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By Hannah Flanders

Earlier this year, one of the largest credit union acquisitions of a bank nationwide occurred in Wisconsin. As the deal between Commerce State Bank, West Bend and Summit Credit Union, Madison prepares to close in the third quarter of 2022, it is becoming increasingly important that WBA and its membership act in opposition of further credit union expansion and hold these institutions accountable for the implications to Wisconsin’s economy.

First established in the early 1900s, credit unions aimed at providing access to credit and financial services to those of low or modest means. However, since their inception in the U.S., credit unions have largely gone unrestrained and have expanded into entities nearly indistinguishable from banks. As of May 2022, six of the 10 largest financial institutions in the state of Wisconsin were credit unions. Of these credit unions, 14 have equal to or greater than one billion dollars in assets, operating essentially as large commercial banks — aside from their tax-paying status.

Due to their not-for- profit status, credit unions are exempt from federal and state income taxes. As these institutions remain widely unchallenged by regulators, credit unions take advantage of their tax-exempt status for their own asset growth and continue to expand far beyond their employer- or neighborhood-focused origins.

Why Community Banks?

Unfortunately, acquisitions of Wisconsin banks by large, growth-oriented credit unions — such as the case with Commerce State Bank and Summit Credit Union — have become increasingly common over the last several years. In total, six whole-bank acquisitions by credit unions have taken place in Wisconsin since 2014.

Throughout the country, 13 whole-bank acquisitions by credit unions took place in 2021 alone — an alarming trend that is expected to continue through 2022 and beyond.

As member-owned organizations, credit unions have a unique interest in community banks. Due to small banks having close ties to their communities and often offering specialized services — such as digital banking or business lending — credit unions have the ability to expand their portfolios and their assets through the acquisition of a bank all while gaining new members.

Increasing competition for both employees and customers has significant impacts on financial institutions across the country. Growth-oriented credit unions in Wisconsin are increasingly lenient in the addition of new members, often not verifying that these customers align with those they are intended to serve.

“These multi-billion-dollar credit unions around the state are able to gain momentum though tax-subsidized acquisitions,” states WBA Vice President — Government Relations Lorenzo Cruz. “Community banks are often unable to compete with rising investor interest in merger and acquisition activity and premium offers.”

 

In addition to their tax-exempt status, credit unions — despite having been founded to provide greater access to financial services — have no requirement to participate in providing Community Reinvestment Act (CRA) investments, or similar programs, to low- and moderate-income (LMI) neighborhoods. These excess funds that are not allotted into community efforts or back into their membership can be used as leverage for purchasing banks.

As many Midwestern banks continue to be the target of credit union expansion, it is likely — according to a report published by Wilary Winn LLC — that a buying credit union will bid entirely in cash. This type of offer, already difficult for shareholders to refuse, has reportedly been upwards of three times higher than other bids in some cases.

An Unfair Advantage

In statement released by WBA President and CEO Rose Oswald Poels shortly after the Commerce State Bank acquisition was announced in March, Oswald Poels highlighted the need for fair and healthy competition within the financial service industry. As credit unions continue to expand their geographic footprint and offerings to members, these institutions have quickly become increasingly indistinguishable from tax-paying banks.

Membership to a credit union often costs as little as $5 — but with thousands of members across the country and no requirement to pay income taxes in many states — these profits continue to rise. Credit unions are often able to offer extremely low rates on services. If credit unions abided by their intended mission to only serve specific communities, these low rates would only affect a small percentage of population — however — in 2021, the Credit Union National Association (CUNA) reported that membership had risen to above 130 million Americans.

Community banks do not have the same flexibility with their rates and therefore, are often unable to compete with the rates of credit unions. As highly regulated organizations, the cost of some banking services may be intentionally or unintentionally affected by agencies, including the Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System (FRB), or the Federal Deposit Insurance Corporation (FDIC).

Of course, the greatest damage to Wisconsin’s economy comes from the loss of tax revenue each time a bank is acquired by a credit union. Annually, the U.S. Treasury loses $2.6 billion in income tax revenue across the country as many of the largest financial institutions remain tax exempt, according to information provided by the American Bankers Association (ABA). As more and more banks are acquired by tax-exempt credit unions, this number will continue rise — forcing the burden onto individuals and tax-paying businesses and ultimately limiting consumer choice.

Taking Action

With the number of banks headquartered in the state decreasing each year — and the number of credit unions throughout the country continuing to rise — WBA has placed even greater emphasis than ever on advocating in opposition of all credit union expansion.

Over the last 10 years, credit unions around the country have acquired $11 billion in bank assets, according to the ABA. While Wisconsin law continues to allow banks to sell all or a substantial portion of their assets to other companies, given that several criteria are met, many states have made considerable moves in legislation against whole-bank acquisitions in their state by credit unions. So far, Colorado and Iowa have barred state-chartered banks from selling to credit unions.

Last year, WBA advocated in opposition to AB 478/SB 451 which ultimately would have allowed credit unions even further opportunities to expand throughout the state.

In addition to this state legislative effort, WBA regularly joins other state banking associations at the federal level in efforts to keep credit unions in check. These combined efforts not only unite the banking industry throughout the country but also emphasize to legislators the important role bankers play in every community.

“Wisconsin is experiencing a disturbing trend of credit unions buying banks. These acquisitions result in a direct loss of tax revenue to the state and federal government which places more of the burden on individuals and taxpaying businesses to support meaningful government and social services such as law enforcement, health insurance for low-income families and their children, infrastructure, and education,” says Oswald Poels. “WBA repeatedly questions the public policy rationale for allowing these acquisitions to occur with state and federal lawmakers highlighting the detriment to our state every time one is announced.”

Though the future of credit union expansion — both in Wisconsin and around the country — is uncertain, it is clear that so long as they remain untaxed, unchecked, and underregulated, credit unions will continue to extend their reach far beyond their intended purpose. As growth-oriented credit unions continue to be a detriment to the overall health of the state’s economy, WBA encourages bankers to advocate on behalf of the industry. Whether it be volunteering as a WBA Advocacy Officer to speak with elected officials or in day-to-day conversations with community members — bankers play an important role in holding credit unions accountable.

By Lorenzo Cruz

March Madness marks the start of the NCAA basketball tournament and the conclusion to an active 2022 legislative session for the Wisconsin Bankers Association (WBA) government relations (GR) team.

A Successful Legislative Session in the Books

WBA successfully defeated two bills which would have negatively impacted the banking industry. AB 478/SB 451 would have broadened the powers of credit unions by allowing for: non-member participation in loans, the ability to issue and offer supplemental forms of capital for all credit unions, the automatic adoption of federally chartered credit union activities or powers for state-chartered credit unions, and the broadening of the authority of credit unions on holding property. During the negotiations, it became evident that the priority for the Wisconsin Credit Union League (WCUL) was their supplemental capital change which contributed to the demise of the bill. WBA effectively lobbied and defeated the bills in the Assembly and Senate.

Another piece of legislation that drew a great amount of WBA’s lobbying attention was a bill related to interchange fees. AB 587/SB 572 would have prohibited the application of the interchange fee to the tax portion of the credit card transaction and would have provided a penalty for a violation. A retailer coalition advocated aggressively for the legislative change and WBA, WCUL, and several credit card companies opposed the effort. If passed, the bill would have required credit card companies to implement a split tender transaction for purchasing products or services, which means customers would have to swipe their credit card for the retail sum purchase and then pay with either cash or check for the tax portion of the transaction. WBA warned legislators of the cost shift, customer confusion and frustration that could follow from the change. The bills died in the Senate and Assembly Financial Institutions Committees.

Other bills worth noting are AB 596/SB 596 related to banking modernization and AB 45/SB 19 and AB 46/ SB 20 related to elder fraud. The banking modernization bill would have removed outdated regulation and other impediments to banking and the elder fraud bill would have provided banks with more tools to help protect older customers from fraud and abuse. The legislative proposals passed overwhelmingly in one House but then failed to be acted upon in committee or placed on the calendar for a floor vote. In some ways, the bills became collateral damage from the credit union battle. WBA did make considerable progress on both issues and will collaborate with legislators to reintroduce similar bills in the next legislative session.

Looking Ahead to Next Year

With the end of the March session, WBA GR shifts the team’s focus to political fundraising, member outreach, and strategic planning for the 2023 session. Many of the legislative issues identified above will return and be debated in the next state budget or advanced as separate pieces of legislation. WBA needs to prepare and lay the groundwork for the fight ahead on these critical public policy initiatives.

All members — big, medium, and small — must be more engaged financially in the political process and committed to grassroots advocacy to advance the industry’s priorities. Political campaigns have continued to trend upwards in cost, and the 2022 fall elections should see more spending records broken for state and federal races. With control for the East Wing in play and majorities at stake in both State and Federal Houses, expect hundreds of millions of dollars to be spent in Wisconsin which has become a battleground state for the rest of the country. WBA can ill afford to be a spectator. Sitting on the sidelines runs the risk of electing anti-banking candidates which could have severe negative consequences for our industry. It is imperative to have the political funds in place for WBA to support pro-banking incumbent legislators and challengers. Individual members are strongly encouraged to give to the Wisbankpac or Alliance of Bankers for Wisconsin (ABW) Conduit and corporations are urged to contribute generously to WBA’s issue advocacy fund. For more information go to www.wisbank.com/give.

Rose Oswald PoelsBy Rose Oswald Poels

While the Wisconsin Legislature’s 2021–22 regular session has concluded, our work to oppose the expansion of credit union powers continues. On February 15, the Wisconsin Office of Credit Unions (OCU) filed a final rule to broaden which state-chartered credit unions can accept secondary capital.

Last week, WBA filed written comments with OCU expressing our concerns with this expansion and requesting specific limitations. This followed several phone conversations various WBA staff had with different individuals at DFI. Previous rules allowed only low-income designated state-chartered credit unions the authority to accept secondary capital. The revised rule would broaden this to allow nearly any credit union to issue subordinated debt, for among other things, pure asset growth purposes.

During this year’s legislative session, WBA and 87 banks strongly objected to credit union expansion legislation, AB 478/SB 451, which would have permitted, among other concerns, any credit union to issue supplemental capital. During negotiations with elected officials, the credit union industry stated that their interest in expanding a credit union’s ability to issue supplemental capital beyond only low-income designated credit unions was for the sole purpose of restoring a credit union to minimum capital levels. While the credit union legislation (which contained this broad supplemental capital provision) did not pass this session, it seems the industry is using the regulatory process to achieve this same outcome. As a result, WBA is very concerned with the expansion of powers presented by OCU’s recent rulemaking activity.

While there is no formal comment process for this type of rulemaking, I urge each of you to join WBA in emailing written comments to OCU in opposition of yet another example of credit union powers expansion in our state. I have included a template comment letter for your use in these efforts. Comments should be submitted before April 1 through email to Kim.Santos@wisconsin.gov. The rule issued by OCU will take effect on April 1 as originally published unless OCU agrees to make a change prior to this date. Thank you for your quick action on this important matter!

Submit a comment letter by April 1!

By Wisconsin Bankers Association President and CEO Rose Oswald Poels 

In a deal announced yesterday, Summit Credit Union will acquire West Bend’s Commerce State Bank. This marks the sixth acquisition of a taxpaying Wisconsin bank by a tax-exempt credit union in a decade, continuing a concerning trend of taxpaying community banks being bought by large, growth-oriented credit unions. The acquisition will bring Summit Credit Union to nearly $6 billion in assets with 54 locations. With Commerce State Bank’s $837 million in assets, this is one of the largest credit union acquisitions of a bank nationwide to date.

Wisconsin taxpayers should be very concerned about this transaction as the state alone will lose over $1 million annually in future tax revenues with this sale because credit unions do not pay any state or federal income tax. With large credit unions becoming indistinguishable from tax-paying banks, it is time for the public and elected officials to question the public policy rationale for this significant tax benefit. Why should the 14 Wisconsin-based credit unions over $1 billion in asset size pay nothing in state income tax to support social services, law enforcement, schools, and other public services? Individuals, families, and tax-paying businesses are left to shoulder these growing expenses. Not only is tax revenue lost in these transactions, but jobs in the state are often lost when the acquirer is an out-of-state credit union and/or when certain functions are consolidated. This type of consolidation is not in the public’s interest.  

While Wisconsin now has two pending bank acquisition transactions by credit unions, credit unions are also actively seeking expansionist powers from the legislature and their regulator that, among other things, would permit credit unions to raise capital from private equity investors. The days of small, employer- or neighborhood-focused credit unions are long gone. Elected officials should carefully scrutinize this legislation and strongly oppose Wisconsin AB 478/SB451 as it is in direct conflict with the public policy intent behind the tax exemption granted by this same body decades ago.  

It is time for growth-oriented credit unions to be paying their fair share of taxes. Competition in any industry is fair and healthy, but only when the playing field is level. Taking a tax-paying business off the tax roll by a “not-for-profit,” tax-exempt entity directly harms the citizens of this state and threatens the vibrancy and diversity of our state’s financial system.

Rose Oswald PoelsBy Rose Oswald Poels

Grassroots advocacy is at the foundation of WBA’s advocacy efforts to ensure that elected officials in Wisconsin and Washington D.C. understand the impact of their initiatives on the banking industry. The relationships that many of you develop with your representatives play a critical role in the success of WBA’s advocacy priorities. As part of our grassroots advocacy, WBA’s hosts an annual Capitol Day in Madison to help bankers around the state connect with their legislators on issues important to the industry and on actions our government can take to aid in the economic growth and strength of our communities.

As our 2022 Capitol Day quickly approaches, I invite you to join your fellow bankers in meeting face-to-face at the State Capitol to advocate on several key issues affecting the banking industry this session. Few Wisconsin legislators have experience in banking and your grassroot involvement is essential in reinforcing the impact legislative proposals will have on your bank, the industry, and your communities.

As we have mentioned in other publications, there will a public hearing on the credit union powers’ bill — SB 451 — on January 11, just one week before WBA’s Capitol Day. The timing of your attendance and conversations with legislators and their staff will be critical in helping us either defeat any further progress made or amend the bill. Moreover, the credit union industry is hosting their annual Capitol Day a week after ours, so it is imperative that we have a strong showing of bankers on January 18 to offset the large numbers we expect the credit union industry to have present at their event.

The event includes hearing from several State Assembly and Senate leaders, moderated discussions with political insiders Scott Jensen and Chuck Chvala, and WBA’s Government Relations update on the legislative session thus far. This information will provide every attendee the knowledge needed to be prepared for the afternoon of meeting face-to-face with your elected legislators in meetings WBA will schedule.

Again, the relationships bankers build at Capitol Day assist us in advocating successfully for the banking industry throughout the year. I hope you and/or others from your team will join me and your fellow bankers at the State Capitol in Madison on January 18 for WBA’s annual Capitol Day.

Rose Oswald PoelsBy Rose Oswald Poels

Calling attention to the need to level the playing field for credit unions and banks has been a top advocacy priority for WBA, and we are joining with our national trade association partners in a renewed effort to shed light on this issue. As we continue to see credit unions acquiring community banks here in Wisconsin (four acquisitions in recent years) and as a national trend, we are concerned about the increased tax burden on remaining banks and all other taxpayers. In 2020, credit unions in Wisconsin used their tax exemption to avoid paying $46,503,865 in federal income taxes and held a grand total of $49,499,980,974 in tax-free assets. WBA is actively advocating for credit union fairness to state legislators in Madison and to our members of the U.S. Congress — currently, credit unions do not pay income taxes at the state or federal level.

As you know, WBA has launched a publicity campaign, which includes billboard displays promoting Wisconsin banks and their positive impact on our state’s economy and communities. We are also working closely with our national counterparts at the American Bankers Association (ABA) and the Independent Community Bankers of America (ICBA) on their awareness and advocacy initiatives.

ABA has updated the website for its Reform Credit Unions campaign, and ICBA has recently renewed its Wake Up and Take Action call for policymakers to examine the credit union tax exemption as the number of credit union-bank acquisitions passed 100. Both organizations’ sites include talking points, information about the impact by state, and a template to send a letter to your member(s) of Congress.

I encourage you to utilize the resources and tools linked above to reach out to your members of Congress and make your voice heard on credit union reform. Please don’t hesitate to reach out to me or our WBA Government Relations team (Lorenzo Cruz, VP – government relations and John Cronin, director – government relations) with any questions or if we can be of assistance.

Events

This course provides answers to your clients’ rollover questions by explaining all the rollover opportunities, including evolving portability rules between IRAs and employer plans. Our experts teach financial organizations how to capture, facilitate, and report rollovers between employer plans and IRAs.

Presenter: Ascensus

Registration Option: Live presentation $275

Recording available through March 1, 2023

As banks continue to deal directly with CRE loans as a major portion of their loan portfolios, plus indirectly through income-producing or rental real estate holdings that affect customers, it is important to “get beyond the numbers” and assess the qualitative or non-financial factors that influence CRE performance over time.

Commercial and industrial (C&I) lenders know that non-financial factors such as the borrower’s industry, its competitive market, and its management team play a key role in the ongoing success of the business, as well as timely loan repayment. Commercial real estate (CRE) loans have similar non-financial factors or issues, including the type of property (similar to C&I industry risk), ability to successfully re-lease the property over the loan term (competitive market), and proper management and maintenance of the physical facility.

What You’ll Learn
Differentiating among property types – key terminology and operating factors for multi-family, retail, office and industrial/warehouse
Additional issues with owner-occupied and “specialty” properties, such as hotels and nursing homes
“Triple net” versus full-service leases
Overview of other common provisions in commercial leases, including
Reimbursement for common area maintenance (CAM)
Cotenancy clauses
Requirements placed on the tenant
Requirements placed on the landlord
Estoppels
Subordination, non-disturbance and attornment provisions
Unusual or extraordinary lease provisions, such as building naming rights
Re-lease and rollover risk
Physical style risk and ongoing property management risk
The concept of sponsorship

Who Should Attend
CRE lenders, commercial lenders, private bankers, small business lenders, credit analysts, portfolio managers, assistant relationship managers, consumer and mortgage lenders, loan review specialists, special assets officers, lending managers and credit officers.

Instructor Bio
Richard Hamm has been training bankers for 28 years, designing and delivering courses specializing in commercial lending and credit, including portfolio and risk management, commercial real estate (CRE) and appraisals, plus selling and negotiating skills, and director training. He also conducts eight senior lender forums on a periodic basis in multiple states and one series at the national level.

He is based in Huntsville, AL and has owned/operated Advantage Consulting & Training for 14 years, after a 22-year banking career including senior positions in lending and credit, plus president of a community bank through formation and acquisition of an existing bank. He has BS and MBA degrees from the University of Alabama.

Registration Options

Live Access, 30 Days OnDemand Playback, Presenter Materials and Handouts $279

Available Upgrades:
12 Months OnDemand Playback + $110
12 Months OnDemand Playback + Digital Download + $140
12 Months OnDemand Playback + CD + $140
Additional Live Access + $75 per person