Texas credit union’s members OK merger with big CEO payout

Members of a small Texas credit union easily approved a merger that would provide $6.75 million in payouts to three of the member-owned cooperative’s top executives.

The vote by members of Space City Credit Union was 82% to 18% in favor of the merger, according to information posted on Space City’s website after Wednesday’s deadline for casting ballots.

Of the Houston-based credit union’s roughly 12,000 members, about 7.1% participated in the vote.

The proposed merger of Space City and Texas Dow Employees Credit Union had drawn criticism over the size of the payouts to Space City CEO Craig Rohden and two of his colleagues.

Under the merger’s terms, Rohden would receive a lump-sum payment of $3.5 million, plus another $500,000 after the expiration of a two-year noncompete agreement. Rohden isn’t planning to work at the combined institution following the merger.

Two other Space City executives who do plan to continue working at the acquiring institution — which would have around $5 billion of assets and be rebranded as Space City Financial — would receive a total of $2.75 million in payouts.

Meanwhile, under the merger’s terms, thousands of members of the $134 million-asset Space City would receive an average of about $412.

Rohden, who’s been with Space City for more than 30 years, could not be reached for comment on Friday. A spokesperson for Texas Dow Employees Credit Union, which is known as TDECU, did not respond to a request for comment.

Space City’s board had urged the credit union’s members to vote in favor of the merger, pointing to the roughly $5 million member dividend, the arrival of improved technology and the addition of 35 branches, among other reasons.

“As our CEO shared in a recent letter to members, we don’t take the decision to consider a merger lightly,” Space City said on its website. “We have deep respect for TDECU and the substantial impact they bring to those they serve. Just like Space City CU, they are a local, member-owned cooperative, and together we want to become the leader in providing financial wellness to our members and community. It’s our vision as we join forces to do more good.”

Once credit union mergers get approved by members, they typically do not draw a lot of regulatory scrutiny.

The National Credit Union Administration requires that various financial arrangements related to a merger be disclosed in a notice to members. In late March, Space City sent a notice to its members disclosing the payouts to Rohden and his two colleagues.

Texas law states that a Lone Star State credit union may merge with another credit union when the boards and members of the two institutions have voted in favor of the tie-up, as long as the merger is in accordance with Texas Credit Union Commission rules and approved by the commissioner.

Representatives of both the NCUA and the Texas agency declined to comment on the specifics of the proposed TDECU-Space City merger.

The NCUA has not historically opined on whether a particular merger-related payout is in line or out of line, said Peter Duffy, who advises credit unions on mergers as managing director at advisory firm SRM.

“In America, the consumer has always had the choice,” Duffy said, adding that individuals who aren’t getting what they want from their financial institution can go elsewhere. “They have the freedom of movement.”

Chip Filson, a former credit union regulator who has been critical of the pay arrangements outlined in the Space City-TDECU merger, argued in a blog post Thursday that the voting process was not fair.

Space City’s members were only informed about the pay arrangement in late March, about six months after the merger was announced.

“The required member vote is nothing more than a managed event to ensure there is no time or ability for anyone opposed to raise questions or mobilize a counter view,” Filson wrote. “Management in these so-called elections holds ‘all the cards’ and resources.”