credit Union’s buy of Pinnacle Bank in Scottsdale with its $236 million in assets. No details on the purchase price have been released.
In Florida – where the recent credit union buying a bank trend kicked off in 2015 when Achieva Credit Union bought Calusa Bank for $23.2 million — there have been three buy outs of banks by credit unions so far this year.
In the Chicago area, there also have been three purchases of banks by credit union so far this year.
This isn’t an entirely new phenomenon. The first deal dates to July 2011 when United FCU bought Griffith Savings Bank in Indiana.
Understand this: some credit union thought leaders are adamantly opposed to this trend. To them, banks and credit unions are different and never the twain should meet.
Still others worry that as credit unions incorporate more elements from banks – including hiring bank trained staff – they may become more bank like and lose the credit union difference.
Consider this maybe the very most contentious issue in the credit union universe.
Banks incidentally are vocally opposed to the trend – or put more accurately they see this as a proof that credit unions should lose their tax exemption.
The other reality is that community banks are struggling. Their numbers are dwindling as the big banks get bigger and smaller, community banks find it harder to compete. For them, in some cases, the exit strategy is to sell the assets – primarily branches, loans, customers – to another financial institution and if it happens to be a credit union, so be it. (Here’s a list of many CU – bank deals. Go to page 8.)
Big banks also seem largely uninterested in buying struggling community banks. For many of the latter, a possible acquisition by a credit union looms as an attractive exit strategy.
But, first, what specifically is in this for a credit union? The St. Louis Fed tackled exactly that question. Here’s what it said: “So what would entice a credit union to pursue a bank instead of another credit union? For one thing, it may be the fastest way to expand into new business lines that are more closely associated with banks (for example, business lending). The average ratio of business loans to total loans for the acquiring credit unions in the quarter before the transaction was 8.6 percent, whereas the average for the acquired banks was 33.8 percent. The acquisitions of the commercial banks raised the business-loans-to-total-loans ratio in the credit unions to 10.9 percent.”
Moreover, like credit unions, small community banks tend to have strong community ties and know their customers on a more personal level than their large-bank counterparts do. This strong community relationship can be an asset to the acquirer.”
Other experts suggest that the number of sizable, viable credit unions that are available for merger into another credit union is dwindling. The attractive candidates have already merged, at least most of them have.
Very probably, we will see a continuing stream of credit union purchases of banks or at least parts of banks. But probably not that many. The St. Louis Fed believes this kind of deal will never become commonplace: “Because of all the regulatory and business-model barriers involved, it will likely never be a dominant transaction type.”
Which brings us to the big issue: are bank purchases in fact good for credit unions?
For starters, know that the bank charter is not transferred in the deal. A credit union cannot own a bank charter, said Wendell “Bucky” Sebastian, a co-founder of Callahan, longtime CEO of GTE Federal Credit Union in Tampa, general counsel of NCUA, and, at the start of his career in banking, a senior official in an Illinois regulatory agency. Hear Bucky’s candid podcast for a lot more opinions including Bucky’s optimism about the credit union future. Listen here.
As for foes of bank acquisitions, there’s Jim Blaine, retired CEO of SECU, the giant North Carolina credit union, who has strong opinions on this topic. He ventilates his ideas with gusto in the CU2,0 podcast.
Blaine opposes credit union – bank mergers. He sees them as a manifestation of an increase in what he calls the commercialization of credit unions. At their founding, credit unions were created to serve members. Not to sell them products they don’t need which of course is a bank business plan.
Blaine also said that in negotiations between a banker and a credit union executive, he’d bet on the banker to win.
Credit unions just aren’t banks and shouldn’t be, Blaine believes. So keep them apart.
Bucky Sebastian – who supports credit union mergers, definitely ones with other credit unions, in his podcast – also comments that “banks exist for one purpose – to take as much from their customers and to give it to their shareholders as they can.” That’s true. So ask yourself how that culture blends with a credit union’s.
That deep philosophical concern is aired by Gary Oakland, the retired, longtime CEO of BECU who saw that institution grow from a couple hundred million in assets to over $10 billion during his tenure. (He offers his perspectives on range of issues facing the industry in his CU2.0 podcast – find it here, it posts in late July – and he specifically addresses why BECU grew so big, so fast when many other credit unions did not.)
“You are seeing a change in leadership of credit unions,” says Oakland. “A lot of new leaders are coming in from the banking industry. There’s not as much development of homegrown leaders.”
Which leaves us with a troubling question: at what point does a credit union assimilate so much bank characteristics that it ceases to be a real credit union and instead becomes a bank? Sure, the charter may say credit union. But is the institution truly a member focused institution?
Is that case closed, credit union purchases of banks are bad? Not so fast. Some bank branch buys win broad applause. In the Deep South, Hope Federal Credit Union has bought a number of bank branches, mainly from institutions that had announced plans to close those locations. Hope CEO Bill Bynum talks at length about that strategy in his CU2.0 podcast.
These acquisitions have been widely praised.
Even the cynic Blaine applauds what Hope is doing and he indicated that in negotiations he’d bet on Bynum to beat the bankers. In some cases Hope may well have gotten the branches at no cost.
That’s a hard deal to turn down especially when a credit union can do tremendous good for the community by using the facilities to offer financial services to a community that might otherwise become a “banking desert.”
That does not mean however that it’s full steam ahead for bank mergers, either.
Eyes will be on growing numbers of credit unions that have consumed banks, or hired senior bank executives. The verdict has not been written.
A state regulator in Illinois. General counsel at NCUA. A co-founder of Callahan Associates. Longtime CEO at GTE Financial. Head of the National Credit Union Foundation. Guess who.
His has been an extraordinary career and you will like him. For two reasons. He is a vocal credit union cheerleader. And he deeply believes that credit unions – because they serve members, not shareholders – will triumph, that credit unions are absolutely the best financial institution for just about all of us.
Bucky doesn’t shy away from a fight. Suggest to him that it is high tech credit unions that will prevail and he is quick to argue that in point of fact it is high touch institutions that have been winning. Of course they feature needed tech but what puts a credit union in the winner’s circle is high touch. He cites Navy Federal as a classic for instance and in this podcast reviews the numbers to make his case.
He is a walking history book too. Why did credit unions shrink in number from 23,000 40 years ago to maybe 5500 today? Because it was in the plan, says Bucky, and in large part a result of policies put into place when he worked at NCUA in the early 1980s.
Isn’t a shrinking number of institutions a sign credit unions are dying? “Never focus on the institutions, it’s about the members,” says Bucky who points to the extraordinary growth in member numbers.
In this podcast you’ll hear what killed off savings and loans and why credit unions escaped their fate, why community banks may be next to expire (and what may keep them alive), and the big advantage credit union CEOs have over their peers at banks.
What advantage? That they can manage the institution with a eye on the horizon, not on the present quarter, says Bucky. Managing to the quarter, he insists, is a recipe for disaster.
You want a feel good podcast? You want this one – and you definitely will learn a lot of history in the process. Related podcasts include the Jim Blaine Marathon and Cliff Rosenthal on CDFIs.
Cannabis banking. Data breaches. Taxation of credit unions. The disappearance of small credit unions. The rise of $10 billion+ credit union behemoths. Welcome to the world of Caroline Willard, CEO of the Cornerstone League and, before that, she spent a decade at Co-Op in senior marketing slots.
What do credit unions need to do to survive? What do leagues need to do? Willard offers candid and also optimistic thoughts about these life and death questions.
She also offers insights into what leagues can do to help small credit unions survive in an age of ever more complex and expensive compliance requirements.
And she challenges credit unions to be a bit more like Rocket Mortgage – and if you want to continue to write home loans you will pay heed.
Pay heed too to her thoughts on how taxation of credit unions just might be an existential threat to the industry.
Elder fraud is big business. The FBI calculates last year’s losses at over $700 million and involving two million seniors.
That’s a lot of pain.
The scams are predictable. “Your grandson has been arrested. He’s in jail in Memphis. You need to bail him out. It’s dangerous. Send $5000 in gift cards.”
There are variations. But the usual drill is that a relative has fallen into trouble and the senior can be the hero.
Horrible.
But now credit unions are entering this scene.
Here to tell us what credit unions are doing is Walt Laskos, senior vice president, strategic communications at the Cooperative Credit Union Association, a multi state league covering Massachusetts, New Hampshire, Rhode Island and Delaware.
Leagues – usually – spend the bulk of their time lobbying.
But CCUA is putting a lot of energy into fighting elder fraud and helping credit unions to do likewise.
It’s also very, very good PR for credit unions, says Laskos. That’s not why CCUA does it but the side benefit is really.
Listen up as he talks about what CCUA is doing, with whom, and what the community reaction has been.
New York City mayor Bill de Blasio has released a report that skewers the NCUA for failing to work with taxi medallion borrowers who owe much more on their medallion loan than the medallion is worth. And stressed drivers, a few at least, are committing suicide in despair.
The report did not pull its punch: “credit unions taken over by the NCUA are often the least willing to work with drivers struggling to afford their monthly loan payments.”
Read that again. New York City is saying NCUA, sitting on a huge bucket of medallion loans that are backed by an asset – the medallion – that continues to trade at a small fraction of its highest prices, which often eclipsed $1 million. Lately they have sold for $160,000 – is showing no willingness to flex in finding a resolution to these loans.
NCUA has issued a quick denial: “The NCUA, as liquidator for the failed credit unions, is working with these borrowers to modify credit union loans where possible through payment reductions, lower interest rates, or term adjustments,” said agency spokesperson John Fairbacks in a statement reported by CuTimes.
“We remain committed to balancing the needs of these borrowers with meeting the congressionally mandated requirement for the NCUA to ensure the safety and soundness of credit unions and the National Credit Union Share Insurance Fund,” Fairbanks added.
NCUA owns medallion loans from at least three credit unions: LOMTO, Bay Ridge, and Melrose. The Office of the Inspector General issued a baleful report in March. The loss to the National Credit Union Share Insurance Fund is estimated at $765.5 million.
Why has the taxi medallion lost so much value? It’s not just a New York issue, by the way. Medallions have cratered in San Francisco and Philadelphia, to name just two. The root cause: the proliferation of Uber and Lyft as more of us turn to the platform transportation companies. There also are multiple nascent worker-owned cooperatives focused on creating city specific Uber competitors. (Hear a podcast on such ventures here.)
As for why the credit unions blew up, the OIG said: “The Credit Unions maintained significant concentrations in loans collateralized by taxi medallions. Except for credit unions that qualify for an exception, the Federal Credit Union Act limits the aggregate balance of member business loan (MBL) portfolios to 175 percent of the credit union’s net worth. This statutory requirement is implemented in NCUA’s regulations. All three Credit Unions qualified for an exception from this limit based on NCUA granting their charter for the purpose of making MBLs or having a history of primarily making MBLs prior to September 30, 1998. Technological innovation, specifically mobile ridesharing (or ride-hailing) companies such as Uber and Lyft, gained market share in cities across the country and caused disruption to the taxi industry. The disruption to the industry resulted in financial difficulty for many traditional taxi drivers across the country,and impacted the Credit Unions significantly through increased delinquencies and losses on loans collateralized by taxi medallions.”
And the credit unions significantly mismanaged a collapsing marketplace, per the OIG: “The Credit Unions failed to manage their respective loan portfolios in a safe and sound manner. Examiners repeatedly noted the Credit Unions were engaged in unsafe lending practices, in particular inadequate loan underwriting and monitoring of taxi medallion loans.
Specific examples of inadequate underwriting include frequent failure of the Credit Unions tofully analyze borrower financial information, insufficient detail included in credit memoranda to make a fully informed lending decision, risky loan terms, unsupported cash out refinances, inadequate credit risk management policies, and failure to identify and account for modified loans as Troubled Debt Restructures (TDRs). Additionally, the Credit Unions frequently based lending decisions on inflated market values of taxi medallions rather than industry accepted best practices for loan underwriting such as cash flow analysis, debt service coverage, and secondary sources of repayment.”
Here’s the present reality: it is highly improbable that more than a fraction of the medallion holders will be able to repay those inflated loans. Their incomes have collapsed as more riders shifted to Uber, et. al. It also is increasingly difficult to keep a medallion on the streets and working 24/7, the old fashioned model. Drivers are scarcer as more have shifted to driving for Uber and Lyft.
According to the NY Daily News, the average indebtedness of a medallion loan holder is upwards of $340,000 apiece. According to the Daily News, “Their loan payments ranged from $2,500 to $4,000 per month — in 2018 an average yellow cab medallion brought in $10,200 per month, data shows. The additional costs of buying cars, maintenance, insurance and other expenses leaves many medallion owners scraping by.
Half of the medallion owners surveyed said they struggle to pay bills on time, and one in four said they are considering bankruptcy.”
Some agitate for New York City to bail out the drivers and assume some of the cost of the medallions but de Blasio says that is not happening. “The honest truth is, it’s something we can’t reach,” said de Blasio. “We do not have the capacity as a city to provide that. I wish we did, but we don’t.”
De Blasio – obviously – wants NCUA to eat more of the medallion debt.
NCUA wants de Blasio to eat the debt.
Right now both are choking.
Does anyone know how to perform the Hemlich before more taxi drivers die?
Robert McGarvey drove a medallioned cab many years ago in Boston and Cambridge, Mass. It was hard work then, it’s hard work now.
Talk to Cathie Mahon, CEO of Inclusiv, and it’s a fast ride into what mission makes a credit union special, distinctive and in her mind the answer is clear: serving the underserved and usually that means economically disadvantaged.
She has tantalizing insights too. For instance: she tells why the business model of community development credit unions may in fact be primed for greater success than the model followed by most credit unions.
This is all about making credit unions work for their communities. That’s cooperative principles in action.
There are about 1000 so-called community development financial institutions (CDFIs). They do good work. Tune in to find out more.
Put phishing emails in front of credit union employees and how many will fall for them and cough up sensitive info? 20 to 60% will get conned.
And that can be costly to a credit union, both in terms of money and reputation.
Enter BrightWise, a Des Moines Iowa cyber training company created by Sherri Davidoff, CEO of LMG Security, and the Iowa Credit Union League’s holding company Affiliates Management Company (AMC).
After training, said Davidoff, the number of employees who fall for the phishing con tumbles below 10%.
What BrightWise will focus on, said Davidoff, are fun, short videos – think maybe five minutes – than an employee can absorb at his/her leisure.
Smarter employees are critical because how hackers work has changed, said Davidoff. “It’s no longer 13-year-olds in their moms’ basements that are hacking us; it’s organized crime groups all over the world,” Davidoff shared with NBC’s Today Show.
“People tend to think cybersecurity happens in the IT department,” added Davidoff. “Front-line staff are under constant assault from crooks and their automated robots, look-alike communications and other crafty tricks. We have to arm employees with knowledge, but also give them the tactics they need to sidestep cyber sneak attacks.”
Want more details on the Paul Allen scam? Read this.
Listen up to this podcast for a fast overview of the cyber threats credit unions face – and what they can, indeed must, do to protect themselves and their members.
At 30 he took over as CEO of State Employees’ Credit Union in North Carolina. That was 1979. Come 2016 and he retired. SECU had grown to $33 billion – and it had 256 branches and 5800 employees.
That’s the Jim Blaine story and here he sits for a marathon interview, the longest in this podcast’s history.
It’s worth the hour. Make time.
Blaine starts out by questioning the wave of mergers that is now rocking the world of credit unions. Why not just liquidate the institution and give every member $1000?
Keep listening and you realize he’s not exactly for doing that. In fact he denounces the loss of a few hundred credit union charters yearly.
What he is actually doing is highlighting a reality that, typically, those mergers accomplish just about nothing. The resulting institution, a bit bigger, is in fact no more competitive.
Blaine also worries about the loss of local institutions, where in many credit unions all decisions – including the trivial – get made at corporate HQ.
Is there in fact a future for credit unions?
Maybe. Maybe not. Blaine highlights a strategy for keeping credit unions relevant. But he frets that many may not heed the message.
