Month: May 2025

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Tomorrow’s Unique NCUA Board Meeting

Thursday’s NCUA board meeting is unique. Only one of the three person board will be there.

Normally these public events are fully scripted in advance.  All senior advisors have briefed each other on their members’ positions.  The staff has been given the questions directors will ask.  All actions are known in advance.  Spontaneous dialogue, let alone direct back and forth is highly unusual.

The first open board with a single member will showcase Hauptmann’s approach and how a single board member questions staff.  Will it be an open discussion or just a pretend briefing with all the dialogue preset?  Will Hauptmann  be able to challenge a staff response, as he has sometimes done in the past?

The Two Agenda Items

One is the quarterly NCUSIF update.  It will be interesting to learn if Hauptmann brings a more transparent approach to this financial briefing.  Many issues are long standing such as:

Why does the fund’s financial statement presentation not conform with private GAP (the practice until 2010) versus governmental accounting terminology?  In all of NCUA’s three other funds, financial performance follows private GAP accounting presentation.

Will there be an informed discussion about the Funds interest rate risk (IRR) policy?  The NCUSIF below market performance (2.59% YTD yield)  and investment practice have lead to a portfolio value with a net market loss since December 2022.

For two years the normal operating level (NOL) cap has been set above the long term 1.30% with no factual analysis to support this higher level.  This cap sets the level above which credit unions are sent a dividend as part of their open-ended funding commitment in the 1% deposit.  Will the cap be reset to its historical level?

The fund has a $ 5.4 million provision operating expense in March.  Will the staff show the details of how this amount was determined?  The loss reserve is now $242 million or 1.36% on insured shares.  There have been virtually no insurance losses in the past five years.  Why is this reserve still growing relative to total insured shares? How will the closure of Unilever FCU impact the fund?

How will the savings in total NCUA operating expenses due to staff and other spending cuts, reduce the NCUSIF’s expenses for the remainder of the year?

Finally, when will the NCUSIF’s equity and 1% deposit liability to insured shares ratio be calculated using the latest data from a single accounting period. This management  calculation would be a more accurate presentation of the Fund’s true financial position.  At the moment this ratio is calculated using data from two different time periods six months apart.

The State of the Industry

A traditional part of the quarterly NCUSIF briefing has been an appendix which presents the distribution and trends in CAMELS exam ratings by asset size and numbers.

The problem with this staff presentation is that the ratings are an average at least six months old. This assumes an annual exam cycle.  The staff does not present the current industry financial trends as of the same date as the NCUSIF financials.  However the industry’s  numbers are available.

Last week Callahan & Associates presented credit union’s first quarter 2025 financial performance. Here are some excerpts from the full presentation.

Note that all of the trends are positive begining with the key blance sheet totals compared to 2024.

Will these positive trends be reported as the context for the NCUSIF financials at the same date?

Agenda Item Two: Staff Reorganization

The issue will be how were the reductions  achieved?  What reorganizations are necessary?  What are the operational priorities guiding these changes?

Will the focus be on areas where activity seems to be redundant or non-existent?  Why two legal staffs?  Can the CLF, which has had no activity for over a decade, be combined with other supervisory roles?  Why is a separate AME office necessary when for almost its entire life this function was part of the regional office staff?  Are contracts being used to replace staff functions thus giving the appearance of lower headcount but spending levels remain the same?

Finally, who is in charge?   The board’s job by statute is to manage the agency.  If a person has a question about any area of activity, who are the persons with line responsibility?  Can an org chart be published?

I would listen for any discussion about the board’s functions, scope and duties  during this period of leadership uncertainty.  What is the legal position of the General Counsel for a solo  Board’s authority?

So tune in Thursday via zoom at 10:00 AM.  Or better yet, go in person.

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Building on Your Credit Union’s Legacy

Two quick examples how credit unions use their member and sponsor relationships to create resilience.

A Member’s Story

The CEO’s introduction:  We  continue to pursue our mission by living our principles and values and earn the trust and loyalty of our members.

This is a  conversation with La Tashia, a long-time member:

La Tashia opened an account with the credit union when she was 16. She had wrecked her car and needed a bank to put her insurance money in, so she chose us.

La Tashia is now 51, so through the 35 years she’s had her kids get our accounts, and now she has a 2-year-old granddaughter who is the newest member. Three generations of members that started all because of a car wreck.”

Honoring the Industry That Started the Credit Union

A New Scholarship

O Bee Credit Union and South Puget Sound Community College (SPSCC) are proud to announce the O Bee Brewers & Distillers of Tomorrow Scholarship, a $50,000 endowment created to support SPSCC students who are pursuing careers in the craft brewing and distilling industry.

As the endowment matures over the next few years, O Bee is also funding an annual scholarship of $2,000 through 2027, beginning with a scholarship that will be awarded in 2025.

With deep roots in the region’s brewing history, O Bee’s support honors their legacy while investing in the future of Washington’s vibrant craft beverage industry.

“O Bee Credit Union’s roots supporting the brewing industry go back 70 years when we began serving the employees and families of the Olympia Brewery,” said Andrew Downin, O Bee Credit Union’s CEO.

“While the industry has evolved, what hasn’t changed is O Bee’s dedication to the brewers and distillers of Washington. We’re proud to honor the region’s brewing heritage and support the next generation of brewers and distillers with this scholarship.”

 

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A Poetic Political Observation

I enjoy poems that are accessible on first read.  Who Remembers Davenport tells a story of two jazz artists first encounter.  The writer sets the scene so realistically you can see it.

More than a story, he uses jazz as a metaphor for inspiration and commentary on social change.  Read the first line and last stanza again.  This is a story making a statement.

           “Didn’t He Ramble”—Fate Marable and His Orchestra
with Louis Armstrong (1920)  

            “Singin’ the Blues”—Frank Trumbauer and His Orchestra
with Bix Biederbecke (1927)

Who remembers Davenport, Iowa, in 1920,
the year the city voted Socialist?
No one now alive could cast a ballot,
and the white-boy jazzers of Scott County
Didn’t care about the Revolution, but stood
on a wharf overlooking the muddy river,
Waiting for a riverboat loaded with music
from the red-light district of New Orleans.
One of them, just seventeen that year,
had heard it hardest. On the deck
Of the paddle-wheeler, high above the dock
and its straggling crowd, a Black man lifted
His ordinary cornet and blew the world away.
No one in all of Iowa knew his name
Except that young man, who understood
his betters when he heard them.
That day he heard it all and soon he would ride
Like Armstrong up river to Chicago on a golden cornet.
You want a revolution? Music was his manifesto.

The clarity of his tone, musicians said,
was like bullets shooting a bell.

The author’s comment

“Who Remembers Davenport” evokes two jazz pioneers, one white and one Black, and centers on the moment when Bix Beiderbecke, then in his late teens, heard the greatest trumpet player in history, Louis Armstrong—an encounter that naturally had a profound effect on Beiderbecke.

The transmission of the art across generations and racial boundaries is a source of fascination for me, no matter what the art; but jazz, more than most, has reinvigorated itself many times in just this way over the decades. Perennially reborn, jazz (and most other musical forms) remains for me a central source of inspiration.”
—T. R. Hummer

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The Art of the Steal

Financial oversight policy by the federal government is often presented as two distinct opposites: deregulate so the free market can work its wonders or regulate to prevent the worst instincts of capitalism from harming individuals or the greater economy.

However, there is a third policy option.  I call it fake regulation. The regulator takes action to prevent some excess or outright harm from occurring, but then never enforces the rule.  The market quickly sees these are only pretend guardrails. And the predatory behavior expands in ever increasing incidents.

The Merger Problem Becomes Public

In 2017 the situation of credit unions buying out and paying off their kin was written about by a number of  commentors in articles such  as:

The Dark Side of Mergers, by Peter Strozniak, March 27, 2017 Credit Union Times

Time to Talk About an Ugly Truth in Mergers by Frank Diekmann, March 6, 2017 CUToday

Credit Unions for Sale? By Chip Filson, February 14, 2017, Credit Unions.com

In response to the growing disclosures of large payments by credit unions openly seeking acquisitions, in June 2017 NCUA proposed an updated voluntary merger rule.  Folllowing  a lengthy comment period the final rule was adopted in June 2018.

It is helpful to review the specific statements and intent of this final rule when looking at concrete circumstances today.  For many actual events seem to suggest the rule isn’t in force. There are no longer any regulatory roles or constraints being exercised.

What the Final Rule Required

 

The  rule included important statements about NCUA’s role and scope of authority when approving voluntary mergers.  For example:

“Several commentators . . .suggested that NCUA’s role is limited to safety and soundness concerns.  These comments are not accurate.  The FCU Act explicitly requires the “Board’s prior written approval” before FICU mergers with another FICU. Moreover, as detailed in the preamble. . . the FCU Act requires the board to consider six factors in determining whether to approve FICU mergers.  Clearly, the FCU Act expects the Board to consider the effect of  the proposed merger on the credit union members, and gives the Board authority to deny mergers that do not, in their judgment, serve members well. . .

Several commentators stated. . .that members have no right  to the net worth of a credit union except in liquidation.  This assertion ignores the reality that hundreds of credit unions annually return excess net worth  to members. . .A credit union in good condition has the option of voluntary liquidation  instead of voluntary merger. . .

The Board agrees that mergers should not be the first resort when an otherwise healthy credit union facing succession issues or a lack of growth. . .

The Board acknowledges however that not all boards of directors are conscientious about fulfilling their fiduciary duties. . .

The Board also confirms that for merging credit unions, the NCUA’s regional offices must ensure that board and management have fulfilled their fiduciary duties under 12 CFR$701.4.

In contrast to commenters’ assertions, the statutory factors the board must consider in granting or withholding approval of a merger transaction include several factors related to safety and soundness, such as the financial condition of the crediit union. . . and the general character and fitness of the  credit union’s management. . .

Concerns with Financial Disclosures

The impetus for the updated rule was driven in large part by the financial incentives being used to acquire other credit unions.  In the initial June 2017 draft proposal, the staff was asked by a Board member what percentage of recent mergers reviewed involved increases in compensation?  The staff response said 75% to 80% had significant merger related payouts often in the low seven figures.

The final rule in 2018 had extensive examples of “merger-related financial disclosures” that must be provided members.  Several comments explained the scope and reasoning included in the new rule:

A “but for” test determines whether the senior management official or director would not otherwise receive the compensation “but for” the merger. . .

Disclosure includes, “all increases in compensation or benefits that a covered person has received during the 24 months prior to the date of the approval of the merger plan by the boards of directors of both credit unions. . . “.

The rule applies to all compensation or benefits received in connection with a merger transaction including early payout of pension benefits and increased insurance coverage. . .

. . . the proposed rule requires both the merging and the continuing credit union to submit board minutes to NCUA that reference the merger during the 24 months preceding the date of the approval of the merger plan by the boards . . .In several recent mergers, a review of board minutes has shed light on potential conflicts of interest, including a situation where a credit union chief executive officer voted on a merger proposal that included significant merger related compensation for himself. . .

Furthermore, members’ interest in the transaction extend beyond practical matters of access and service, because the merging FICU’s net worth belongs to the members. . .

The basis for NCUA’s concern about financial disclosure follows with emphasis added:

The prospect of a significantly higher salary at the continuing credit union could be a motivational factor in an individual’s choice to advocate for a merger both internally within the credit union leadership and with members.  Credit union management may well have considerable influence with members, who may look to  management for trusted opinions and advice about whether the proposed merger is in the best interest of the credit union and its members.  It is not unimaginable that the prospect of a significantly higher compensation package could affect an individual manager’s thinking about the desirability of the merger. . .

Houston, We Have a Problem

The Space City CU merger proposal with TDECU violates a number of these explicit statements as well as the intent to protect members’ interest in NCUA’s merger rule.

The initiative was led by the CEO.  The CEO and COO are paid directly by TDECU $850,000 in the transaction, a direct conflict of interest. These are described as “non compete agreements.” This is a nonsensical justification. Neither has ever worked for TDECU.  Now they turn over their entire operations to TDECU after “competing” with this $4.8 billion firm for 30 years and are paid to “non-compete.”

The CEO is to be paid $3.5 million for not working for the next ten years.  In fact he was the person who decided to close the credit union and turn over operations to TDECU and leave the workforce.  The amount, as stated was in “honor of his retirement and in recognition and appreciation of his long tenure and outstanding performance.” This rationale is belied by the facts.  Of the credit union’s net worth, only 39% is from his operational earnings and 61% from the net worth transferred by four other credit unions in mergers.

The members who own the net worth receive $346 each on average, or about 25% of their total ownership stake.  TDECU has announced a definitive acquisition agreement to purchase Sabine Bank five months before the CU merger announcement. The bank owners will certainly receive their entire net worth plus a premium.

However, the credit union owners are asked to approve the same exact economic sale transaction as the bank owners, but will receive only a fraction of their ownership stake. The five employees arranged to pay themselves an amount $1 million greater than the 12,000 members whose loyalty built the credit union.  Management is acting like owners, free to do whatever they wish with the credit union, and not as stewards for the members’ interests.

TDECU is showing credit union member-owners they are less worthy of equitable payment than bank owners.

The Manipulated Voting Process

Space City’s final defense and where the regulators could justify their intentional inaction is that the “members voted for it. “

But member voting is a process without substance.   All of the critical financial disclosures were revealed only six months after the September 2024 joint announcement of the agreement.  Once presented the facts, there was no opportunity to organize and find other options or learn critical factors in this decision.

There was no factual information why this was in their best interest or any relevant reasons why TDECU was the best option—or whether any other options were even considered.

In the Member Notice, it is “recommended” by “your” board of directors to vote yes.  And for that vote, members would receive  between $100 to $1,000.  Vote no and you will get nothing and the implied continuation of the same leaders who decided to close the credit union.

The required member vote is nothing more than a managed event to ensure there is no time or ability for anyone opposed to raise questions or mobilize a counter view.  Management in these so-called elections holds “all the cards” and resources.  Management does not respond to questions from the press or members.

The only requirement to approve is that a majority of those who bother to vote, vote Yes.  There is no minimum number as for example the 20% requirement in other charter changes.  So only a tiny fraction of members participate. Normally the majority of votes are by mail-in ballot where the board says to vote Yes.

To call this one-time vote by members democratic in any sense of that term is a mistake.  It is the same voting process followed by authoritarian governments in such well known democracies as Cuba, China, and Russia.

The System’s Problem

This relatively small voluntary merger of a 60-year old, financially viable credit union, may seem inconsequential for a $2.4 trillion system.  But the details demonstrate the complete absence of any the oversight NCUA clearly lays out in its rule.

The two credit unions publicly declare the merger must pass regulatory approval, implying all they present and do has received the blessing of NCUA.  However, it is a blessing in absentia.  The data and reasoning is misleading, overtly self-dealing and provides no substance for a member-owner to make an informed decision.  But what the heck–the regulator approved it.

The Absence of Regulatory Oversight

There is still one final step in NCUA and the Texas Credit Union Commission’s role.  They must approve the final charter cancellation.  In the past this is a nonevent.  Regulators have not even required  the results of the vote be disclosed when members ask  for details.

Will either the state or NCUA look at the totality of this event and decide  if, under the rule, members’ best interests are being served? Is this cooperative charter termination with these payments the best option?  Might a small fraction of the planned $11 million  payments be used to find new management, request new volunteer leaders from the 12,000 members and give the owners back their credit union?

That would be the common sense and right thing to do.  It would take courage.  And if done, it would send a signal to the entire movement that the era of self-dealing and hypothetical future visions is over.  If a credit union wants to buy another credit union and take over all of its resources, then members need to have a real ownership say and return.

Today there is an absence of any regulatory presence and studied inaction  in the face of misinformation and self-dealing.  This silence has encouraged mega mergers by competitors in  local markets, across state lines and, in one case, across the country.

These proposals involving credit unions with tens of billions of assets are not because some superior business benefit is now feasible for members.  These mergers are by credit unions with all the necessary resources and capability to carry out any business initiative that would better serve members.

Mega mergers only benefit is to the ambitions of CEO’s and their boards who believe size correlates with success.  That view shows they have not looked at the track records of their billion dollar peers about the actual outcomes when exteral acquisitions are prioritized over internal growth.  The record of the largest credit unions shows that internal growth is stronger, more stable and effective than external firm buyouts.

The Combinations Undercut Cooperative Advantage

Moreover, these mergers of sound credit unions ignore the most important system reality. In these combinations, not a single new member is added, there is no market share gained,  and no new markets entered.

Rather, these combinations reduce the number of independent firms with their own volunteers and market strategies,  eliminate leadership opportunities for employees and volunteers, reduce independent community contributors and most critically, destroy the collaborative legacy of generations of members who sought  more control over their and their children’s financial futures.

These mergers reduce the diversity and roots that have made credit unions a unique force in financial service options for America.

Who believes that the 12,000 members of Space City will now have a better financial relationship opportunity as part of a 380,000 member organization (soon to be 470,000) versus their current circumstance?  And if someone wants that option, they can join TDECU today.  But why eliminate the more intimate, personal option now available?

Transparency Does not Erase Wrong Doing

Since the 2018 voluntary merger rule was passed, transparency has illuminated an increasing cycle of cooperative self-destruction driven by institutional self-interest.

The regulators have abandoned the standards they explictly laid out as the foundation for their updated meger rule.  The rationale appears that if you tell people you are taking the members money for whatever reason, then conflicts of interest, self- dealing or simply exhorbitant enrichment are fine.

I know of no illegal activity that is absolved by disclosing the facts of the deed.  But that seems to be NCUA’s interpretation.  CEO’s are increasingly brazen, as in the Space City example, to ignore all fiduciary standards.

There is no cop on the beat.  The temptations will only worsen. In one California merger the CEO and Chair transferred $12 million of members equity to their sole control as part of the merger distributions. NCUA said and did nothing.

Merger stories are clothed with common PR phrases about similar cultures, values and enhanced opportunities for innovation in an evolving marketplace. There is nothing more than marketing rhetoric in these so-called merger plans.

How Healthy Mergers Damage the System’s Soundness

But the current harm is real. Mergers of sound, long serving credit unions destroy the legacy of relationships on which every firm depends for success.  They wipe away the past commitments and memories.  New brands then try to portray a new reality but often show how shallow the relationships have become. For example,  Empeople credit union or the retirement community sounding EastRise FCU.

For cooperatives, legacy matters. It is a design  chosen by  a community of interest wanting to take control of their future with collective action.  Carrying that legacy to the future perpetuates this human effort as opposed  to the cycles of firm destruction accepted as part of capitalism. A credit union instead conserves and passes to the future  the shared interests founded on local focus, knowledge and community spirit.

Instead of building on this foundation to work together, merging stable credit unions results in just another generic financial institution removed from any past connections, constantly seeking new markets to conquer or expand.  The past is over and done with.

While this approach might appear to work for a while, it sacrifices the most important foundation for any successful enterprise, the power of human agency.  Agency means  being part of a collaborative effort, that is a person’s belief  that I am accomplishing something important in my life.  This kind of relationship creates institutional resilience that no amount of resources can achieve. Sometimes we call these outcomes trust and hope.

Space City is just the latest poster child of this growing Art of the Steal.  Its reasons are ridiculous and it may generate member resistance far beyond Houston. For the wider problem revealed in these transaction is that some credit union leaders don’t seem to know for whom they work.

One Voice

A Space City member with deep concerns with this merger called and asked,  Who do I go to for help?  The person had spoken up, answered press questions, encouraged her friends to vote no. But she felt all this was in vain. Just her alone.

My response was you are doing exactly what democracy requires. It is not about creating a popular uprising to overthrow entrenched leaders in a moment of confrontation or voting.

One person standing up and publicly raising their voice will be seen. It will encourage other like-minded persons to learn their concerns are shared. Her courage will become contagious.  It might even spark a regulator to do the job they are empowered to do.

Just one voice. It only takes one match to light a fire. Then watch the members respond with hope and goodwill.  Credit union democracy needs many more  such member-leaders.

 

 

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Whose Voice Do You Follow?

in the late 1970’s Norman Gazer was a relatively new examiner in the Credit Union Division of the Department of Financial institutions (DFI) in Illinois. He had a bookkeeping background, understood accounting, and had a very quiet, reticent almost shy demeanor.

One of the DFI’s goals was that every one of the over 1,000 state charters must have an annual exam.  This must be by the DFI examiners  or completed by an independent CPA firm using our format.

An essential part of the annual exam was the verification of lndividual loan and share account balances.  This was the primary function of the supervisory committee. In larger credit unions this would be done by an outside firm.  When there was no record in smaller credit unions, the examiners would attempt to test the accounts.

Norman did this in two ways.  He would run his own adding machine tape of the individual ledger balances to see if they equalled the general ledger total.  Were their suspense accounts?  Late entries etc?  This was before computers.  In some cases the cards were still hand posted.

I knew we verified  external investments by sending out confirmation requests to firms holding these balances. But how did he verify members?  He said it was simple.  He just looked up the names in the telephone book and called.

It was this effort to verify accounts that led Norman to discover the credit union defalcation at Scott, Forseman and Company, the publisher of the children’s first reading books: “See Spot Run.”  After repeated attempts to balance the share accounts, Norman determined the credit union manager of this $1 million single sponsor, was keeping two sets of books.

When confronted, the manager handed over the second set. The defalcation was almost $1.0 million.Norman’s documentation persuaded CUNA Mutual to cover most of the shortfall under the credit union’s fidelity bond.

Whose Voice Do You Listen to?

In America today almost anyone can set up a platform to share their views about any issue.  Politicians routinely present themselves as the voice of the neglected, unheard or angry.

We often choose the voices to follow by two criteria.   Do we generally agree with the person’s point of view whether the topic is professional, personal or political.  Secondly, we tend to believe those in leadership, or individuals whose opinions are based on their professional experiences and credentials (professors, doctors, lawyers, or regulators)

One of the commentators i respect is Ancin Cooley.  His  succinct postings are well reasoned and from extensive on the ground interactions. His comment on the recommendations of America’s Credit Union lobbiests to reduce NCUA rules caught my attention.  And reminded me of Norman’s story of why we have supervisory committees in the first place.

This is Cooley’s response to  ACU’s proposal to  eliminate supervisory committee and succession planning requirements by NCUA.

What are we doing?

“Now its eliminate succession planning and Supervisory Committee audits?

We’re literally watching member money be used to advocate against the very guardrails designed to protect them and the institutions they trust.

At some point, someone has to throw a flag on the play. Come on y’all….

Succession planning shouldn’t even be up for debate. It’s basic governance. It’s only an issue because if there is a succession plan in place, it makes it difficult to merge the credit union when a CEO retires.

And now, Supervisory Committees? Yes, they can be a pain, but the function must remain intact and unweakened.

This one’s been locked-and-loaded for a while, especially given the quiet, strategic push to weaken audit committees through legislative efforts over the last twenty years.

If we let this trend continue, the very banks we claim not to be will end up with stronger governance and audit protections for their shareholders than we offer our members.

I’ve been asking this question repeatedly: Who do our associations and leagues actually represent?

The members? The credit unions?

Or the CEOs who sign the check for the membership dues?

Because if you said members—if you truly represent the membership—let me be clear: this proposal is not in the interest of any member-owner.

No bank shareholder would vote to eliminate their audit committee. Why? Because they have their actual money at stake.

Our members deserve the same level of protection. Their collective capital deserves the same level of seriousness and protection.”

This is plain spoken common sense by a person who knows what he is talking about.  But there is still a worse outcome than bad counsel.

What could  be more disastrous? Complete silence. Especially by those in positions of responsibility for credit unions.  Tomorrow I will show how voicelessness communicates approval of bad behavior in The Art of the Steal.

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Updates from the Field: A Sampling of CEO Topics

Each month I receive 3 to 5 CEO staff briefings.  While many share similar financial performance versus plan updates and emplyee recognitions, I find their specific topics \paraticularly interesting.  These often convey the special role of credit unions.  Here are  edited selections from recent, multiple CEO communications.

Joining Veterans Benefits Banking

We became affiliated with the Veterans Benefits Banking Program (VBBP). The VBBP is a partnership between the Veterans Administration (VA) and banks and credit unions which understand the financial needs of the Veteran community and who deliver excellent customer service.

Based on all our credit union  does for and with the local VA Medical Center, it was clear that the we more than qualifies for the designation. VBBP connects VA benefit recipients with financial institutions who offer low or no cost accounts, provide financial education, and assist VA benefit recipients with various financial matters

AI Powered Text & Chat

We introduced an AI associate within our Podium text and chat platform on April 3 that answers general questions of members. The platform’s conversational AI employee, named Jerry, interacted with 240 members in its first week.

Contact center associates are monitoring the interactions, have encountered no AI hallucinations and report that Jerry is appropriately responsive to a member’s tone and is learning at a rapid pace.

Regulatory Exam Update

Examiners from both the state’s Division of Financial Institutions and the National Credit Union Administration (NCUA) were both on-site and remote the past four weeks to perform a safety and soundness exam. As a state-chartered credit union, DFI is our prudential regulator while NCUA is our deposit insurer. Both agencies work closely together in order to share work product and reduce examination costs.

We expect to receive only one examination report jointly written by both agencies, likely to be in the next month or two. We also expect to be given our usual clean bill of health with only some minor findings in the exam report. Thank you everyone who dealt with the various questions of the examiners.

(my reaction: a month or two?)

Member Comments

Monica helped me get a new account set up, information I needed to be able to transfer money from my old bank account, and direct deposit information together for my employer. She was great to work with. I’m really excited to be changing to this credit union from my bank! Thank you for a great first experience!

I appreciate the small grace period as this economy is extremely difficult to just get by in. I got a great interest rate and if it weren’t for y’all, I would not have been able to graduate from NP school. 

On Balance Sheet Growth

We had a pretty solid first quarter of the year.  Our net income was slightly better than last month. We have had really strong deposit growth-growing 13% on an annualized basis.  We have had loan growth but certainly not at that pace!

DELINQUENCY AND CHARGE-OFFS

After presenting delinquency trends in each loan segment, the CEO continued:

Considering all the economic uncertainty we remain diligent and concerned about our members’ ability to make loan payments and are offering individual solutions when appropriate.  Our delinquency and chargep-offs are the reason that we have tightened our underwriting criteria over the past year.  This means we are saying “Yes” less often to members.

Member Growth  Slowdown

You may have noticed that our membership growth is slowing-though still positive. The slowdown started in October of last year and has continued.  . . we are bringing in about 250 fewer new members per month from indirect lending.

If we look just at core members, those who choose to join the credit union, we are bringing in about 350 fewer new members per month than last year.

We have a team analyzing the trends and trying to better understand where the changes are occurring. . . the question we should be thinking about is what is causing fewer people to make the decision to join. . .I would love to hear what ideas or thoughts others have.

 

 

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Space City CU’s Board Asks Members to Reward Top Three Execs $6,750,000 for Closing the Credit Union

(Note: This analysis of Space City’s merger is in two parts. Part I follows with the overall summary and  Part II with additional details)

America’s tax-exempt, non-profit, democratically governed credit union system is at a crossroads.  Bank competitors and some analysts are questioning whether the movement has lost its core purpose.

The example below of self-dealing, conflicts of interest, lax board oversight and member manipulation is the latest example of internal corruption in the $2.3 trillion cooperative system. These mergers, marked by executive cash outs, are becoming more common. State and federal regulators seem oblivious or powerless to stop this internal pillaging.

On May 14, the 12,000 members of Houston’s Space City CU will cast their final votes to transfer all control of their 60-year old $142 million credit union, with 14.6% net worth, to the $4.8 billion Houston based TDECU.  The voting enddate was set in the official Notice of Meeting of the Members of Space City CU dated March 28, 2025, and mailed to all member-owners.

This so- called merger is just the most recent example of leaders taking advantage of their position for self-enrichment.  Five Space City executives are giving themselves 57% of the $11,750,208 equity distribution described in the Meeting Notice.  The President would receive $4 million (34%) of the $11.8 million payouts and the Chief Operating Officer   $2,250,000 (19% in distributions from the members’ collective net worth.

The top three insiders will divide $6.750 million for an average of $2.250 million while the 12,000 plus members whose loyalty built the credit union will average $412.

Even though the Notice states the Board “approved” these special payments to five people (one employee joined in 2022), these deals were arranged by the two CEO’s.

This is the September 2024 initial video released by the CEO’s side by side announcing and selling their deal together with a closing handshake.  However, the details of the special “bonus” distributions were not sent to members until the March 28, 2025 Notice or six months after this initial public announcement.

CEO Rohden’s Performance Record

Especially questionable are the actions of Craig Rohden who has been CEO for 30 years.  The board claims to “honor his outstanding performance.” His record as CEO is at best underwhelming and more recently, marked by annual losses. In the past two years the credit union reported negative net income of $611,670 for 2023 and $30,398 in 2024.

Following the 2023 loss, according to Space City’s IRS 990 filing for that year, Rohden was paid a total of $280,562 which included a bonus $46,186 and contributions to a retirement plan of $11,604.  Additionally, the credit union had a split dollar life insurance plan with a balance due of $3.275 million which would fully vest in the proposed merger.  The cash benefits, not disclosed, can often be taken tax free in the future.

However, this performance charade goes back further.  In the latest call report March 31, 2025 the credit union’s total net worth is $19.4 million or 14.6% of assets.  Of this amount 61% or $11.9 million is from “equity acquired in mergers.”  Only 39% is retained earnings from the 30 years of Rohden’s tenure.

Space City lists four mergers resulting in the collective $11.9 million addition to its net worth for free.  The largest gain was in the 2022 merger with Brazosport Teachers FCU (BTFCU). In BTFCU’s March 2022 Member Merger Notice, it disclosed that its entire reserves of $8.2 million were being added to Space City’s existing $9.2 million equity while paying the owners nothing from their collective savings.

It also said the combination would manage approximately $154 million in assets serving 12,564 members.  In the two and half years since this merger, Space City’s assets have fallen by $20 million to total $134 million and membership has decreased by 500 (data as of March 2025).  The reason for this dramatic loss of shares, loans and members is described in a comment by a former BTFCU member on Space City’s merger page at NCUA:

Hester Wende:  I am against this merger for 2 reasons. First, members of the now combined Teachers Federal Credit Union with Space City Credit Union were made numerous promises and assurances which were all fabricated. None of the promised items happened and our service has significantly declined. Student accounts were closed because they didn’t meet the standards of Space City Credit Union. Second, TDECU history over the past 10 years is horrible – numerous data breaches have occurred causing untold financial consequences to members. Their customer service is worse than Space City Credit Union.

Looking at the merger documents, it appears that this merger is all about the current President and Vice Presidents receiving a very significant buyout at the expense of Member’s earnings. 

Her  concerns about TDECU are addressed in my analysis below.

In this equity presentation of “retained earnings” versus “acquired in merger,” only 39% of Space City’s net worth is from the Rohden’s operational  performance. Rather growth has come from convincing other credit unions to transfer their firm’s entire assets to his control. The last three year’s financial record clearly shows a runoff and decline across all assets and share accounts  under Rohden’s management.

The Final Deal

Now CEO Rohden wants to make one more big deal, only this time it is to “sell” the credit union he has led for 30 years. But unlike his four acquisitions where the CEO’s received little or nothing. he wants his own Golden Parachute at a minimum of $4.0 million.

In addition to the Notice’s misleading justification of Rohden’s “outstanding performance,” two other reasons are equally nonsensical.  The Member Notice states Rohden “will not be employed post merger with TDECU and will receive a lump sum of $3.5 million which is the estimated compensation had he remained with Space City until retirement.”

This is the art of the flimflam.  The CEO negotiates the transfer of the credit union’s entire operations to a third party, retires early when he could have continued working and then wants to be paid for not working!

Even more specious is this distribution:  TDECU will pay a lump sum of $250,000 per year for a total of $500,000 in consideration for a two-year non-compete, non-solicit agreement with his compensation.”

Even though CEO Rohden has never worked at TDECU, he is paid for a non-complete agreement. The term non-compete refers to a firm’s internal employees who may have proprietary knowledge to prevent their taking that information to a competitor.  For 30 years Space City and TDECU served the same market. Now he gets paid for a “non-compete” while unemployed?

This upside down reasoning is just a verbal camouflage to cover up a payoff for Rohden’s delivering the credit union’s entire resources plus its brand to TDECU’s control.

There was a similarly worded justification explaining the $350,000 two-year non-compete for COO Nikki Moore as part of her $2.250 million merger payoff.  She again has never worked in TDECU.

These so called “non-compete payment” are from TDECU’s member reserves, not Space City’s. These bonus payments to two key players who arranged and approved this free transfer of all Space City’s resources are by the credit union receiving this largess.

The CEO and directors of both boards who approved these payments should be wise to review their fiduciary responsibilities, alongside their legal counsel.

 Lack of Board Oversight and Due Diligence

The dubious financial performance history of Space City under CEO Rohden continues in these merger justifications and payouts.  Instead of being stewards of the member-owners’ funds, the merger terms reveal self-enrichment. Rohden’s role is especially suspect. He negotiated the terms as CEO, received the largest payments from both credit unions and then recommended his board approve the transaction.

Space City board chair Mick Lay, who signed the official Member Notice, joined the board in 1975.  The Treasurer Robert Sander joined in 1980.  This is a board that has failed in its basic fiduciary duties of care and duties of loyalty.  They have abandoned any pretense of stewardship in their oversight responsibilities.

What’s Next

Should this merger proceed as announced it will be another nail in the coffin of credit unions as immune from the greed and excesses of private enterprise.  While the industry may be rich in its trillions of assets, it is poorer in soul and purpose.  And it is those values that were supposed to enrich members and their communities, not self-serving insiders dividing the spoils from merger deals.

To stop these credit union predatory actions will take courage from persons in positions of responsibility, public transparency in the media, and most of all, members speaking up to oppose this hijacking of their cooperatively owned financial institutions.  

The Rest of the Story in Part II

Following are four analyses of merger details that show the questionable nature of this proposal.

  1. Buying the Yes vote. How the member bonus distribution is structured to incent their approval independent of their support for the credit union.
  2. Using the names, logos and reputation of over 50 Houston area businesses, non- profits and public firms to endorse Space City Credit Union (and then TDECU) and its services for their employees. Each organization has just one vote. But a No would send an important message.
  3. What the members should know about TDECU as the new organization managing their assets including the credit union’s recent financial trends and its intent to buy the $1.2 billion Sabine State Bank headquartered in Louisiana.
  4. The regulators’ responsibility for approving the merge.

Part II: Four Additional Areas for Member-owners’ Attention

 

  1. The Process to Incent Member-Owners to Approve the Merger

Undermining the member vote process is simple.  Vote for the merger and you will receive a minimum $100 if your account is less than $289 (as of March 2024), and a maximum of $1,000.  If you vote no, you will get nothing.

What makes this strategy so transparent is the strange cutoff points for each of the three bonus levels:

Under $289.27, member receives $100.

Under $2,892.68, member receives 34.6% of their March 2024  balance

Over $2.892.68, member receives $1,000

What the Notice fails to disclose is how many voters are in each category.  I presume this precise division, down to the penny, means there are a majority of votes (one person one vote) in smaller balance accounts.  This is a great vote buying strategy, but it was nothing to do with rewarding those member-owners whose participation contributed the most to make the credit union successful.

The average share balance held by the 12,140 members is approximately $9,500.  As in most financial firms, 20% or fewer of members will hold 80% or more of total deposits.  The bonus dividend is not based on members’ financial support. The purpose is to incent small balance members to get $100 each for approving the merger of a credit union in which they barely participate.

We know the board and CEO are aware of paying bonuses on relationships is the normal practice. This example is from its December 28,2023 special dividend: a $1 million dollar bonus dividend payout to its loyal members. . . The bonus, which is a combination of Bonus Dividends ($750,000), Loan Interest Refunds ($175,000), and Checking Rewards Points ($75,000), will be distributed proportionally to all eligible members based on their qualifying deposit balances and activity throughout the year. 

The only qualifying activity in this distribution of members’ collective reserves is to vote Yes to approve the merger.  Vote No, and you get nothing.

  1. Using Sponsors’ Reputations to Endorse the Credit Union

At least 55 Houston Area companies, unions, and non-profits have endorsed Space City for their employees to join and support.  Each of these sponsoring organizations’ reputation is used to promote the credit union and its actions.

As stated on the Space City website, these Platinum Partners can provide your employees with access to a wide range of affordable financial products and services and a clear path to financial freedom.

The sponsors’ logos on the credit unions web page include:   GE Water and Power, Houston Freightliner, Houston Ballet, Houston Housing Authority, Westbury Christian School and dozens more local organizations.

As stated in the merger FAQ’s Businesses with a unique Tax ID number will be able to cast a vote on behalf of their organization.

When these sponsoring organizations vote or are asked by employees whether they should support the merger, their own reputations will be on the line.  Would they support this kind of activity if this were in their own organizations?

  1. What Should Members Know About TDECU?

Included in the Member Notice was a September 30, 2024, financial statement with just balance sheets for each credit union and  their combined accounts. Because of the multiple distributions to members and Space City’s senior executives, the combined net worth of 9.84% is less than each credit union’s pre-merger net worth.

The reasons offered for the merger can be summed up in one word: More.   More branches, products, services, technology, cost savings and employee opportunity.  There was not a single concrete example to document one member benefit.

Right now, every Space City member is eligible to join TDECU without a merger.  Why give up a locally focused independent credit union with higher capital ratios so the 12,000 owners can now be a part of a 385,000 member organization?  TDECU reports a potential market of over 30 million.  Space City members and employees’ control and influence is now 100%; in this merger their role is would be 3%, or insignificant

But the most critical fact about TDECU is not size, but its performance and business direction. Bigger does not mean a better member experience. TDECU’s CEO  assumed office in June 2022.  For the full years 2023/24 through the first quarter 2025, TDECU’s share and loan growth have flat-lined, employee count is down 56 (from 868), and membership is off by 1,000 (from 385.8K).

What’s up is delinquency from 1.54% to 2.01%, and full year charge offs which have risen from $43.4 million to $53million.  The loan allowance coverage ratio from loss reserves is  at .56% versus a national average of  164.3%.

TDECU’s growth has stalled, and earnings are in decline. Full year earnings fell from $32.9 million in 2023 to $11.6 million in 2024. In the first quarter of 2025 TDECU reported a loss of $35,476.

But the most critical question about joining with TDECU is not mentioned at all.  Prior to the September 2024 joint merger statement, TDECU announced it was purchasing Sabine State Bank and Trust Company on April 30, 2024. This $1.2 billion bank is headquartered in Many, LA.  It is 120 years old and operates 51 branches across Louisiana and East Texas. The merger would add about 90,000 new members.  The joint press release says Sabine “specializes in commercial loans with industry concentrations in oil and gas, forestry, timber and agriculture.” 

TDECU’s justification in the release states: “Sabine’s strong commercial operations will further diversify the credit union’s loan concentration and support TDECU’s overall growth strategy.” 

TDECU is using tens of millions of their members’ collective reserves to pay out the owners of Sabine Bank to acquire its business and operations.  If this same business logic were applied to the Space City transaction, then the member-owners of the credit union should be receiving their entire book value ($19.4 million) or more), not the paltry $5 million (25%) distribution offered.

The April 2024 joint bank purchase announcement of a “definitive acquisition agreement” was to be completed early in 2025.  Over a year later, there have been no further public updates.  If this purchase has been put on hold by regulators or other circumstances, then Space City members should know why before they decide whether they want to be part of this new strategy of TDECU.

4.What is the Regulators’ Responsibility?

This proposed Space City merger, according to the joint press release, requires regulatory approvals: The transaction is anticipated to be completed later this year, subject to receiving all regulatory approvals.

The two regulators are the NCUA which insures the credit union shareholders and the Texas Credit Union Commission, which charters and has primary supervisory authority.   Both regulators have seen the Member Notice with its misinformation, disinformation, and inadequate facts which  member-owners were sent to make an informed decision.

NCUA bylaws state CU boards “have fiduciary responsibility to vote for measures in members’ best interests,”  (CU Times March 20,2007) 

A December 18, 2007 CU Times report on the attempt by Wings FCU to pay Continental FCU members $200 each to approve a merger.  NCUA stopped this effort as explained in the article:

“ . . .credit union boards have an essential role in determining whether a merger is beneficial to the credit unions and their members, said NCUA Chairman JoAnn Johnson at an April 5 Massachusetts Credit Union Governmental Affairs Day Conference. 

“The agency held to its position that it would ensure that all statutory and regulatory requirements are being followed including an assessment of the accuracy of all advertising and representations being made about the merger . . .. NCUA said it was prepared to address any inadequacies or insufficiencies that threaten member protection, transparency and fairness.

“In the end, it was NCUA that put a stop to Wings Financial’s merger campaign. On April 20, the agency ruled that the $200 payments Wings Financial had offered to Continental’s membership should a merger go through were impermissible under the Federal Credit Act.

In this case TDECU is paying the arrangers of the merger, the CEO and COO of Space City $850,000.

Today two of the three NCUA board members have been fired by President Trump. This means the Texas regulator will have a primary role whether this self-serving effort, fraught with conflicts of interest, self-dealing and insufficient information is a valid process for member-owner decision making.

The Credit Union Commission’s decision will have significant ramifications for Space City’s 12,000 credit union members, the greater Houston business community, and the system’s reputation for integrity in Texas.

 

 

 

 

 

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America’s Grace in Victory

Yesterday was the anniversary of Victory in Europe (VE Day) for the Allied forces.

It is important to remember that WW II was begun by two countries, the Soviet Union and Nazi Germany jointly invading Poland in September 1939.  This was followed in November by the Soviet Union’s attack on Finland.

The two countries had signed a secret agreement in August 1939, the Molotov-Ribbentrop Pact. Officially it was a Treaty of Non-Aggression between Germany and the Union of Soviet Socialist Republics. Also known as the Hitler–Stalin Pact, a secret protocol established Soviet and German spheres of influence across Eastern Europe.

How America Spoke of Victory

Two leaders’ words capture this country’s spirit of grace, humility, sacrifice and gratitude in that immediate moment  of May 8, 1945.

General Dwight Eisenhower issued a Victory Order   to the troops that read in part:

The route you have traveled through hundreds of miles is marked by the graves of former comrades. From them has been exacted the ultimate sacrifice; blood of many nations – American, British, Canadian, French, Polish and others – has helped to gain the victory.

Each of the fallen died as a member of the team to which you belong, bound together by a common love of liberty and a refusal to submit to enslavement.

No monument of stone, no memorial of whatever magnitude could so well express our respect and veneration for their sacrifice as would perpetuation of the spirit of comradeship in which they died.

As we celebrate Victory in Europe let us remind ourselves that our common problems of the immediate and distant future can best be solved in the same conceptions of cooperation and devotion to the cause of human freedom as have made this Expeditionary Force such a mighty engine of righteous destruction.”

In this History Channel VE summary, the remarks at the end by FDR (at 6:50) are as meaningful now as they were then: The spirit of man has been awakened for a good (“love of liberty”) beyond his brief span.

May it ever be so.

)https://www.youtube.com/watch?v=hKIsvh59Bj4&t=329s)

 

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Mentoring, Education and Community for $8 Per Month

Yesterday I wrote about the need for disruptive leaders to regain the unique advantage of cooperative memer-owner design.

Ancin Cooley is a former OCC bank examiner and long-time credit union consultant.  He has a working knowledge of almost all areas of credit union operations and regulatory issues.

He is creating a new collaborative initiative for credit union professionals who want to focus their leadersip on enhancing the member-owner elationship.

Ancin’s initiative is outlined below. It is a combination of teaching and mentoring for only $8 per month.  He describes several unusual design featues in the resources he has assembled.

His contact information for his newsletter is at the end of this outlne.

From Ancin Cooley:

CU Communities: What We’re Building and Why It Matters

In July 2025, we’re launching CUCommunities.org — a subscription-based online learning and mentoring platform created for credit union professionals and volunteers. But more than a platform, this is a response to a real need in our movement.

My own background is in regulatory examination, governance, enterprise risk management, internal audit, and strategic planning. And after working with hundreds of credit unions across the country, I kept seeing the same gap, not in the talent, but in  support.

Credit union professionals — especially those at smaller institutions — are often under-resourced and over-expected. They’re tasked with solving complex, high-stakes challenges with limited tools and limited time. And too often, their development is tied to someone else’s permission, budget, or bias.

People ask:

“Where can I privately and on my own time get step-by-step guidance?”

“Where can I get mentorship?”

“Where can I ask questions without being judged for what I don’t know?”

“Where can I learn how to actually execute my strategy?”

CU Communities is designed to answer all of that — with practical, consistent, and role-specific learning delivered at a price an individual can afford and an institution can support.

What CU Communities Offers

This isn’t just a content library. It’s a community of practice.

Subscribers will have access to:

  • Tools, policies, job aids, and micro-videos
  • Guided learning experiences that empower, not overwhelm
  • Conversations with people who’ve actually done the work — not just studied it

What makes us different is how deep we’re willing to go. Without the overhead of a traditional association or vendor model, we can focus on the real work: BSA risk assessments, ALM modeling, look-to-book ratios, member business lending concentration thresholds — the things professionals actually need to understand.

Districts and Neighborhoods

We’re organizing CU Communities into two layers:

  • Districts — Topical learning areas like Credit, ALM, Compliance, Lending, and Collections. Every member gets access.
  • Neighborhoods — Curated forums and micro-communities organized by role and region, like “Louisiana CEOs” or “Small CU Lending Teams.”

Over time, more districts and neighborhoods will be added based on demand and input from the community.

A Pricing Model That Empowers

The first phase of our rollout gives individual subscribers access to every district for just $8/month. That price point is personal. It reflects a core belief:

Graduate-level insight shouldn’t be gatekept.

This subscription allows anyone — even those further down the org chart — to access the kind of content, coaching, and perspective usually reserved for senior staff or conference attendees.

It’s for the teller who wants to understand ALM.

For the collector who dreams of becoming a CLO.

For the new lending manager who needs to build confidence before speaking in front of the board.

If they’re willing to invest in themselves — even quietly — they can grow.

No permission slip required. No budget approval needed.

Just initiative, access, and a community that sees their potential.

Additional subscription tiers ($15/month) will unlock neighborhood-level access, including peer mentoring and facilitated conversations.

For credit unions, teams of up to 10 employees can join for $80/month, with additional seats available upon request.

More Value. Less Cost.

We’ve set a bold three-year strategic goal:

To create and distribute more courses, policies, tools, and mentorship hours than all the leagues combined — at a fraction of the cost.

Why? Because education in our space should be:

  • Practical
  • Affordable
  • Always available

Whether you’re a volunteer trying to understand ALM or a VP preparing for the CEO seat, we want you to feel something rare:

That you’re finally getting more for less.

Built by Practitioners — For Practitioners

CUCommunities.com isn’t driven by theorists, consultants, or vendors. It’s built by people who’ve lived the work — and who want to pass that wisdom forward.

That includes:

  • Retired CEOs, CLOs, and CFOs
  • Current practitioners solving today’s problems
  • Underrated experts within our industry — the operations lead, the branch supervisor, the marketing director quietly driving 8% organic membership growth

And here’s where we’re doing something revolutionary:

Everyone who contributes content — from workshop instructors to mini-course creators — retains ownership and receives revenue in perpetuity.

Most webinar houses pay $500 and own your content forever.

Not here.

We’re building a cooperative economy inside a cooperative industry.

Guardrails That Protect the Mission

To remain independent and principled, CU Communities has codified a structural safeguard:

No single revenue source — sponsor, vendor, or institution — will exceed 25% of total funding.

This isn’t just financial policy.

It’s governance by design.

It’s how we protect our integrity — and yours.

The Bottom Line

CU Communities is for people who want to get better. Who want to lead better. Who want to build better.

This isn’t a one-time launch. It’s a growing, breathing, member-driven network.

And it’s here for you.

Join the newsletter here: CUcommunities.org

Questions or media inquiries: acooley@syncuc.com