James Christensen, President and CEO of Gateway Bank — the only community bank in Mesa, AZ — wrote a letter to Senator Kyrsten Sinema advocating for legislation that would prohibit credit unions from acquiring community banks. Read why he feels this acquisition trend is alarming and detrimental to the communities they serve.
Dear Senator Sinema:
First of all, I want to thank you for your service to Arizona and for your team being part of the Mesa Chamber of Commerce Financial Network which I chair. I have been in banking for about 36 years and have been President at a community bank for the last 25 years. I understand the importance of having a hometown bank in each community. These institutions have loyalty to their communities and improve the overall quality of life of its citizens and supporting small to medium sized businesses. Community banks do not shy away from lending or supporting our community in downturns. Downturns will always happen but so do recoveries and it is our job to support our corporate and personal clients in those tough times and not just be there for them when the economy is booming. Community banks understand how to manage risk and what it takes to thrive in good and bad economies. It is amazing how simple it is but if the banks support their clients, the clients support them. Obviously, there are exceptions but very few over my entire career which has seen numerous up and down markets.
When I started my banking career in 1986, there were 14,027 FDIC chartered banks. We have unfortunately seen that number drop 70% to 4,236 institutions by the end of last year. There are a few De Novo Banks but not near enough to slow this trend.
As one of the founders of Gateway Bank, I understand the temptation to sell in order to reap a short term cash windfall. I, along with our management team and board, have decided to stay independent and continue to fulfill the mission to serve our community. The bank does pay a healthy dividend each year and continues to grow which is another reason to remain independent but secondary to serving our community. If we were not successful in serving our community, we would have long since closed or been acquired.
I completely understand the decision to sell is up to each organization but the trend in community banks being acquired by credit unions is alarming and detrimental to the communities they serve.
I do not understand why the acquisition of a community bank by a credit union is even allowed. We are starting to see other states push back on this this type of transaction, such as Mississippi and Minnesota . I believe there are many reasons why this should not be allowed and how it hurts our financial system and local communities:
- We lose more voices at the table and receive a fraction of the input that once was available. We are down to a meager 13 charters in Arizona. Two of these banks are sold and waiting to close, one by a very large credit union. Two of the banks are owned by much larger out-of-state holding companies. There is one new De Novo Bank but that still leaves us with 10 local charters, much less than most states.
- In addition to losing voices, this is an incredible talent pool drain. We have lost so many C level executives from these community banks that are getting close to extinction in Arizona. There is no pool to pull from to start new banks and it is very difficult to find replacements unless you cultivate your own.
- The loss of so many commercial banks has changed the landscape. As much as a credit union wants to be a commercial bank, they are not. When they experience problems in the commercial portfolio, and they will, not that surprising if they exit commercial lending or pull way back. This is ancillary for them, not primary. This would make it even more difficult to bounce back from the next downturn. Some of the credit unions were in very rough shape after the great recession and did not fare well with their commercial portfolios. We need to remember this and not make the problem even worse the next time around.
- The loss of owners really impacts the local economies. Many of the C level teams are the primary owners or own a significant number of shares. You treat an institution differently when you are an owner and not a credit union member that owns a piece of popcorn on the lobby floor. This is a long-term career and investment in our community, not just a job.
- There are not underserved markets in major metropolitan areas for the credit unions to fill any unmet need.
- Credit Unions are exempt from CRA and the Hart-Scott-Rodino Antitrust Act. This short circuits the merger review process and regulatory approval is a rubber stamp.
- A credit union becomes more complex and harder to supervise once they absorb a commercial bank. NCUA regulators are likely unprepared to adequately analyze a complex credit union.
- Credit Unions can and do overpay for community banks since a dollar of future earnings is worth a dollar. A bank purchasing a bank has a discount on future earnings for taxes. I am sure one of the main reasons they are successfully purchasing so many community banks.
- There is not a field of membership for large credit unions so there is no difference. These acquisitions are primarily from large credit unions. The largest 5% of credit unions, which enjoy 75% of credit union profits, are larger than nearly 90% of all banks in the country.
- I know that most people see this as the only reason banks don’t like to see credit unions purchasing banks but it is only one and listed last on purpose. The taxpayers at the Federal, State & Local levels lose. These community banks are removed from the tax rolls for good.
I would like to hear your thoughts on this type of transaction. I would be happy to discuss in greater detail with you and/or your staff. I love my community and our state and feel this trend is taking us in the wrong direction.
Thank you for your review. I look forward to your response.
President and CEO of Gateway Bank in Mesa, AZ