This past weekend a Houston Business Journal article noted a 30-day gap in TDECU’s disclosure of its failure to receive regulatory approval for its Sabine Bank purchase versus the date of the Bank’s online post. During this period TDECU finalized the merger of Space City CU. During the public controversy, regulators feigned impotence to do anything about this deeply flawed transaction.
To understand the significance of this regulatory inaction, it is helpful to recall some circumstances of this merger travesty.
On May 25th, I posted a two part analysis of the proposed merger of the $147 million Space City Credit Union with the $4.8 billion TEDCU.
The Member Notice was mailed on March 28th, providing the public for the first time the details of payments to senior staff. All member voting ended May 14th. The result was 862 of the 12,000 eligible members voted with 82% for and 18% against. End of story?
A Cooperative Merger Tragedy
I summarized this sleazy event as follows: This self-dealing transaction marked by conflicts of interest, lax board oversight and member manipulation is the latest example of internal corruption in the $2.3 trillion cooperative system. . . State and federal regulators seem oblivious or powerless to stop this internal pillaging.
Here were some of the merger specifics. In distributing the surplus from Space City’s 14.6% net worth, the top three employees received $6.750 million of which $4.0 million went to the CEO. He already had a cu paid retirement plan and a $3.250 split dollar life insurance plan. This $4.0 million total was equal to 53% of the entire retained earnings of the credit union in its 60-year history!
Two components of the total payments to the CEO and COO came directly from TDECU, not Space City’s reserves. This total of $850,000, approved byTDECU’s CEO and board, was an outright “gratuity.” What was the fiduciary responsibility of these two persons with direct responsibility for arranging the merger and its approval by members when receiving direct payments by both parties?
To top off these senior staff incentives, members were given a “bonus” dividend from their collective savings. However, it was designed so that members with the least amounts of shares received the greatest percent return. Those who had the most to lose received the lowest percentage. Specifically all members with $289 in savings or less, would receive $100 bonus. If the vote were NO, you get nothing.
In addition to this blatant self-dealing, the basic concern with this merger was that the financial performance of TDECU, the continuing credit union. For the prior 15 months its financial performance had deteriorated. It reported a loss in the first quarter of 2025, and a troubled loan portfolio with 2.01% delinquency (up from 1.13% prior year) and an allowance coverage ratio one third of the peer average. Its balance sheet loan and share growth had flatlined under the new CEO.
Most importantly to TDECU’s future ambitions, it had announced in April 2024 the purchase of the Many, LA based $1.2 billion Sabine Bank. A “definitive acquisition agreement” was in place with the transaction to be completed in early 2025.
“TDECU is on a growth journey to expand across the state of Texas and beyond,” the credit union’s CEO, Isaac Johnson stated.
The Outcome and Regulatory Silence
When askng the state and federal credit union regulators, when and who had approved the merger, these were the replies:
From the Texas Commission: preliminary approval was given by Department (Commissioner) on February 6, 2025. . .
From the NCUA: The merger was approved by Southern Regional Director Keith Morton on March 6. . .
So long before the Space City members knew any details of the merger (Member Notice dated March 28), both credit union CEO’s knew their two regulators had approved their self-serving actions. The financial statements with the Notice were also six months old, September 2024, not even for the full 2024 yearend.
The members knew nothing until receiving the March 28 Notice, but the credit union leaders who privately put it together, knew they had the deal approved.
All the controversy after the members and public learned of these details went for naught. The regulators had said OK. It was all over but the shouting, which occurred in June when the merger was completed.
So at this point the merger just seemed another example of regulatory ineptitude, indifference or perhaps other factors such as legal or poltical intimidation preventing any relook. The members were unprotected, fleeced and alone. Those charged with protecting members’ best interests feigned impotence, or would assert, It’s just up to the members.
The Regulators’ Double Speak
But on July 3rd an article appeared in the Houston Business Journal: TDECU delays rebrand as it closes Space City Credit Union merger, terminates bank acquisition
The article’s main points are that the Sabine Bank acquisition is off, the Space City merger is done, and that the rebrand using Space City is on hold.
The most interesting line however is the reporter’s final comment when reacting to this post on the Sabine Bank website about the failed purchase which reads in part:
“On June 4, TDECU and Sabine State Bank and Trust Company (Sabine) announced their mutual decision to not move forward with the planned acquisition and to terminate their agreement . . . to which the reporter added:
The termination was also not disclosed directly by TDECU via a press release or to the HBJ until July 2.
This is the example of regulatory double speak. This “definitive acquisition agreement” of Sabine needed only regulatory approval. This means NCUA and the Texas Commission would make the decision because this is where the oversight of the outcome would reside.
The deal got stopped, but was not disclosed by TDECU until July 2, Sabine’s post is dated June 4. Why?
The obvious answer is so the Space City merger can proceed unimpeded. The credit union regulators refused approval of the bank acquisition because they didn’t believe TDECU was up to the task. But go ahead and take over these 12,000 members and their future for this is an event too minor to concern us.
The TDECU regulatory hold up did not begin on June 4. The potential problems with this purchase and TDECU’s declining performance were obvious for at least six months from call reports. But proceed with the credit union takeover.
This regulatory double speak, two TDECU transaction and two opposite outcomes, is the most concerning aspect of regulatory oversight. The Texas Commission and NCUA did not respond to the deeply concerned members who spoke out only after they first learned how disgusting this deal would be. They were “nobodies.”
Besides the regulators already told the credit unions it was OK. They couldn’t go back now and change their decisions made in private because of members’ concerns.
By all the standards most members care about, the Space City merger heist was abundantly clear. The regulators ignored their own words such as the members’ best interest and fiduciary responsibility. The members are sheep left to the care of wolves. In this case both state and federal regulators aided and abetted their exploitation.
The Sabine Bank purchase was stopped by credit union regulators while they stood still during the acquisition of Space City at the very same time. TDECU’s capabilities were fine for credit union members but not a bank’s customers. TDECU is now backing away from even converting to the Space City brand—a selling point in the merger.
Today we live in a political debate where regulatory oversight is presented as one of two extremes: laissez-faire, that is let the market decide or, regulation protecting those powerless against market exploitation.
But there is a third possibility, worse than these two political extremes. This is fake regulation deceiving the public that regulators really are on the job and have rules and processes in place to ensure compliance. But the regulators do not enforce their own rules.
The credit union market sees this regulatory GAP clearly and the zealous and ambitions are rushing to take advantage. The result will be that the credit union members may lose their cooperative system because of regulatory neglect.
Another example of CU Boards and management being ignorant of their responsibility to build and encourage member/owner participation as a key element of a cooperative business. Instead they obsfucate the sound practices of transparent democratic principles for their own personal benefit. They have all failed what I would call “Credit Union 101.” TDECU has really trashed what used to be an example of CU best practices under prior leadership.