March 13, 2020
(Courtesy: Florida Trend)
Florida leads the nation in the number of banks purchased by credit unions. Banks say the trend further blurs the difference between banks and credit unions. Credit unions say they need to grow to remain competitive.
Four years ago, Dunedin-based Achieva Credit Union became the first credit union in Florida to buy a bank. Achieva, which then had $1.2 billion in assets, paid $23 million for Calusa Bank in Punta Gorda.
Since then, credit unions have bought nine more banks in Florida — more such acquisitions than in any other state.
In part, the purchases in Florida reflect simple market dynamics in a state with a fast-growing population. Financial institutions looking to acquire new customers have to get them either one at a time or by buying another institution. Smaller community banks are logical targets, particularly if they’re bumping up against their ability to grow or have shareholders eager to cash out.
Banks have been active purchasers of other banks for some time. The number of Florida-based banks has shrunk from 308 in 2007 to 115 today as the industry has consolidated. So far in 2019, there have been at least five mergers and acquisitions among banks.
Credit unions — there are now 132 based in the state — have joined the acquisitions game for the same reasons.
“Credit unions are not growing just for the sake of growing,” says Vincent Hui, an industry consultant with Cornerstone Advisors in Scottsdale, Ariz. “They need to achieve some level of economies of scale to continue to make loans and invest in channels like online and mobile. Unlike banks, they can’t go to the secondary market” to raise capital.
The purchases also reflect the state’s regulatory environment. Florida law does not specifically address credit unions’ acquisitions of banks, leaving broad discretion to the Office of Financial Regulation, the agency that monitors the financial health of state-chartered banks and credit unions and must approve acquisitions.
Hui, who helps credit unions buy banks, notes that most credit unions buying banks in Florida are state-chartered and regulated. While some states prohibit or discourage credit unions from buying banks, Florida’s Office of Financial Regulation has been receptive. “Not every state is as flexible,” he says.
Patrick La Pine, CEO of Affiliates Consolidated Services, the holding company of the League of Southeastern Credit Unions & Affiliates, a group of about 340 credit unions in Alabama, Florida and Georgia, says regulators in Florida recognize that many community banks are struggling as bigger banks get bigger.
“Our regulators see the writing on the wall. There are fewer and fewer community banks, and credit unions are growing. Three of the four largest state-chartered financial institutions in Florida are credit unions,” he says.
Regulators may even have their own interest in seeing banks sold to state chartered credit unions, since “the regulatory fees generated stay within Florida,” La Pine says. He points out that Florida’s Office of Financial Regulation receives no state appropriations from the Legislature and funds itself through “examination fees” and assessments on state-chartered banks and credit unions.
The credit unions’ acquisitions rankle bankers who think credit unions enjoy unfair advantages in the marketplace.
Credit unions emerged in the 1930s to make financing available to people who couldn’t get a bank loan during the Great Depression. To encourage their growth, Congress allowed credit unions to operate as non-profits exempt from income taxes. Initially, Congress defined a credit union as a group bound by the same occupation, association or location, but in recent years, regulators have loosened membership requirements, helping credit unions to grow their bases of depositors.
Of the 10 deals in the past four years in Florida, the average asset size of the acquiring credit unions was $3 billion, more than 10 times the average size of the acquired banks.
For years, bankers have lobbied Congress unsuccessfully to remove or limit credit unions’ tax-exempt status, saying it amounts to a taxpayer-subsidized competitive advantage over banks. They view the credit unions’ acquisitions of banks as more evidence of a system they think is unfair.
“They want more market share in our state? That’s OK. I don’t have a problem with that. But pay your taxes,” says Alex Sanchez, president and CEO of the Florida Bankers Association. “In Florida, they don’t pay the intangible tax, the sales tax or even the hotel bed tax, in addition to the corporate income tax. We have needs in Florida, and they have to be paid for.”
Sanchez says Congress should end the tax exemption for credit unions with assets of more than $500 million. “It’s time to end corporate welfare,” he says.
Credit unions counter that they pass their tax savings along to members via higher rates on deposits and lower rates on loans. They argue that their cooperative structure justifies their tax exemption and that banks have their own advantages, including the ability to tap securities markets for capital.
“In the banking world, it’s about the shareholder. In the credit union world, it’s about the member,” says Janice Hollar, CFO at Achieva Credit Union. “We’re owned by our members, so our tax structure is different.” As non-profit co-ops, credit unions are member-owned and don’t issue stock; banks are shareholder-owned and run for a profit.
Achieva, one the fastest-growing credit unions in the state, was founded in 1937 to serve public school teachers in Pinellas County, later opening membership to all local residents as regulations changed. In 2010, Achieva expanded south of Pinellas by buying Sarasota Coastal Credit Union. In 2018 — three years after it purchased Calusa Bank — Achieva bought Preferred Community Bank of Fort Myers, adding three branches in Lee County.
With more than $1.7 billion in assets and 160,000 members, Achieva now operates 26 branches in 15 counties in Southwest Florida. In addition to checking and savings accounts, it offers mortgages, credit cards, auto loans, CDs, money-market accounts and small-business loans, traditionally a strong suit of community banks.
“We wanted to be in new markets, and it makes more sense for us to purchase an entity,” Hollar says. “Otherwise, you’re starting from zero.”
Hollar says the acquisitions also allow Achieva to spread fixed and administrative costs over a bigger volume of activity. “As we grow, we can become more efficient, and as we become more efficient, we can offer better rates, more services and lower fees for our members,” she says.
Credit Union Acquisitions of Banks in Florida
November 2015: Dunedin-based Achieva Credit Union buys Calusa Bank in Punta Gorda, the first credit union purchase of a bank in Florida.
May 2017: IBM Southeast Employees Credit Union (IBMSECU) in Delray Beach buys Mackinac Savings Bank in Boynton Beach.
August 2017: Lake Michigan Credit Union of Grand Rapids, a $5.5-billionasset lender, buys Encore Bank in Naples, giving it an additional $392 million in assets. Lake Michigan also adds six branches to its existing locations in Bonita Springs, Immokalee and Naples.
July 2018: IBMSECU buys Oculina Bank in Vero Beach, increasing its assets by $350 million to $1.5 billion.
September 2018: Achieva buys Preferred Community Bank in Lee County.
January 2019: Jacksonville-based VyStar Credit Union buys Citizens State Bank in Perry. Previously, the Florida Office of Financial Regulation approved VyStar’s request to expand its field of membership from 22 counties to 49.
January 2019: Lake Mary-based Addition Financial Credit Union, formerly Central Florida Educators Federal Credit Union, buys Merritt Island-based Fidelity Bank of Florida.
February 2019: Fairwinds Credit Union, a $2.3-billion-asset lender in Orlando, buys Friends Bank in New Smyrna Beach, giving it an additional $98 million in assets.
May 2019: Lakeland-based MidFlorida Credit Union buys Community Bank & Trust of Florida in Ocala. Community Bank, with $738 million in assets and 11 branches in three counties, becomes the largest Florida bank to be sold to a credit union. MidFlorida also buys the Florida assets of First American Bank of Iowa, including branches in Cape Coral and Naples and a loan production office in Boca Raton.