Category: NCUA

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Hanscom FCU’s $50 Million Bet: Is This Financially Sound and in Members’ Best Interest?

Summary: Hanscom FCU’s proposed bank purchase raises questions of financial and business soundness, transparency and whether it  benefits  the credit union’s member-owners.  While writing this follow-up, I became aware of a unique group of member-owners who for  over 18 months had been documenting and asking hard questions of the credit union’s board and management about the credit union’s performance. This included the bank purchase.  The group’s name is Hanscom Loyal.  I reviewed their communications. Their ongoing efforts, which are much broader than the bank transaction, is what makes this situation a valuable example for all credit unions.

On February 7, 2025, I wrote a post, Time to Ask WHY? about the announced purchase of The Peoples Bank ($306 million), in Chestertown, MD, by Hanscom Federal Credit Union ($1.8 Billion), headquartered on Hanscom AFB in Massachusetts, with its operations center in Littleton, MA.

This sale was singled out in a Washington Post opinion article by the former FDIC Chair Sheila Bair as an example of credit unions’ tax-free status thriving at public expense. 

The more important question: Is this a wise, sound transaction in the member-owners of Hanscom FCU’s best interest?

Why a $50 Million Price?

The Peoples Bank announced the $50 million price in their 2024 Annual Report. Hanscom FCU has released no information other than a single press release from December 20, 2024 about the purchase.

Because Hanscom FCU will be paying the 619 owners of Peoples $50 million in cash in return for the firm’s assets and liabilities, the first question should be,  “Is this price justified?”

Because Peoples is a public company with their stock traded daily (PEBC), we have much published data on their performance.  There are several ways to analyze this purchase amount.

On a price-to-12-month earnings ratio, the sale price amount is 15 times the bank’s $3.3 million net income in 2024. That is, if current earnings continue, the time to earn back the $50 million cash outlay could be as high as 15 years.

A second ratio is price-to-book value. The $50 million is 1.4 times, or a premium of $15 million, on the net equity reported in the audited statements on December 31, 2024.

Because the bank’s stock price is traded, we can compare the market’s valuation (market cap) before and after the December 20, 2024, purchase announcement. Prior to the release, the stock had traded in the $31 to $33 price range for a total market capital value of approximately $24 million (729K shares outstanding). That is, it traded below book value. Upon news of the proposed sale, the stock price jumped to $60 per share and closed last week at $58 for market value of $42.2 million. That market cap is still less than the $50 million being offered by Hanscom FCU.

These ratios will be subject to valuation and other adjustments. For example, since Hanscom FCU pays no federal or state income tax, should that amount ($960,153 in 2024) be added to projected earnings? Or, are the balance sheet assets of good will and deferred income taxes of any value to a tax-exempt credit union?

The bottom line is that the 619 bank shareholders are getting a good deal. We can see why they would want this sale to go through. The question is whether this transaction is in the best interest of the member-owners of Hanscom FCU. Their $50 million cash outlay to the bank’s owners is 22 times the credit union’s 2024 net income.

What Is the Business Case?

There has been no information from Hanscom FCU other than the press release referenced earlier to support this $50 million investment. In that release, CEO Peter Rice promises more investments in Peoples: “Through this combination, we expect to expand Peoples Bank’s ability to invest in its communities across Kent, Queen Anne’s and Talbot Counties.”

Other than cash, what expertise does Hanscom FCU bring to this 110-year-old community bank serving three mostly rural counties in Maryland? How do Peoples’ business priorities align with Hanscom FCU’s strategy? Its 15 locations are mainly concentrated around metro Boston, with one small branch in a restricted access building at MITRE in McLean, VA. The three rural Maryland counties Peoples serves are 400 miles away from Boston in a very different demographic and economic setting.

Peoples has two business lines. As a community bank, only 0.5% of its loans are to consumers ($872K), 50% to residential real estate and 38% to commercial real estate, development and general commercial loans. The commercial loans include agriculture for land, cattle, ag equipment and waterman loans for people who make a living from the ocean and farming. This traditional, long-time commercially focused bank contributed 64% of 2024 net income and managed $301 million in assets.

Their insurance segment is managed by a subsidiary, Fleetwood Insurance Group, and offers a full range of insurance coverage to businesses and consumers. The business has two offices, contributed 36% of the holding company’s 2024 net income, and managed just $7.8 million of assets before intersegment eliminations.

According to Hanscom FCU’s chairperson Teresa Conrad’s quote in the May 29, 2025, press release, this business was an important part of the acquisition: “The Hanscom team is also finalizing the Peoples Bank integration, ensuring a seamless transition and united experience for every member. With the Peoples Bank acquisition, we will fill a critical gap in our financial offerings with the addition of a new insurance company that offers a robust set of new products and services.”

There are two major issues to this goal of “filling a critical financial gap in offerings.” The first, how does a two-office insurance agency in rural Maryland serving small towns and businesses with long-time, local relationships compete in greater Boston’s saturated insurance market? Why not just buy an already established agency in that market?

Secondly, that “seamless transition” is not in the business plan announced in the December press release: “Following the close of the transaction, Peoples Bank branches will be regionally managed and continue to operate under the same name and brand. The Peoples Bancorp. Inc.’s common stock will no longer be listed on any public market.”

Instead of “seamless,” the intent is to continue with the Peoples name and brand and business model. Not only is this a dubious legal way for DBA positioning, but it also begs the question of any operating savings from inter-company efficiencies. It suggests that post transaction, the financial operations will become a standalone effort drawing more cash from Hanscom FCU as a “parent” company.

The business case is completely undocumented.  It is  a collection of generalities that suggest little effort for how the future of the two organizations will be managed. That should concern Hanscom FCU’s member-owners.

The People Bank’s 619 owners have their $50 million in cash while the credit union’s 100,000+ member-owners are left to ask: Can their leadership actually manage an acceptable a return on this investment of their funds?

This purchase appears to be a very risky, big time financial wager with the members’ money.  Whatever the price tag, if as presened below, Hanscom is unable to achieve a stable, minimum return on the assets it now has, then the whole insitution-and its member owners-suffers by just buying more at a premium price.

Hanscom FCU’s Financial Trends

I  reviewed the track record of Hanscom FCU under CEO Peter Rice, who replaced the long-serving David Sprague in 2022.  Sprague’s service was profiled in this press release:

Sprague has been Hanscom FCU’s top executive since 1996, a well-loved and respected senior leader managing over 250 employees. The credit union’s assets have grown to $1.7 billion, and membership has more than quadrupled to over 90,000 members during his 25-year tenure. He has steered Hanscom FCU to become the fifth largest credit union in Massachusetts.

Since year-end 2021, the final year of Sprague’s tenure, the following are the major firm trends under Rice for 2022 through Q1 2025 or three and a quarter years performance:

  • Shares have declined from $1.610 billion to $1.560 billion (Q1 2025)
  • Loans have increased slightly from $1.405 billion to $1.497 billion (Q1 2025)
  • Employees (FTE) have fallen a bit from 243 to 230
  • Number of branches has fallen from 22 to 15
  • Membership has grown from 91,577 to 102,714
  • Net worth ratio has increased 9.59% to 11.66%
  • ROA in 2021 was 0.80% and for full year 2024, 0.13%

The December 2024 bank purchase announcement coincided with the poorest financial performance in Hanscom FCU’s recent history. Annual growth in shares and loans was negative. The net income of $2.3 million (0.13% ROA) was down 90% from the $23.2 million in 2023.  Hanscom FCU is five times the asset size of Peoples but earned $1.0 million less than the bank in 2024.

These negative balance sheet growth trends continued in Q1 2025. That quarter’s earnings of $952,000 (0.21% ROA) were down 66% from the prior year’s first quarter.  Peoples Bank again had higher net income, even after reserving for taxes.

The most concerning first quarter outcome was HFCU’s $10.8 million in net charge offs, up 642% from the $1.5 million in 2024’s quarter.

In sum, the new CEO’s leadership in the last three years has been marked by inconsistent performance and by a sharp decline in critical financial indicators over the last 15 months.

This erratic performance raises two questions. Why is this decline occurring? With this uncertain track record, what justifies sending $50 million to the Peoples Bank owners, to purchase a firm that would seem to have no geographic, strategic, or business similarities to Hanscom FCU’s core market?

Why the Instability in Hanscom’s Financial Performance?

Here are the last 12 months of Hanscom FCU’s financial trends compared to all credit unions in the $1 to $5 billion peer group range. This comparison shows that the industry continues to grow positively on key balance sheet and income statement indicators, but not Hanscom FCU. Why?

The inconsistent trends plus the current declines in operational outcomes raise the questions about the credit union’s leadership, the CEO, and senior management, along with the Board and Supervisory Committee’s oversight of processes and procedures.

For example, one looks in vain for any transparency or explanation to Hanscom FCU’s members or the public about this $50 million transaction. The Peoples Bank owners get a full confidential term sheet to approve the sale; the buyers paying the bill are given nothing.

I have not been able to locate a 2024 Annual Report or detailed information about the annual meeting for Hanscom FCU members, apart from a brief website announcement. There also does not appear to be any readily available confirmation of the election of directors or minutes from previous meetings. The May 29 chairperson’s statement includes no context to understand how or to whom the message was intended. It is full of marketing and PR spin about community activity, but no mention of Hanscom’s steep financial decline.

Those Closest to the Action Speak Up

In response to my February post on the Peoples Bank purchase, I received an email from a group called Hanscom Loyal. They describe themselves as a cohort of approximately 40 current and former credit union employees, many also member-owners, deeply concerned about Hanscom FCU’s leadership.

They did not go public with their concerns. Instead, they sent detailed communications, including letters and emails, to Hanscom FCU’s individual board members, Supervisory Committee members, and copies to NCUA examiners. The FDIC was copied after the bank purchase was announced.

These multiple communications contain specific examples of violations of bylaws, board, and credit union policy, as well as questionable personnel and account transaction events. As these employees saw  and experienced actions of senior management and the Board’s role, if any, the group alerted those with authority over the institution to their concerns. They did not act like whistleblowers creating public alarm. They simply asked those in positions of responsibility to investigate the factual events they listed.

Over 18 months they documented an absence of internal controls, lack of following in-place processes, and regulatory compliance failures. Their examples included specific instances of improper transactions with member accounts. They included examples of incorrect information in web and other communications. One example they provided was a credit card promotion mailer stating that Hanscom FCU was FDIC insured.

Leadership and Staff Turnover

Their primary concern focused on the continued turnover and forced departures of experienced credit union personnel. The majority of Sprague’s senior team with experience has left the credit union. In instances, the resignation demand was presented as a choice: voluntarily resign to retain benefits or immediate dismissal with none.

On March 25, 2025, one employee filed suit for her dismissal. Another has submitted a formal complaint to the Massachusetts Attorney General’s Office concerning unfair wage withholding.

Such turnover in the past three years, estimated as high as 50%, is not normal. Even Hanscom FCU’s chairperson in her 2024 summary  remarks acknowledges 44 internal promotions within a constant staff size of 230. This continuing exodus not only undermines morale, but it also can result in new hires or promotions without relevant experience and knowledge for the new positions.

Such internal turmoil undermines institutional performance. When informed of such institutional problems by outsiders, often the response by those in authority is to dismiss a group like Hanscom Loyal as disgruntled former employees or “troublemakers.”

Certainly, all members would or should be disappointed with these performance shortcomings.  This group invested great effort to document wide-ranging examples of leadership and institutional shortcomings, with facts, not opinions. Their stated goal is to return Hanscom FCU to its prior level of member focus and service.

Both FDIC and NCUA have acknowledged receiving Hanscom Loyal’s specific detailed complaints of the past 18 months. One of NCUA’s responses on August 21, 2024, included the following:

I just want to confirm receipt and assure you we take these concerns seriously.  As you are aware, we are responsible for enforcing certain rules and regulations.  Employment matters, in general, are not under our purview and are governed by state law.  As frustrating as those issues might be, they are not matters we regulate or enforce.  Those are more matters for the credit union’s Board and your legal counsel, should you choose that route.  

The Regulator’s Oversight

NCUA’s characterizing these detailed concerns as merely employment matters completely misrepresents the internal management issues that Hanscom Loyal described in detail. Suggesting these events are only for the Board and Hanscom Loyal’s legal counsel to address dismisses the ‘M’ for management, in the NCUA’s CAMELS rating.  This exam component specifically assesses senior management’s performance, firm governance, and procedural oversight, including member annual meetings.

Hanscom FCU’s declining financial performance, lack of routine transparency with members, and the Board and Supervisory Committee’s failure to address documented concerns suggest a dysfunctional management team and a board and supervisory committee unable or unwilling to fulfill their responsibilities. To propose that member-owners may need to hire legal counsel is a parallel failure by NCUA to acknowledge their supervisory obligations.

Should Hanscom FCU’s $50 million proposal to purchase a bank be approved by NCUA? This effort to acquire a bank 400 miles away — without a clear business plan demonstrating any benefit for its member-owners — appears to be another example of poor management judgment.  Moreover, paying out $50 million in cash adds significant financial, operational, and market risk to the credit union, already in a financial stall.

This transaction does not appear to be a carefully considered strategic initiative; instead, it appears to be a reaction to an opportunistic proposal from brokers eager to strike a deal with a cash-rich credit union.

If the 729,000 shares held by Peoples’ 619 shareholders receive the same pro rata of the $50 million purchase, the per-share price would be $69 dollars. That is more than double the bank’s market value before the offer. So how does this transaction serve Hanscom FCU’s member-owners whose funds would pay out the bank’s owners?

What’s Next? Who Will Own Responsibility for the Credit Union?

The Hanscom Loyal group has provided Hanscom FCU’s Board of Directors, Supervisory Committee, and federal regulators with details of documented mismanagement that directly affect the credit union’s financial performance. This is most evident in high employee turnover and specific examples of questionable practices that have been shared.

Hanscom Loyal has acted as member-owners should.  They collected facts and brought these documented issues to the appropriate parties. Despite NCUA’s onsite annual supervisory exam and the Board’s awareness of the group’s forwarded operational issues for over a year, Hanscom FCU’s leadership nevertheless proceeded with the Peoples Bank purchase announcement in December 2024, approving it unanimously.

It should be clear to even a casual observer that Hanscom FCU’s member-owners would be best served if the credit union first put its own house in order. Spending $50 million now sends a message to concerned members that the cooperative system is not working for them. Annual meetings appear, at best, closed in-house affairs with no transparency for the owners to become involved.

NCUA’s cursory advice to members to hire legal counsel if they receive no response from the credit union is an abdication of their responsibility to ensure the safe and sound operation of the credit unions they examine.

The NCUA’s August 21, 2024, email acknowledgement to Hanscom Loyal’s list of concerns included this:

We will certainly consider any matters violating areas we are charged with overseeing, as well as evidence of fraud.  All examination results are confidential and cannot be shared.  

I encourage you to submit the matters below to the Supervisory Committee and the Board of Directors of the credit union, if you haven’t already.  The Supervisory Committee is the “watchdog” of the credit union and is responsible for independently investigating such complaints.

What are credit union member-owners to do when there is no Supervisory Committee watchdog responding to their concerns, no Board elections that are open to all members, and no meaningful evidence that NCUA exams address  either specific operational issues or an institution’s leadership shortcomings?

Instead the opposite message  is sent to member-owners when the credit announces it is investing $50 million to buy banking assets in a rural market 400 miles distant.

If anyone with  internal responsibility for the credit union or NCUA in its external examination findings had given any credibility to the group’s many messages, this bank purchase offer should not have seen the light of day.

Credit union leaders’ failures to respond  and impotent regulatory oversight is, unfortunately, not uncommon in the credit union system.  In previous blogs I have provided examples such as yesterday’s Space City merger with TDECU.  Individual members spoke up, wrote their credit union and regulators with deep concerns, but were treated as “nobodies.”

The difference in this case is Hanscom Loyal’s organized effort, the volume of factual examples and a commitment going on two years to make things right.  They are doing this in the right way not in public outbursts.

As uncomfortable as this example may be for some, every credit union would benefit from member-owners who believe in their credit union so deeply that they are giving time, effort and energy to make their coop better.

Hanscom FCU’s  entire operating context suggests that this proposed bank purchase should be dropped immediately.  The leadership issues would benefit from having persons with the expertise and commitment of Hanscom Loyal added to internal oversight roles.

Everyone’s overarching goal should be to restore the credit union as a true cooperative whose priorities serve member-owners best interests, first and always.

Note: In writing this follow-up, I have reached out to both Hanscom FCU and The Peoples Bank but have not had a response. Should I receive responses, I will update this post. The Hanscom Loyal group’s email is: hanscomloyal@proton.me

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The Rest of the Story:  How State and Federal Regulators Failed to Protect Space City Members in the TDECU Merger

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.

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Board Meetings and the Responsibility of Leadership 

The public facing role of leaders is especially vital during two important circumstances–when there is a transition at the top and during a crisis or moments of great uncertainty.

NCUA’s current situation meets both tests.  There is the unprecented removal of two  of the three board members by  President Trump.  This was followed by the immediate departure of up to 250 agency personnel as a cost savings ploy.  And as noted below, there has been a sudden increase in credit union regulatory closings.

NCUA’s public responsibility includes timely and informed transparency about events under  the agency’s control.  There is uncertainty about who is on the leadership team. Who is making critical decisions? How can we trust that NCUA’s actions or inactions are being properly considered or just carried on by rote?

Four FCU Closures in 60 Days

Since April 30, NCUA has taken possession of four FCU credit unions. Two were liquidated outright, one conserved and the other merged. This is a very high number in just two months in a relatively stable operational environment.

The four with summary data from the March 30 call reports are:

Name          Date NCUA  Action       1Q ‘25 Assets          1Q Net Worth

 

Unilever       April 30 liquidated       $ 47 million         9%

Aldersgate  June 18 conserved      $ 10.6 million             10.2%

Soul Community June 20 liquidated   $308K      100%

Butler Heritage  June 30 merged   $9.6 million               4.92%

Some notes on each case.

For Unilever this immediate liquidation without a conservatorship, suggests a major financial loss similar to the Creighton FCU $13 million shortage in June 2024.  NCUA has provided no explanation for the sudden insolvencies in either case.

Aldersgate with 10% capital, was chartered in 1956 to serve the Methodist church employees. It was conserved without explanation or even notice of who is now running the operations. NOTE: this morning NCUA stated it liquidated the credit union.

Soul Community was chartered on December 9, 2024.  At March, it reported 21 members with $308K in assets, but no loans or expenses.   All capital.   How can a new charter which naviagates NCUA’s arduous charter steps including both credit union mentors and examiner oversight, end up stillborn?

Butler Heritage is the one example of financial underperformance, but still with 5% net worth.   An ironical message on the credit union’s website assures members they are in good hands with NCUA oversight:

BHFCU is charted and supervised by the National Credit Union Administration.  NCUA performs annual examinations of the credit union’s records, policies, and procedures.  This ensures the credit union’s financial soundness and verifies operations are conducted in compliance with applicable laws and regulations.

This number of regulatory closings in two months is highly unusual.  The lack of any factual information about these FCU’s circumstances is unsettling.

This failure to inform the public undermines trust in NCUA’s supervision, not to mention a credit union’s reputation with sponsors like Unilever.  These are, or should be, unusual events.  No one is explaining them.

The silence raises the question whether NCUA is using their authority to coverup supervisory or examination shortcomings with NCUSIF funding. Were there annual exams? Supervisory contacts?Especially troubling are the similarities between Creigton and Unilever’s sudden dramatic losses of published net worth.

The Importance of NCUA Board Meetings

In this time of leadership transition and growing uncertainty, public board meetings are critical to understand what the agency’s leadership is focused on.

For the past 18 months,  NCUA’s board meeting schedule has been at best erratic.  In 2024 Chairman Harper was on medical leave for several months and Ostka on maternity leave.

Even when a full board was present, the substance was limited and hard topics or discussions avoided.

In the first six months of 2025  only two public meetings have occurred.  One was with the full board in February and Hauptman’s solo meeting in May.

The NCUA has said the schedule of future board meetings is “tentative.”   In a June 6th press announcement the Agency stated:  dates of NCUA Board meetings should be considered tentative until the issuance of a formal meeting notice. All future meetings’ agendas and schedules are subject to change at any time. 

Some have gone further to assert there is no requirement to hold a monthly meeting period. Rather board meetings need occur only when the need arises.

Public NCUA board meetings are both a responsibility and a recognition that the Agency’s leadership is accountable to credit unions and the public.

Some credit unions  have asked to end their mandatory monthly board meeting.  At this point I yield my pen to Ancin Cooley.

His response to the suggestion that  board meetings should be optional applies to both credit unions and NCUA.  They are an inherent responsibility of what it means to be a board member as he explains below:

Monthly Board meetings are not the problem.

They serve one critical purpose: cadence.

That cadence builds a culture of reporting, transparency, and member-focused accountability. It keeps the board engaged—not just symbolically but structurally. It’s a space to learn, ask, challenge, and listen. It’s where the member’s voice is supposed to show up. 

And if your board meetings are dragging or bloated? There are better ways to fix that than eliminating the meeting altogether. . .

There is a free-market capitalism running its playbook inside the cooperative movement.  . . 

We are watching it unfold in full view: 

  • Opposition to mandatory succession planning.
  • “Fiduciary duties of Credit Union Directors” 12 C.F.R. § 701.4? Routinely unenforced—more decorative than functional.
  • Supervisory committees? Once a critical layer of oversight, now neutered and marginalized—weakened to the point of impotence 

Each move—on its own—can be rationalized.

But taken together? It’s a pattern. A roadmap. Its “open season” on credit unions. . .

Let me get ahead of the most common rebuttal:

“It’s just removing the requirement to meet monthly. A credit union can still choose to meet every month if it wants to.” 

Yes, technically, they could.

But that’s not the point.

This isn’t about convenience or choice. This is about institutional welfare. 

There are some safeguards you don’t leave to chance, because they protect the collective health of the system. 

That’s why we don’t suggest seatbelt use. We don’t recommend elder abuse protections. We mandate them—because of the public trust at stake. . . 

This is the cooperative movement. And with that comes a higher standard of care—because the people advocating for these changes did not build these institutions with their own money. They inherited them. And now they’re chipping away at the very frameworks that make them trustworthy. 

I would hope all NCUA staff would read his words. Public duty is a public trust.  Regular public board meetings are an essential  aspect  of an NCUA board member’s obligation to well and faithfully discharge the duties of the office.

 

 

 

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46 Credit Unions Close their Doors in Q 1 2025

Forty-six credit unions managing over $3.7 billion in assets cancelled their charters in the first quarter.   The credit union’s data is from December 2024 call reports.  Because they closed their doors, the credit unions filed no data for March 2025.

This total of closings is much higher than the 35 mergers NCUA reported in the first quarter.

The 256,000 members with with $2.4 billion in loans, have now lost their own institution some with  histories serving generations.  List with loan totals.

These credit unions ranged in size from the $560 million LA Financial to as small as $3,000  Asbury FCU in DC. This pdf with ROA and net worth is shown from largest to smallest by assets.

Not Financial Failures

On this listing, the weighted average net worth of the group was 10.7% at December.  Many had equity ratios much higher than this.  Two had net worth exceeding 30% including Gibbs Aluminum (KY) at 33% and Telco Roswell New Mexico at 34%.

Only 7 had a net worth ration below the 7% well- capitalized benchmark with the lowest two at 4.9% and 4.2% of assets. Six of these had negative ROA’s in 2024 but all were still solvent.

If these are not financial failures, why were the charters ended, largely by not entirely, via mergers?

Some would explaine that this is just the “creative destruction” that economists describe as an essential outcome from competition in a capitalist market system.  Underperformers are forced out of business and replaced with better options.  This is a necessary and healthy culling that makes capitalism strong, innovative  and prosperous for the greater community.

While there is an element of truth in this dynamic, cooperatives are supposed to be an alternative to the winner takes all mentality of market competition.  These coops are long standing with charters that go back over 100 years in some cases.

Two Internal System Weaknesses

I would suggest that these charter failures, and they are just that, of financially sound firms results more from cooperatives’ internal shortcomings, not external competition.

One critical deficiency is the lack of system support for some of these smaller credit unions who have decided to give up.  Surrendering charters versus adapting to new opportunities costs the industry between $100,000 to $500,000 each time a charter is lost.

Those amounts are the range of donated capital NCUA now requires for chartering a new credit union.  These 46 charters have a total “market” value as much as $23 million at the higher required capital level.  For example, Arise Community CU opened its doors on Juneteenth 2025 with over $1.0 million in capital donations.

New charters are extremely difficult to achieve with NCUA approving only 2-4 per year.  It would seem in everyone’s best interest, but especially leagues, CUSO’s, vendors and others supporting coop options  to find ways to preserve or transform existing charters to those willing to take the reins of leadership.  Press reports have said NCUA has over 90 new charter requests in various stages at this time. This suggests public interest in coops is still widespread.

Benign Neglect?

A tiny example of this system weakness, or neglect, is the smallest credit union on the list, Asbury at $3k and 100% capital.   The 100% net worth suggests that the credit union  has been self-liquidating for some time.  The credit union still has a web presence via a third party.  It was not invisible.

More tragically when one looks up Asbury’s history, the credit union was chartered in 1945–it is over 110 years old and insured by NCUA in 1972.  Virtually invisible and surviving, but  ignored by the system that created it.

The More Common Deficiency: Leadership Failings

The second largest credit union failure is NextMark FCU (VA) with $550 million in assets and 16.3% net worth.  The CEO and board requested members approve a merger with Apple FCU, which took place in the first quarter.

The failure of this long-time, financially well-off and large institution illustrates a second aspect of the industry’s self-inflicted errors.  There was no compelling financial, business or other shortcoming motivating this charter closure.  The CEO Joseph Thomas had served as President/CEO since October 1994 a period of 30years and 4 months before becoming Executive Vice President at Apple via the merger he orchestrated.

During his thirty years as CEO Thomas also served on many industry organizations. These positions include: a CUNA board member for 8 years; a board member of CUMA a DC mortgage CUSO for 22 years; Board member and immediate past chairman of the Virginia Credit Union League for 12 years; board member Worldwide Foundation for Credit Unions 7 years to the present; and board member for the World Council of Credit Unions, 5 years. also continuing.

NextMark gave Thomas a platform and standing to aspire to these positions  of wide spread credit union national and worldwide  responsibility. But now this opportunity and potential service paths are closed.  There is no successor CEO asThomas pulled up the ladder he climbed to participate in these other opportunities.  The independent charter ceased operations.

Mergers such as this destroy cooperative professional and volunteer leadership roles in communities, within the credit union system, across the country and, in this case, worldwide.  Fewer coop leader positions mean fewer voices and examples of professional excellence representing credit unions.

It is at best ironic that those who seemed to have benefited significantly from their CEO leadership role, would close this path that was opened for them.  What kind of leadership perspective did he bring to these other system responsibilities?

But this tragedy goes further than the  opportunities for credit union volunteers and professionals in their communities and beyond.  The following public comment is one member’s response to the merger proposal. It clearly shows that members know this kind of ending is not why credit unions were founded.

Her description is one of betrayal, not just of the cooperative principles, but moral failings by those with fiduciary responsibility to the member-owners.  Here is her perceptive  description of why this merger is so tragic and wrong not only for these members, but also for America’s coop system (subheads added).

I recognize that the merger is likely a foregone conclusion, and the number of votes cast by members will be minimal.

My experience with the NextMark Federal Credit Union dates back to 1977 when it was known as the “Fairfax County Employees Credit Union.” Over the following 20 years of membership in the Credit Union and employment with the Fairfax County Government, I served several years as a member of the Credit Committee and the Supervisory Committee.

The general concept of a credit union, combined with a defined field of membership, the value of working toward the common good of the members, and loans based on character, were central to the success and satisfaction of the credit union members. The credit union grew, as did the Fairfax County employee base.

A Change of Focus

At some point in the late 90’s or early 2000’s, the field of membership expanded in scope, the name changed to the commercial generic “NextMark” and our credit union began to resemble a commercial bank, with limited on-line offerings and variable customer service. Nothing terrible, just a move far from the underlying values of the credit union movement.

The specific observations that I believe should merit regulatory review, are the substantial financial incentives offered to several key staff members, contingent on completion of the merger. The amounts seem very high, but of greater significance is that these payments are contingent on the merger, which these key staff members are urging members to approve. I am aware of nothing that casts any doubt on these key staff members’ sound character or integrity.

Gross Conflicts

The issue is a gross conflict of interest created through this incentive process. These senior staff and volunteer members have a fiduciary responsibility to the credit union members, including advising on significant business decisions and implementing structural changes, such as mergers. The existence of contingent incentive payments for completion of the merger would seem to conflict with the fiduciary responsibility to the members. It would seem that a more sound approach might be to delay the negotiation of pay and benefit incentives until after the membership vote.  

Old Fashioned Thinking

Maybe everything is fine just as it is, and such incentives are likely commonly accepted in the commercial banking and business arena. Credit Unions are supposed to be a little different – although that may just be old-fashioned thinking.  

End comment.

A final note on this merger:  Senior staff and the CEO received according to the Member Notice “pay adjustment distributions to meet the continuing credit union’s salary bands, long term retention bonus, incentives already established, deferred compensation benefits, or severance opportunities” totaling almost $900,000.

The members received a $12 million bonus dividend for approving this combination and free transfer of their $409 million in loans and remaining equity to another firm.  How might these resources been re-invested in the credit union for members’ future or even seeding a dozen or more new coops?

The credit union cancelled its future and distributed a token portion of its value that members created  to be paid forward to benefit future generations.

Can a coop system with such behaviors routinely approved at all levels, ever hope to survive in the future?  Should it?

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A Failure to Cooperate and a Turning Point in Credit Union Events

In the March 1985 issue of Credit Union Magazine, the writer of the monthly Capital Events column raised a critical industry issue following the successful recapitalization of the NCUSIF in January.

The concern was whether a stronger, more efficient, cost-effective NCUSIFcould put the private share insurance options out of business.

One CEO of of a private insurer said No.  The changes at the NCUSIF will just lead to healthy competition, and that will be good for everyone.

A Vital Industry Resource

NCUA  believed a strong group of private insurers was a vital industry resource.  They saw it as a check and a spur for Agency oversight.  “The NCUSIF is where it is today because the private insurers showed what could be done. Without them, the NCUSIF could stagnate and credit unions would be left without a viable alternative,” said Chip Filson, Director of the Office of Programs.

At March 1985 there were 15 state chartered guaranty corporations insuring $15.5 billion or about 17% of total credit union savings.  Several pre-date the NCUSIF, but most were chartered in the early 1970’s. They covered about 40% of state charters.

The writer lists events raising the issue of federal deposit insurance sufficiency.  These included large bank failures such as Penn Square and Continental Illinois banks, the scrutiny from the Bush Task Force on Financial Regulation and the FHLB’s request for a special $10 billion assessment for the S&L industry’s fund, FSLIC.

An Option to Backstop the Funds

Because of the NCUSIF legislation, the credit union insurance options were not the primary concern in DC.  However, the NCUA had reached out to the private insurers with an option should there be a public crisis of confidence in deposit insurance.  Specifically, the CLF offered a low-cost liquidity line of credit to the 15 insurers collectively.  Draws supporting a credit unon  which would be collateralized by the credit union’s assets and a joint and several guarantee by all the funds.  It would give the private funds the same liquidity options that the CLF had for the NCUSIF.

The article closes with the note that the private fund’s trade group (ISD&GA) was considering the proposal.  The writer concludes: How the group responds may prove to be pivotal for credit unions and their insurers in the years ahead.

The insurance group did not take up the CLF’s offer primarily due to the joint and several support commitment for draws by an individual credit union or its insurance fund. The result was that political pressure at the state and federal level forced all but two of the funds to close their doors in subsequent years.  These were not financial failures per se, but rather the lack of political support at the state level.

This article some 40 years ago is a  case study of an inability to change or in the writer’s words, confident in the management and marketing skills to hold their own in the marketplace without altering the status quo.

Source:  Credit Union Magazine, March 1985, oages 17-18, by Brooke Shearer)

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Withdrawing from the Game

While the administration’s trade policy may have only an indirect impact on credit union fortunes, it is an example of how public policy can become sideways with America’s long term interests.  And our standing with the rest of the world.

What follows is a brief critique of the underlying assumptions about tariffs and how the rest of the world will react.  The analyst’s point is that poor policy assumptions lead to poor policy outcomes.

Policy is one aspect of the NCUA board’s role. The board no longer exists.  Future meetings have been cancelled and/or called tentative.

The board’s statutory role is to manage the agency.  That also is on hold.

The consequences of these absences of regulatory oversight will not be known for a while.  Meantime some credit unions will take the opportunity to push the envelope on corporate interests.

There will be fallout from this regulatory abdication on policy and agency leadership.  Like the trade example below, the market won’t wait to fill the current vacuum in supervision.

The Challenge of False Policy Assumptions

The following summary of US trade strategy is by William Reinsch at the Center for Strategic and International Studies *CSIS).
Even while uncertainty persists, not only about Trump’s intentions, but also about the half-life of his policies, his actions are being treated as the death knell for the global economy. Trump’s message to the world is that the United States is no longer a reliable partner. The obvious corollary is to find other partners, and that is just what others are doing—with the United States on the sidelines.

 

What is noteworthy is that it appears we are still making progress—in the same way and in the same direction as always. The difference is that the United States is not there; not under Biden and not under Trump. It is typical of Americans to think that we are leading —whatever we are doing is heading down the right path, with other countries running behind to catch up. In this case, however, it appears no one is following.
The new negotiations tell me that the announcement of the old order’s death was greatly exaggerated, and that the case for trade liberalization remains a strong one. Since the current administration is not going to change its worldview, the challenge for U.S. companies is to find ways to stay in the game even as our government has withdrawn from it.

 

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NOW. . . A Poetic Call to Decide

Had not seen our next door neighbors for a couple of weeks.  She updated me about events in their lives while working in the yard.  Her father who had been in hospice for almost a year died two weeks ago in Baltimore.  That took her away for much of the time.

in this same time frame, after 27 years in her career as a government employee, she agreed to take a voluntary early retirement, She is  in her early 50’s and would have preferred to stay in her job.  But given the uncertainty and possible legal changes to benefits, she decided to leave.

A Poet’s Insight

Poet James Russell Lowell wrote about these life altering decisions in his poem, The Present Crisis.  In its musical form as a hymn, it is titled, Once to Every Man and Nation.  The opening stanza:

Once to every man and nation comes the moment to decide,
In the strife of Truth with Falsehood, for the good or evil side;
Some great cause, God’s new Messiah, offering each the bloom or blight,
Parts the goats upon the left hand, and the sheep upon the right,
And the choice goes by for ever ‘twixt that darkness and that light.

Lowell wrote the poem as a protest against the Mexican-American war in 1848.

Life’s Choices In Credit Union Land

Life happens for all.  Sometimes the moral choices are chosen by us.  Other times they are thrust upon one by events.

These turning points can shape the rest of our lives.  My neighbor is now open to finding a new opportunity to help others, perhaps in non-profit work.

In credit union land, these pivotal events are unfolding daily.  NCUA’s leaders are in unchartered territory.  Will they step up or step back?

CEO’s are being tempted with buyouts, some sought and others dangled with incentives to transfer their legacy to another CEO’s command.  Do I do the right thing, or take the money is an ever-present temptation. And the classic rationale, everybody is doing it makes taking the payoffs seem defensible. 

As if the daily industry challenges were not sufficient, all Americans face a growing crisis in democratic governance at the national level.

It is easy to hunker down and just follow distant events on the news.  That is not my problem.  My attention must be on those things I directly control.  One point of Lowell’s poem is that we all have a choice in these moments:

Hast thou chosen, O my people, on whose party thou shalt stand,
Ere the Doom from its worn sandals shakes the dust against our land?
Though the cause of Evil prosper, yet ‘t is Truth alone is strong,
And, albeit she wander outcast now, I see around her throng
Troops of beautiful, tall angels, to enshield her from all wrong.

Importantly, Lowell   expresses  hope that once engaged, we will make the right choice in these critical moments. Because “amid the market’s din” our “souls” will tell us  what is required.  Are we up to the multiple challenges confronting us in our personal, professional and public choices?

We see dimly in the Present what is small and what is great,
Slow of faith how weak an arm may turn the iron helm of fate,
But the soul is still oracular; amid the market’s din,
List the ominous stern whisper from the Delphic cave within,—
“They enslave their children’s children who make compromise with sin.”

Our Moment

In our credit union lives and our duty as citizens, we are not living in an era of business as usual. Now is the moment to decide.

 

 

 

 

 

 

 

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Larry Connell, NCUA’s First Chairman, Dies

Larry Connell, appointed by President Carter as the first NCUA Board Chairman in 1977, died this past week in New Hampshire.

After graduating from Harvard in 1958 with a BA degree in economics, Connell worked for the Comptroller’s office(OCC) in ban k regulation. During this time he earned his JD degree from Georgetown University.

Connecticut Governor Ella Grasso appointed Connell as Bank Commissioner in 1975.   In that office he supervised commercial and savings banks, credit unions, and loan companies as well as acting as securities commissioner.

The Credit Union Years

President Jimmy Carter’s appointment of Connell as Chairman of the National Credit Union Administration (NCUA) came at a pivotal time for both credit unions and federal financial regulation.  Congressional legislation converted the NCUA from a single person administrator to an independent federal agency with a three person, Presidentially appointed board.

The same legislation established the Central Liquidity Facility (CLF) within the NCUA.  This was the cooperative system’s public-private partnership establishing lender of “unfailing reliability.”  At that time credit unions did not have access to the national clearing system or to the Federal Reserve

The first NCUA full board included PA Mack, a senior advisor for Senator Birch Bayh,  and Dr. Harold Black an associate professor of finance at the University of North Carolina’s School of Business Administration.

The First NCUA Board in 1979

As NCUA chair Connell was also a member of the Depository Institutions Deregulation Committee (DIDC) which was charged with the deregulation of rates and terms on the savings accounts of all federally insured deposits.  He was Chairman of the new congressionally chartered National Consumer Cooperative Bank (NCB) until his departure from NCUA in early 1982.

In March 1979 Congress established the Federal Financial Institutions Examination Council (FFIEC) to bring consistency to multiple regulators’ oversight of rules and call reports.  Connell was vice chair.  That same year he asked if I would serve as the state representative for credit unions.  The term was for two years and included periodic visits to Washington for state liaison meetings.  The primary discussions were about the wording for the new Truth in Lending and Truth in Savings rules.

A Career in Public – Private Banking Oversight

After leaving NCUA, Larry became President/CEO of the $2.5 billion Washington Mutual Savings Bank in Seattle.   This began a peripatetic 12-year career in bank crisis management as CEO or Director for banks and S&L’s across the country from Washington, Texas, New Hampshire, Maine, Illinois, Michigan and Washington DC.

After his work for domestic inistitutions Connell was deployed as Senior Advisor for the U.S. Treasury Department’s Office of Technical Assistance.  In this role he  advised governments on bank privatization policies and practices in eastern and central Europe, as well as in Russia, Turkey, Colombia, South East Asia and Africa.

At the Founding and the Transition

October 1981 welcome reception for Ed Callahan with P.A. Mack and Larry Connell

Larry was at the founding of the NCUA as the agency transformed to an independent board.  At his departure his successor, Ed Callahan, spoke of his vital contribution:

While Larry Connell’s departure will be a major loss to NCUA and to the credit union movement, his visionary ideas will continue to influence the financial community. Larry’s expertise in so many areas–economics, law and banking–helped to elevate the stature of NCUA during one of the watershed periods in American financial history.

An ever expanding group of people—from government, industry and the media—now actively seek the Agency’s views on a variety of economic and financial matters, not  just credit union affairs.  I can’t pay him a higher compliment. (The NCUA Review February 1982, page 1)

However Larry did continue serving credit unions.  He was an original trustee of the TCU family of Mutual Funds launched in 1988 by Callahan & Associates.

Larry  laid the foundation for responsive, experienced, and professional NCUA leadership. He believed in credit unions as a vital alternative for individuals and communities left behind by the for-profit sector.  He was a friend, a colleague and always open for intelligent conversation.

The NCUA Board’s leadership and support of credit unions.

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NCUA Flying Solo

On May 22, the NCUA held its first public board meeting with its one and only member, Chairman Hauptman, overseeing staff reports.

This was the first public meeting since February, where the only agenda item then was the NCUSIF  update. Both March meetings were closed.  The March 27 and April 17 open meetings were  cancelled.  On April 16 President Trump fired the two democratic board members. That event is now being challenged in court with no specific timetable for resolution.

Observations from the May 22 Meeting

At the meeting’s conclusion Chairman Hauptman assured the public that NCUA was fully capable of meeting its statutory responsibilities.  He repeated the message from an earlier NCUA press release  on April 18:

Please be assured that the NCUA has precedent and standing delegations of authority in place to continue performing all operational and statutory requirements under the authority of a single Board Member. 

During the Bush Administration (2001–2002), Chairman Dennis Dollar acted as a sole Board Member. He held a Board meeting, voted, and took several actions, both administrative and operational. 

However the circumstances between these two situations is entirely different. In 2002, both nominees filling the expired terms were known and required only Senate confirmation. That happened very quickly in March.  This time, confirmed nominees have been fired creating two “vacancies.”  These two board members are challenging the President’s  removal in court.

Chairman Dollar held only one board meeting in which he received an NCUSIF  briefings and then tabled three other actions until a full board was in place.

Moreover, in a May 25, 2005 Delegation GEN 5 update by General Counsel Bob Fenner,  all delegations of Authority in the final paragraph is subject to the phrase “In a state of national emergency, all authorities retained by the board are delegated to . . .”  Are we-NCUA- in a state of national emergency? 

Hauptman’s situation is unique in how the vacancies occurred, the seemingly open-ended time period for single leadership, the dramatic internal staff and reorganizations underway, and the uncertain legal status of the fired members-especially if returned to their positions.

Board Item One: NCUSIF Update

The publc format of the March financial NCUSIF   update was changed. A  series of “dashboard” charts showing five-year trends for key balance sheet and performance ratops was unveiled.

These presentations provided interactive “eye-candy” but no increased transparency for how critical numbers such as the increase in loss reserves of $5.4 million were calculated. The loss reserves to insured shares ratio far exceeds the long term loss rate on insured savings.

Most importantly while reporting zero losses in the first quarter, there was complete silence on the recent liquidation of the $ 47 million Unilever FCU. This was finished in such haste that there was no conservatorship or apparent effort to find a willing merger partner.  The situation echoes the $13 million unexplained loss (20% of assets) at the $65 million  Creighton FCU in mid 2024.

The most important  issue, the underperformance of the NCUSIF portfolio, was documented in the new dashboard slide Portfolio Performance. It shows the NCUSIF’s return has trailed significantly the 90 -day T bill rate since mid 2022.  The year-to-date yield in the first quarter of 2.59% is significantly below the overnight return as well.

NCUA CFO Schied said staff’s policy was to continue the investment ladder out as long as ten years in order to ensure “a steady fund income.”  This ladder generates “steady income” that has trailed market returns by over 2.0% or more as shown in the bottom graph for over three years.

There was no reference to either interest rate risk (IRR)or ALM, the two basic factors in managing any portfolio. Especially one which cannot be adjusted once invested.  There is an obvious need for better policy and experienced investment management.

Chairman Hauptman likes to describe NCUA as an “insurance company.”  It would be helpful if there was much more transparency and thoughtful discussion about how this “company” manages its $23 billion  asset on behalf of credit unions.  This underperformance damanges both the fund’s finances and credit union’s returns.

Board Item Two: The Voluntary Separation Program

The staff stated that the voluntary layoff program had been agreed to in the March 21 closed full board meeting.  By  the May meeting the employee responses were  known.

A total of 250 employees elected to leave voluntarily. There were no forced departures.  Almost all will be placed immediately on administrative leave with full pay and benefits but doing no work.  This paid leave status extends until December 31, 2025.  This means most of these departing employees will be paid in full while not contributing for at least six months orlonger.

To incentivize the two options, there was a $50,000 bonus provided to each participant.  In addition, all will receive their 2025 merit bonus which will average $15K for junior staff and from $29K-$42K for senior staff.

In addition Hauptman announced there would be no restrictions on these employees’ future employment so they might find another job while on leave. He commented, “They might even be paid more than what they earned at NCUA.”

As explained by Executive Director Larry Fazio, the program was designed by the staff for the staff. There will be no budget savings for 2025.  The special severamce benefits will fully utilize the  NCUA’s operating funds for this year. The estimated total  of $75 million in potential “savings” means the average cost for the 250 departures was $300,000 each.

Staff was ambivalent about whether there will actually be anything close to these savings in 2026.  The gross cost of $75 million paid departing employees will be offset by new contracts, salary increases, new hires, technology investments and other expenditures setting up a new future state for the Agency.  In other words any savings are yet to be determined.  And  the generous terms of the 2025 voluntary departures will leave no surplus from the current year.

There were no specifics provided for how NCUA’s future organzarion  will be structured.  No departments closed or consolidated, no programs (eg. consumer exams, DEI conferences, etc) to be reduced. No reference to any DOGE recommendations for eliminating unnecessary expenses.

There ws  one specific example of change however.  Thiswas to extend the time between on-site exams based on a credit union’s net worth.  For credit unions $1-15 billion in assets, the exam interval would be from 12 to 18 months.  For less than $1 billion, the period between field contacts would be 14 to 24 months.

This one concrete step will reduce the agency’s in person safety and soundness exams as long as the net worth seems sufficient-above 10%.  This first line of defense for the NCUSIF is being weakened at a time when the sudden falures of Unilever and Creighton FCUs are still unexplained.

 Flying Solo & Landing Safely

Thia is not a business as usual moment  in this era of single board leadership. This circumstance  is exacerbated by the fact that Chairman Hauptman’s term expires in August of this year.  What happens then?  An acting Chair?  Who designs and follows through on NCUA’s future state?  Staff whose 25% voluntary separations outcome used up this enire year’s budget?

In a March 3, 2025 CUSO Magazine article,  Hauptman’s agnostic approach to the future of credit unions was presented:

On the topic of the NCUA’s future, Hauptman declined to speculate or advocate for one outcome or another, noting that while he does not shy away from controversial topics, he keeps himself from getting into debates when he has no authority over the outcome. The fate of the NCUA, he argues, is outside his control and lies in the hands of Congress and the White House.

Congress created the NCUA in 1970, and there were 27,000 credit unions operating before then…my only view on it is that it is important for people to understand that credit unions are different. So whoever in the future is going to be regulating needs to be aware of this.” 

In an April 23, 2025 memo to All NCUA Staff, Hauptman wrote in part: NCUA will be returning to the headcount that it had a few years back—but be assured we know it takes teamwork and creativity to “land the plane safely.” And NCUA is doing that quite well thus far.” 

The outcome from the first solo board meeting since 2002 suggests that there is still a great deal of turbulence.  It is not clear who is piloting the plane or where it is trying to land.

This first flyby of the pubic landing zone with credit unions leaves more questions than answers.  The future of NCUA with its implications for credit unions and their 100 million members seems at best cloudy.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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A Member’s Question

If credit unions are a special idea about individuals’ collaborative financial efforts, we should care about human values and human rights when implementing this design.

I received the following from a member who had read several previous blog posts about mergers and just lived through the experience:

Recently, I was reading some of your articles, such as from 2017 regarding the issue of unjust enrichment by insiders in mergers. (Credit Unions for Sale) I didn’t realize what a longstanding problem this has been.   It seems like the whole structure is designed to enable those in power, in charge, to take advantage of those with less power, authority, resources, knowledge, and education.  

I don’t know who are the worst actors – the regulators who give the illusion of regulating to protect consumers, the BOD’s who are supposed to be looking out for members’ best interests, or the executive management who selfishly negotiate these deals at the expense of members, and try to convince members to give up their rights, their credit union, their net worth.   It’s a sickening rigged game. 

I see the motivation for the insiders who have millions of reasons for this, but how does the BOD benefit? Or regulators overseeing an industry decline in numbers and reputation?

A Rigged Game

Welcome to what democracy looks like with one- party government.  No loyal opposition.  In fact, no opposition, just obedience. Be a loyal consumer.  A satisfied customer, but not an owner.

The theory of cooperative design is that the one vote per member in election of their board members will act as a democratic check and balance to ensure the owners’ interest always come first.

It is an extremely rare event for those in power to fulfill this voting practice.  Boards become self-perpetuating; members are rarely encouraged to attend let along participate in the annual election.  And there is no voting, just acclimation for the board’s nominees.

The result is that boards and CEO’s believe they alone are responsible for determining the priorities and future of the members’ organization.  Even if this means transferring a long-standing, sound communal charter’s legacy  to another credit union where owners receive nothing and those last in charge cash out, often big time.

Democracy in a One-Party State

The defense offered by the regulator and the credit unions involved in these private deals is the members voted for it, often by overwhelming margins.

But what kind of a “vote” is taking place when those in charge control all the financial resources of the institution, the means for direct member and public communications, the timing and presentation of the election process, and the representation of regulatory oversight and approval?

The situation is the authoritarian’s dream of one-party governance. This is pretend democracy.  The people are told to vote for what the Board and executives will proclaim is a better future; albeit no longer under your control.

The results show the effectiveness of one-party rule.  Over 99 percent of mergers are approved.  An incumbent’s sure-fire strategy for self-enrichment.

To assert, as NCUA and state regulators routinely do, that the members’ voted for this is an  abdication of responsibility for member-owner rights. It destroys the core of credit union character. It demonstrates regulators as powerless or clueless in the face of this predatory  cooperative plundering of members’ equity. There is no governance by members, just subservience.

There Are No Limits

Ambitious CEO’s and boards see these free takeovers being negotiated daily.  There is no limit to the combinations being planned.  Just payout the initiators and receive the billions now up for grabs-for free.  The stakes will only get bigger, the payouts more creative and humongous, and the capitalistic model of acquisition dominate cooperative strategy.

But the history of one-party rule is not encouraging for the  long run.  The consolidation of power and resources grows, the lack of any meaningful role for owners is blatant,  and the sameness of all the “better products and services” becomes apparent to all.

Ultimately, the people will see what the member above observed.  The media will highlight the gaps between purpose and practice.  And the disruptions will start, small isolated at first, but real and threatening to those in authority.  Examples are already underway.

Most importantly, credit union leaders and members will learn what one-party rule means when this occurs with the federal regulator, not just in their individual institutions.  Then maybe the virtues of democracy will be embraced once again.