Category: Co-ops in Capitalism

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How to Serve Owners: Examples from Two American Icons

Organizations succeed by what they accomplish externally for their owners, not because of superior internal cultures or unique strategies.

As Peter Drucker, management consultant, educator and author, stated, “all results are on the outside,” meaning that the true measure of an organization’s success lies in the outcomes it achieves externally with its customers.  In credit unions these are the owners.

Berkshire’s  Annual Meeting Celebration

Warren Buffett, the founder of Berkshire Hathaway, has overseen a 28% increase in the stock (BRK B) price over the past year.   However, whatever  the company’s return to shareholders, there is a weekend celebration inviting all owners to Omaha to hear from the founder directly.

The event is much like a credit union conference complete with an exhibit hall full of Berkshire- owned vendors.  Here is this year’s Guide to the festivities:

The 27-page guide includes an invite to a 5K race, the location of all Dairy Queen restaurants in the area, plus numerous other sites and information for navigating the three days of events:

The formal annual meeting in the CHI Convention Center is the main event on Saturday.  It begins with four hours of open Q & A questions from the live audience and from viewers on CNBC’s live broadcast.   Buffett, and maybe one or two of his senior staff, will respond to all queries.

The formal  meeting with votes on motions starts at 1:00 PM.   But the owners have their say first.

This meeting is a demonstration of Berkshire’s commitment to put its owners’ interests first.  It is a long standing tradition with shareholders attending year after year.  It is a capitalist feast of business successes and company good will that creates long lasting relationships with the company’s individual shareholders.

Can  member-owned credit unions find a better example of trust, leadership and pride in our movement?   What if Navy FCU or SECU decided to celebrate their success in a similar manner with workshops on personal finance, examples of member owner businesses and a meeting where members had their say?

Such an occasion would be noteworthy for the institution, but more importantly, it would be an example of the cooperative movement having its “Woodstock Moment.”

Giving Member-Owners Choice

A second example that credit unions can learn from is a recent innovation from the Vanguard mutual fund family.

Vanguard is a pioneer in low cost, index fund investing.  Warren Buffett’s advice to young investors singles out Vanguard’s approach as the easiest and most likely successful way to financial wealth accumulation for every day folks.

A second unique feature of the firm is that the  company that manages the funds is owned by each of the individual funds.  In other words it is a mutual coop, not a public or privately owned investment company like T. Rowe Price or Fidelity.

It has recently offered a unique way for individuals who own their funds to directly exercise their proxy voting preferences in the companies in which their fund’s invest.  This is a description of Vanguard’s new “Voting Choice for Member Owned Stocks.”

” It provides a way for you to participate in the proxy voting process by choosing a proxy voting policy that will help direct how your shares in select Vanguard equity index funds are voted on shareholder matters at the companies held in those funds.

Public companies hold shareholder meetings where key issues—such as electing the board of directors and executive pay—are presented to a shareholder vote. Proxy voting enables shareholders to cast their votes without attending a specific company’s meeting.

Investor Choice currently offers five policy options that reflect a broad range of approaches to proxy voting that you may choose to apply to your participating Vanguard equity index funds.” 

One example would be Company Board-aligned Policy.

At the end of 2024, Vanguard had $10.4 trillion under management of which 82% were in index funds.

Vanguard serves over 50 million clients globally.  What kind of technology support must have been developed to allow an individual investor to cast their tiny share of a company’s voting proxy in line with each investor’s preferences?

In the past Vanguard has followed its Investor Advised Funds Policy, a single option.

The Credit Union Takeaway

If Vanguard can empower their  individual investors to exercise their minute share of corporate governance, should credit unions be exploring  options to enhance member-owner preferences? This is more than greater product choices for credit card or varied savings plans.

Some credit unions now give members options for charities to which they can direct interchange income.  But what are other ways members might be willing to participate in options such as funding affordable housing for seniors or first time home buyers?   Is it possible for members to have a say in prioritizing community ventures and partnerships?

Vanguard, a $10 trillion firm with 50 million clients, returned the owner’s proxy voting power back to the individual.  Might credit unions find a way to engage their owners in how their savings and credit extensions are being directed?  Or, as in public company voting, to approve senior executive compensation? Or even in buying a bank?

 

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Internships:  Planting Seeds for Future Employees

Many firms including credit unions offer summer internships as a way to attract college students and introduce them to their firm’s culture and employment opportunities.

One unique organization has a special program that places students interested in cooperatives with internships in the coop sector.   This 501 C 3 is NASCO or the North American Students of Cooperation.

Affordable Student Housing

NASCO’s  primary activity  is working with student- led campus housing cooperatives.  They provide resources, assist in their development, and encourage  participants to remain active  in the cooperative sector. There are over 20 of these housing facilities on campuses throughout the US.

NASCO’s projects would seem to be a natural fit especially for any credit union serving  these campuses.  This activity is also a primary source for applicants in the internship program described below.

Finding Future Leaders

One of the ways NASCO builds future cooperative leaders is their cooperative Internship program.   It functions as a placement service matching interested students with internships for 60-90 days during the summer.

Since the 1980s, this program has connected talented students with cooperative organizations, providing  hands-on work experience.

NASCO  matches skilled  cooperator applicants with host organizations including housing co-ops, worker co-ops, nonprofits, and credit unions.  These short term assignments are intended to be  meaningful projects that build familiarity with  areas such as governance, marketing, finance, and operations.

In turn host organizations have a chance to consider a person’s interest and skills for potential future employment.

The Summer 2025 Program Is Underway

NASCO is still seeking hosts for its Summer 2025 program.  This is a special opportunity for credit unions as candidates have expressed interest in working for a cooperative organization.

Because time is short, I would encourage interested credit unions to call NASCO’s internship manager, Katherine Jennings, at (708) 317-8608, or email at katherine@nasco.coop

NASCO provides interns monthly cohort zoom meetings to connect with fellow co-operators, share experiences, engage in guided discussions, skill-building trainings, or readings tailored to their interests. These sessions deepen their cooperative knowledge and strengthen their future potential role in member-owned organizations.

A complete description of the program is on NASCO’s website here.  Although the site indicates the host applications are closed, I am told hosting  opportunities can still be taken through this week.

There is also the chance to sponsor through grants, the internship network program.  Those options can be found here. 

The Future of the Cooperative Movement

Credit unions and NASCO share common values in promoting cooperative solutions.  The non-profit’s most important service is the affordable housing programs for students on campuses which I will highlight in a later blog.

I would encourage credit unions to reach out to NASCO and learn more about all aspects of ther activities including the November conference in Ann Arbor, MI. The group would seem to be a logical partner for any credit union’s financial  and community investment goals.

 

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A Moderate’s Message on America’s Future

David Brooks (born August 11, 1961)[1] is a Canadian-born American book author and political and cultural commentator. Though he describes himself as an ideologic moderate, others have characterised him as centrist, moderate conservative, or conservative, based on his record as contributor to the PBS NewsHour, and as opinion columnist for The New York Times.

Here is a throughtful, entertaining and insightful presentation given last month in Great Britain on America’s direction.

His purpose is to put the current American angst about current issues into a longer perspective.  He sees our history as a cycle of cultural and political “rupture and repair.”

Of special note for credit unions and cooperatives, is his belief that the current trend is moving away from hyper-individualism to a more communal society.

Our moral formation is at the center of who we are as a people and as a country.

While the talk is a social analysis with several political references, his description captures some of the central dilemmas credit unions as value based organizations are also experiencing.

Credit unions are creatures of the society in which they operate.   You might want to ask if his critique of “elites” in America’s cultural life has parallels in your credit union and the larger movement.

(https://www.youtube.com/watch?app=desktop&v=QSa52TR9tCA)

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It’s the Members Who Have the Power to Bring Change

Uncertainty reigns in Washington DC about the future of federal government agencies and their traditional roles versus the public.

CDFI grants are threatened; minority (democratic) board members of the FTC are fired; agency personnel are asked to submit weekly updates to DOGE on their work. Credit union taxation is on some agendas. NCUA board members spar over OD fees, versus uniting to support the agency’s mission to serve credit unions.

As the political and constitutional events evolve, the outcome will depend on political power.  For credit unions, this is the voting and lobbying efforts of their members.  Every industry “walks the hill.”  Every paid lobbying group makes PAC donations.

But few groups would claim the potential clout of member-owners acting to protect their democratic institutions.

All Politics Is Local

Despite the news from Washington, all voting is done locally.

However, this member constituent power is latent.  Asking for action requires informed  awakening and clear messaging.

An immediate way to activate this process is to engage the members at the annual meeting.  That is where their attention as owners and their role in governance is exercised.

The required annual baord election is the opportunity to affirm their potential political role by making this a real meeting, not a pro forma event.  It starts, as shown in the example below, by showing how their board members are nominated and then voted on as part of the meeting.

The Chair and CEO’s reports should illustrate  their credit union’s special role in members’ lives and in their communities.  When presenting threats to the cooperative model, the members will know what is at stake.  Finally, specific actions they may be called upon to  support their  member-owned financial cooperatives  should be discussed and feedback sought.

Activating Member Empowerment at the Annual Meeting

Here is the lead story in the March 13, 2025 email to members by O BEE credit union.

Transparency and Trust

The link at the end of the article lists the duties of the board, includes an application to be a nominee, and details of the board’s compensation.

Transparency is vital to a credible election process.  This strengthens  members’ awareness of their governance role. When the credit union then asks them to a act as citizens in a democracy, you have already “walked the talk.”  They can trust that you have their best interets in mind.

 

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Videos Empowering Members and their Credit Union

Putting members at the center of a credit union’s story is an art.  When done well, it reinforces the fundamental cooperative difference, especially when an integral part of the public message.

One credit union that does this with great skill  is Whitefish Credit Union in Whitefish, MT.

“God’s Country”

Below is a recent example of their unique video series.  These member centered short films portray individuals’ special interests, the natural landscape of the area, and a broad community purpose being served.

Following is a story by a founder of the Back Country Horsemen on this non-profit’s 50th anniversary.  Their example has extended across the country.  As one person remarks, every state has its own “back country,” even Delaware.

The video makes you want to saddle up and be a part of this ride with this credit union.

(https://www.youtube.com/watch?v=wodQNsu5fSQ)

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2025: The  Most Important Annual Meeting Your Credit May Ever Hold

Bylaws require every credit union to hold an annual meeting.  The agenda includes reports by the Chair, CEO, other timely updates and the election of directors for open seats on the board.

In many credit unions this event is purely administrative and perfunctory. It is merely a compliance task, carefully managed to end quickly, and to avoid any real member dialogue.

Such an approach this year could be the most costly political mistake a credit union could make with its members. Here’s why:

The future of the federal regulatory system is being overhauled for greater efficiency,  simpler design and more direct White House control.  No more  independent agency policy making.  One example of a question being raised is whether the  government should have two separate deposit insurance funds.

Influencing Political Outcomes

Credit unions, like most industries, have deployed traditional lobbying capabilities to counter political risks to their operations. These common tactics include raising more PAC dollars, hiring lobbyists with ties to those in office, funding PR campaigns, etc.

Credit unions will never outspend or out-hire their opponents.  Money is not the source of their political influence in DC or in their respective states.

Consultant and former OCC examiner Ancin Cooley offers this assessment:

In reflecting on the history of the credit union movement, one fact stands out: our strength has always been rooted in our members and communities. . .While political wins and advocacy play a role, we must never lose sight of our true source of standing. . .our focus should be on empowering our members and meeting their needs.

Activating Member-Owners

People’s voices and votes are the ultimate power in a democracy.  The first call to action with members should be in the upcoming annual meetings. To make this event a rallying cry, the traditional approach must be rethought. However,  this is not a new challenge.

In March 2023 Silicon Valley and two other banks failed in quick succession as the  Federal Reserve increased interest rates.  Many credit unions instantly changed their meeting’s  scripts.  In one I attended, the CEO after summarizing the prior year’s performance, pivoted to explain why her credit union and the industry generally did not have similar problems.

The message was to assure members their funds were safe.  Do nothing and trust your credit union.

This time the message is quite different. The  challenge is to educate members about changes being considered and ask them to act, not just stay the course.  Member-owners contacting their congressional representatives, en masse, is the most powerful influence on political behavior.

1998-The Year of Member Action

In 1998 the Supreme Court ruled in favor of a banking challenge to changes NCUA made in its field of membership regulations in the early 1980’s.  If implemented, the decision would have limited credit unions to their original, or a single, field of membership.  The law the Court interpreted had to be changed and fast.

One of the means to both engage and empower members was a newly created website called The Committee of 70 Million. The name was an echo of Revolutionary War grass roots organizations.

It was created by Scott Patterson, a recently hired techie at Callahan & Associates.  Although the country and credit unions were in an early phase of the Internet era, with social media still unknown, this platform could be linked to every credit union on the Internet.

The site explained the what was at stake and suggested multiple ways members could reach out to their congressional representatives.  Here are six slides from a much longer review in 2001 of the site’s options, information and impact.

The site was then adapted for voting in the Presidential election year 2000.

The Status Quo Is No Longer

Trump promised total disruption of the federal government bureaucracy.  He is on course. Now is the time for mobilizing member-owners.

The annual meeting should be converted to a town hall format. This is an opportunity to connect and  inform about the political changes.  The members’ questions and reactions can be used to plan next steps. After all, it is likely 50% or more voted for Trump’s message.

Credit unions must gain members’ respect and trust for the steps you will propose.  The most important message however,  is that this is not just another political fire drill.

Note: To receive the full slide deck, contact Scott Patterson at spatterson@gmail.com.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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The Banks We Deserve

Osacar Abello is the economic journalist for Next City, a web publication which reports on innovative examples of tackling long standing urban challenges.

He has written a new book, The Banks We Deserve. It is about the future of credit unions as much as he focuses on banks.  He offers this reason for writing.

So how many community banks do we need? I’m not sure that me or some policymaker or expert should be the one answering that question. Maybe it should be up to each community that feels ignored or frustrated with larger, distant financial institutions to take some of that money creation power for themselves and see how they do with it. 

We’ve never done anything big in this country without little banks. Yet the number of community banks in the US has been steadily declining for decades, giving way to big banks that have little connection to the communities they claim to serve.

The massive, unprecedented shift toward such a highly concentrated banking sector has weakened our ability to take action at a community level and leaves many people, especially those who have been historically marginalized, without access to capital.

The Book’s Message from a Review

In The Banks We Deserve, journalist Oscar Perry Abello argues that community banking has a crucial role to play in addressing urgent social challenges, from creating a more racially just economy to preparing for a changing climate. At their best, community banks unleash the agency and aspirations of the communities that establish them.

Abello challenges people working on racial justice, community development, or addressing climate change to start more community banks or credit unions as part of their work, while also calling for policies and regulatory reforms that will help tilt the landscape back in favor of community banking.

The Banks We Deserve tells the stories of new community banks — like Adelphi Bank, in Columbus, Ohio, the first new Black bank in 20 years; or Walden Mutual Bank in Concord, New Hampshire, the first new mutual bank since 1973 and the first chartered specifically to finance a more sustainable food system; or Climate First Bank, in St. Petersburg, Florida, which has grown exponentially since opening for business in 2021. He hopes these stories inspire others to take some of these same daunting-but-not-impossible steps.

My takeaway:  Credit unions have been evolving into this community role since deregulation. Who is telling their story?

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Thrivent FCU Members Approve Sale to a Bank & Receive Full Capital Return

On February 6, the $612 million Thrivent FCU announced that its members had approved the credit union’s purchase by the Utah licensed Thrivent Bank (in formation).

More than 33% of the credit union’s 52,000 members (47,872 eligible to cast a ballot) voted with 79% in favor of the charter change.  NCUA regulations require that at least 20% of the membership must vote on this charter conversion. The “merger” is scheduled to be completed by May 31, 2025.

Special Dividend Distributes Net Worth

The member-owners will receive a special dividend of $76 million which is the credit union’s fair value as determined by an independent appraisal.  This amount equates to  a 12.2% “dividend” on the shares owned at the time of the announcement.  As described in the Members’ Notice:

The TFCU Board of Directors has determined that in conjunction with the Merger, the members will receive a total distribution in the amount equal to the full (credit union) valuation of $76,000,000. 

Members also have full access to their $617 million (December 2024) in shares should they choose not to keep them at the newly chartered bank.  The Thrivent FCU board had previously assured members there would be no changes in rates or terms on loans and savings transferred to the bank.

The First Sale Since 2006

A full description of Thrivent’s proposal is in my December 3, 2024 blog .  It provides the credit unions financial standing as of the announcement in June 2024

The last time a bank bought a credit union was the sale of Nationwide FCU to its sponsor, Nationwide Insurance.  In that 2006 transaction the members received their entire net worth back resulting in a special “dividend” on shares of approximately 15%.

Depending on the financial position at the time of closing, both “merger” transactions valued the credit union at approximately 1.0 to 1.3 times book value.  For example Thrivent’s total GAAP capital was $80.8 million at December 2024.  However, if the $26.5 million decline in the market value of investments is recognized the net equity falls to $54.3 million.

Background on Thrivent FCU

Credit Union Times published a history of the credit union and the newly formed Thrivent bank’s business plan in a June 25, 2024 report:  Thrivent FCU to Merge Into Thrivent Bank.  The article states the new bank will offer digital service only from one location in Salt Lake City.  The primary reason for this conversion was to access the capital resources of the sponsor, Thrivent Financial.

The Times article pointed out that since the December 2012 date of Thrivent’s initial conversion from a bank, the credit union’s assets had doubled from $478 million to $930 million.  Loans had increased from $341 million to $635 million.

As of December 2024 Thrivent FCU’s  shares, loans, members, and assets have declined compared to the 2023 year end results.  The most recent December call report shows net worth at 10.3% and ROA of.46%.  Delinquency is only .29%.

Extending the Credit Union’s Mission

In Thrivent’s press release reporting the vote, Board Chair Beth Lewis states:  “The merger opportunity with Thrivent Bank will extend the mission of our credit union and provide our members with simple and competitive banking products, easy-to-use digital experiences and direct access to human support. Our board of directors is pleased that a majority of our members came to the conclusion that this merger is in their best interest.”

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The Source of Credit Union Power: Members Rally to Rebut Banker’s “Hit” Article

“You will pry my credit union from my cold middle class dead hands.”   Words of defiance from a credit union believer. One of hundreds of comments posted last week.(source below)

A leader’s ultimate success much depends on how the person manages the instruments of power.  For some in authority, the point of power is to use it to expand one’s dominion.  Using requires building up an institution’s size, scope of activity and resources to control or dominate.

However, there is another leadership model.These individuals believe that the role of authority is empowering others.  Credit unions at their most effective are subversive of status quo structures. They organize from the bottom up.  By the grass roots, not by investors hoping to make money.  No capital, just personal sweat equity, time and collaborative effort to accomplish common purpose.

This counter-cultural, not-for-profit cooperative design is also the key to  credit unions’ latent political power.  Here is a case study from last week of what this looks like in practice.

Responding to a Newspaper Opinion

Last week the Washington Post published an Opinion article by the former chair of the FDIC, Sheila Bair, titled:   Tax-free credit unions are thriving at public expense.  Her bank in Chesterton, MD, The Peoples Bank, accepted a purchase offer from a Massachusetts credit union “using some of their untaxed income.”

Her article referenced other examples of credit union branding and expansion.  Her recommendation was to level the playing field with community banks by taxing credit unions.  Otherwise, she warned, ““Give them an inch and they’ll take a mile.”

I had used the credit union’s purchase of “her” bank as an example in a blog Time to Ask WHY.  My p;oint was to illustrate the bigger public stage on which credit union actions are now viewed.

I did not foresee the  Post’s readers’ reaction to her article.   When the postings were stopped 253 comments had been submitted, almost all from credit union members.

The members universally defended their credit unions, called the article a “hit” piece, and provided hundreds of firsthand examples of how credit unions provide special member value.

Following are a few examples of the readers’ responses unleashed by this former banking regulator’s critique of credit union’s tax status.

From a bank customer and credit union member:

I have business both with a major bank and a credit union-right now the rate on my major bank credit card is 27.99% (they cut my rate a whopping 2% from 29.99% a few months ago!)

Right now, the rate on my credit union credit card is 8.99%

 You can probably surmise from the above anecdote who gets most of my business… 

From a 30 year member::

I have been a credit union member for 30 years. No hidden fees, low interest credit card, interest on my checking and savings, no service charges, talking to real people, great service, the list goes on and on. I would prefer to never have to deal with a bank again. I’m sure big banks would love to crush credit unions.(Reader comment ratings:  Provocative/Thoughtful 61)

From a member with mortgage loans for 37 years;

I’ve had a mortgage since 1988 on my successive residences, usually with an escrow account to pay property tax and homeowners insurance. Refinancing in 2012 with a credit union was the first time I managed to persuade my lender to include California Earthquake Authority premiums in the escrow account associated with my mortgage.

I’ve been much more satisfied with the service I’ve received from a credit union than from any of the big banks I’ve patronized over the years…. 

A Question posed: The difference, who cares more about you?

Ask yourself a simple question. WHO cares more about YOU as an individual? A big bank or the credit union where you are a member?

Notice that YOU are a member of the credit union – not just a customer. With banks – YOU are just another income source.

A question: Why the article?

Of all the non-profits that exist (and ALL credit unions are non-profit) – why attack the one group that actually takes care of their members instead of pushing propaganda as part of a political agenda?

 Attacking the for-profit Washington Post:

Wow, taking a shot at non-profit banking!?!? Proof once again that the Post is in the bag for corporate interests. Where is the guest opinion on the mis-deeds of for profit banks? Instead of recommending that credit unions return to stricter membership rules, or limit their ability to purchase commercial banks, you go right for their non-profit status. I have not used a for profit bank in 25 years. Thankfully almost everyone on Capitol Hill banks with the Congressional Federal Credit Union (as do I) so they understand the value of a credit union. 

A comment on the Opinion author:

As others have pointed out, Shelia Bair was chair of FDIC during the 2008 financial meltdown. She was a major architect of the TARP bailout of Chase, Bank of America, Wells Fargo, and the other big banks. 

This is an unadulterated hit piece against Navy Federal Credit Union, which is competing with the big banks directly in their consumer banking business. 

How and When Is Member Power Mobilized?

The comments extend for another 240+ reader reactions.   These words are not lobbying jargon, irrelevant numbers or cliches.   They are from lived experience motivated by personal feelings.

Implicit in these words is a readiness for action.  This potential  is the real source of credit union power, not the amount of PAC dollars donated.  It is the member-owner-voter’s relationship with their credit union.

This foundation of the movement is a latent,  “sleeping giant”-a phrase used by Ed Callahan during the 50th anniversary of the FCU Act in 1984 and afterwards.  Deregulation had placed  the responsibility for the future of credit unions back where it started, in the hands of boards and members, not the federal government.

The Immediate Challenge

America is in an era of political disruption. The issue of taxation will undoubtedly arise in several contexts.  But the real challenge of crafting a new beginning, a rethinking of who we want to be, is much greater.  And it may be beyond the grasp of those who seek only to defend the existing co-op status quo.

What is necessary are new models to tackle critical opportunities for clarity about credit unions’ future role in the American economy and members’ lives.

The country is hungry to reset foundations, recommit to fundamental values and for new generations of leaders who can innovate with cooperative design.

We should avoid marketing our fear of change to garner internal support, but rather take this fluid moment to rally our members for a renewed vision of what we can be.

And like the initial founders, or the change makers who led deregulation, this new era can be both frightening and enlightening.  This redesign may involve both government/regulatory relationships and new realities for industry participants taking  responsibility for our future.  It may entail new organizational relationships and partnerships.

If one looks closely the seeds for a new future are already there.  Some have been planted by those seemingly old school; others are in the enthusiasm of a generation that seeks to change the world.  Our skill will be to identify those whose directions empower others with their vision, versus those intent on enhancing their existing legacy returns.

Let the conversations begin.   If you have any doubts about what members value, just go the article and read some of the several hundred more comments.   The members’ voice is there if we really listen.

 

 

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Time to ask WHY?

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.