On December 31, Credit Union Times reported the $1.8 billion Hanscom FCU’s (Littleton, MA) intent to purchase the $306 million Peoples Bank of Chesterton, MD.
The Peoples Bank, founded in 1910, operates seven branches with 78 employees serving approximately 20,000 customers.
The Times article stated this was the 21st proposed bank purchase in 2024. It seemed like just another example of a credit union buying bank customers to demonstrate the advantages of being part of a cooperative.
But then this announcement became the lead example in a Washington Post February 3, 2025 opinion piece written by Sheila Bair, the former Chair of the FDIC. The title tells the article’s purpose: Tax-free credit unions are thriving at public expense.
To illustrate her thesis that “many credit unions have been abusing their nonprofit and tax-exempt status to expand beyond their mandate,” Bair provides a personal example. “I will soon become the customer of a Massachusetts credit union that is using some of its untaxed income to buy my Maryland community bank.” Note the use of “my” turning the credit union ownership idea upside down.
She asks: What does a credit union 20 miles outside Boston know about the needs of our small, rural Eastern Shore communities nearly 400 miles away?
A Hit Piece
Bair’s opinion article is a professionally written “attack piece” using her prior FDIC role to give it a professional aura. It references multiple credit union public shortcomings covered by the press in the past six months. There is no analysis of the transaction. Using her FDIC credential and the personal reference to “my bank” she adds a credible face to a bank lobbying position in DC. She implies, without evidence, her community is losing an important local asset, when it is those owners themselves who must approve the sale.
In both size and example, credit unions are more and more in the public’s eye. When coop boards and CEOs believe their actions are merely private transactions, they miss the reputational impact on the entire system. As one observer has said: The “Bigger Picture”?… there is one even if you don’t understand it.
This Transaction’s Explanation
The parties’ joint press release was sparse on specifics and long on rhetoric:
“Hanscom and Peoples Bank share similar values, placing our members, customers and people first,” said Peter Rice, CEO of Hanscom. “Through this combination, we expect to expand Peoples Bank’s ability to invest in its communities across Kent, Queen Anne’s and Talbot Counties. Additionally, with this enhanced geographic reach, and proximity to Washington D.C., we expect to further support our founding mission by bettering our ability to serve all individuals that serve our nation. We are proud to honor Peoples Bank’s legacy and look forward to welcoming its talented team and nearly 20,000 customers to Hanscom. Together, we will bring expanded financial opportunities to a region rich with potential.”
This explanation does not address Bair’s obvious question how a Massachusetts credit union located 20 miles outside Boston will better serve Maryland’s Eastern Shore counties. The area is a peninsula that stretches from the Chesapeake Bay to the Atlantic Ocean. The region’s economy is dominated by three industrial sectors: fishing along the coasts, especially for shellfish such as blue crab; farming, especially large-scale chicken farms; and tourism, centered on the Atlantic coast and beach resort of Ocean City.
Hanscom says nothing about any connection to the area or how it will serve this very different, distant region. Peoples Bank chairman states: Hanscom is the ideal partner to carry forward our 114-year legacy. Its commitment to community investment, our nation’s service members and innovation matches the values that our employees and customers hold dear. This combination ensures our customers and business partners gain access to a broader range of resources and innovative solutions. . .which we expect will redefine banking in our region.
What About the Financials?
The full 2024 results for both organizations are now available. Each firm seems stable but neither has shown balance sheet growth for a number of years. Hanscom’s total shares, loans and assets at yearend 2024 have declined from December 2022. Delinquency has gone from .25% of loans to 1.56% in the same period. Net income for 2024 was $2.3 million a steep decline from $23.2 million in 2023. Net worth is 11.8% and it reports three fewer branches compared to a year earlier.
From 2020 through 2024, Peoples Bank deposits are virtually the same at $268 million. Loans have grown from $174 to $187 million while total assets are static at $305 million. In these five years, total shareholder capital has increased from $30.2 to $35.5 million. The bank’s 2024 net income was $3.3 million, or $1.0 million greater than Hanscom’s.
Both financial institutions’ balance sheets have flat lined. Earnings are down from the prior year. Peoples Bank relies on its wholly owned insurance subsidiary for a significant portion of its non interest revenue which flows through to the bottom line.
So why would Hanscom decide to purchase this financial institution distant in both miles and market environment from its home base? The question becomes especially critical when no price is provided in the announcement.
At yesterday’s closing, Peoples Bank has a market capitalization of $37.9 million at a price of $52.11 and 728,918 shares outstanding. This is just above the bank’s book value of $35.6 million at yearend 2024. The price is also about 60% above the per share trading range of $31-$33 during 2024 prior to the December purchase offer.
If the purchase is similar to other transactions at 1.25-1.5 times book value, Hanscom’s total cash outlay would be approximately $50 million. It is clear why Peoples Bank’s owners would be interested in this sale. However the critical question is how are Hanscom’s current members and traditional communities benefiting from this purchase?
The distance between the two markets means there are no traditional “network effects.” The announcement says Hanscom intends to retain the branches, staff and name Peoples Bank and operate with a regional manager. Is this just a cash injection in a new area to revive a static franchise? If there is to be a new brand at some point to combine operations, will both market legacies be lost?
Sheila Bair’s personal reference to this proposed transaction placed it in the public spotlight. It raises a fundamental question: Why did Hanscom do this? There is no business case presented. Is this just a serendipitous response to a broker shopping a bank looking for a buyer with lots of cash?
The circumstances of this example are used to reinforce the intent of her article that credit unions are just another form of financial choice with no special purpose. And their actions are no different from community banks, except they pay no taxes.
Hanscom’s announced intent to purchase Peoples Bank may have a more studied plan. But at the moment, the only reason seems to be, because it has the money. If that is the case, it just proves Bair’s thesis and becomes part of the bigger picture, even if you don’t at first see it.