Iowa Bankers Association President and CEO John Sorensen issued a statement last week in response to an announcement that the state’s largest credit union, the former University of Iowa Community Credit Union — was buying the remaining seven Central Iowa branches of Fort Dodge-based First American Bank. 

Sorensen wrote: “Iowans have just been handed another tax bill as a large tax-exempt credit union in Iowa has announced its purchase of a tax-paying bank. The credit union will engage in all the same activities as the bank — including making a profit — it just won’t have to pay state or federal income taxes on those profits like the bank did. While this is great for the credit union, it’s bad for Iowa taxpayers who are subsidizing the purchase.”

The proposed acquisition by GreenState Credit Union, which is the rebranded name of University of Iowa Community Credit Union, could be the first instance of an Iowa credit union successfully buying a significant piece of an Iowa chartered bank. Although it still uncommon in Iowa, community banks being bought up by large credit unions has become a worrisome trend in many other states, Sorensen said. 

According to a July 2018 article in the Credit Union Times, between 2012 and mid-2018 there were 16 separate transactions in which credit unions acquired state or federally chartered banks ranging in size from $20 million to $400 million in assets. 

While he’s concerned by the proposed acquisition, Sorensen said it’s unlikely the Iowa Bankers Association will challenge it through the regulatory approval process. Both the Iowa Division of Banking and the National Credit Union Administration must sign off on the deal. 

“At this point we don’t see an avenue to challenge this particular acquisition, because they’ve become commonplace” throughout the country, he said. 

The only other instance that Sorensen could recall of an Iowa credit union making a bid for an Iowa bank was when University of Iowa CCU tried to buy Hawkeye State Bank about 20 years ago, a transaction that was not approved by the NCUA. He noted that the former UICCU, now GreenState, is the largest financial institution in Iowa, with $5.5 billion in assets that will increase to $6 billion post-acquisition. The second- and third-largest financial institutions are Bankers Trust Co. and Veridian Credit Union. 

Sorensen contends that under their regulatory structure of the Community Reinvestment Act, banks are prohibited from using deposits received from rural branches to lend in high-wealth urban areas of the state. Because credit unions aren’t subject to those restrictions, that’s been a driver that has enabled the five largest credit unions in Iowa to grow to more than $1 billion in assets, he said. 

If the acquisitions by nontaxed credit unions continues, “what happens when 25% of the financial services businesses in Iowa don’t contribute to education, health care, water quality, things we need to effectively function as a citizenry?” Sorensen said.