Credit unions in the Madison area — and statewide — are growing rapidly, at a level outpacing Wisconsin banks, though banks still far overshadow credit unions in the volume of loans to Wisconsin consumers and the size of deposits they hold.
Bankers in Wisconsin are not very happy about the trend, saying credit unions have unfair advantages. Bankers are pushing for changes at the federal level.
They say credit unions have expanded far beyond their initial charters — to serve a specific group of people with a common bond, such as employees of a company — and can offer most of the same services as banks now, yet they are exempt from paying income tax.
“These large — really, for-profit — institutions are not paying a penny of income tax,” said Rose Oswald Poels, president and CEO of the Wisconsin Bankers Association.
Oswald Poels has singled out Landmark Credit Union, New Berlin, saying that with assets topping $3 billion, it has become Wisconsin’s third-largest financial institution, in part, because of the tax exemption that she said costs state and federal taxpayers $5 million a year.
“We are focused on taking great care of our communities, serving our membership well,” said Jay Magulski, CEO of Landmark, which has one office in Madison.
State-chartered credit unions do pay sales, property and payroll taxes, said Kim Sponem, president and CEO of Summit Credit Union. “The reason we don’t pay income tax is because we don’t have income; we have reserves.”
Data from a variety of sources paint a picture of healthy growth for credit unions:
- Five of the 10 largest full-service financial institutions based in Wisconsin are credit unions, and two of them are headquartered in Madison.
- From 2011 through 2016, total assets at Wisconsin-based banks grew nearly 12 percent while total assets at Wisconsin-based credit unions increased more than 43 percent.
- Also from 2011-2016, annual net income jumped 122 percent for Wisconsin banks and 165 percent for Wisconsin credit unions.
- Since 2012, at least two banks in Wisconsin and one in Minnesota have been purchased by credit unions and another such application is under review; more than half a dozen transactions have occurred during that period involving Wisconsin credit unions buying bank branches.
But with combined assets of $31.5 billion, as of Dec. 31, 2016, Wisconsin credit unions have less than one-third the business of Wisconsin banks, whose combined assets totaled $108.9 billion.
Paul Kundert, president and CEO of University of Wisconsin Credit Union, said he’s not surprised that more credit unions have floated to the top 10. “There are fewer Wisconsin-based financial institutions. Some traditional names are not there any more.”
Madison-based AnchorBank would have been ninth on the list, for example. Anchor had $2.2 billion in assets when it was purchased by Old National Bank, of Evansville, Indiana, last year.
Banks and credit unions have some clear differences, aside from the tax issue.
Banks are for-profit companies, owned by investors or stockholders who may or may not be local residents. Credit unions are cooperatives owned by their customers, who are considered members, and are generally within the same state. However, three credit unions from Minnesota, two each from Iowa and Illinois, and one from Michigan now operate in Wisconsin.
Banks are governed by the Federal Deposit Insurance Corp. and credit unions by the National Credit Union Administration.
Kundert said the advance of credit unions took hold after the Great Recession, which began in late 2007 and reverberated through the next several years.
“I think that was the inflection point. I think we differentiated ourselves in the marketplace by continuing to serve consumers and not pulling back, even though there was a lot of uncertainty in the market,” Kundert said.
With the bust of the housing boom and the financial difficulties many banks were suffering, banks pulled back on their offerings to consumers, Kundert said.
“Lending standards changed, so not as many people qualified (for mortgages or loans),” he said.
Some banks canceled their customers’ credit cards. “Banks wanted less exposure to consumer credit,” Kundert said. “Even though (consumers) had kept up their end of the bargain, their cards were being canceled.”
UW Credit Union had $2.3 billion in assets, as of Dec. 31, 2016, making it the seventh-largest financial institution and fourth-largest credit union with headquarters in Wisconsin.
Summit Credit Union, also based in Madison, had $2.7 billion in assets and is the No. 2 credit union and the fourth-largest financial institution in Wisconsin.
Summit’s Sponem said the “value we’re adding back to our members” is a draw.
“We had a goal of saving our members $60 million over five years over using a for-profit entity, and we exceeded that in three years,” Sponem said, citing a comparison by an independent company.
When a bank shows a profit, its stockholders reap the earnings. When a credit union has net income, its members benefit, she said.
For Summit, that has involved setting up branches in three high schools and holding financial education programs such as Project Money, in which four families or individuals work with a Summit coach to hone their finances for a chance to win up to $10,000.
Summit also began issuing an annual dividend to its members three years ago through a program called Cash Boomerang. In 2016, members received a total of $1.9 million, with individual payments of up to $1,000.
“The more business you do with us, the more you’re going to get back,” Sponem said.
Nationwide, 76 percent of credit unions offer free checking accounts with no minimum balance required, while only 37 percent of banks offer free checking, according to a 2016 survey by Bankrate.com.
UW Credit Union does not charge a fee for using an ATM — either its own or others — and does not charge fees for overdrafts on debit cards, Kundert said.
“We saved members $19 million in 2016 (on overdraft fees) compared to the banking industry average,” he said.
Banks have been saying for years they have an uneven playing field against credit unions, especially as credit unions grow.
“Certainly, the Wisconsin Bankers Association is very concerned about the trend that policymakers have allowed to exist — permitting credit unions to engage in the same activities as banks, with little regard to common bond restrictions,” said Oswald Poels, president and CEO of the state banking industry group. Her comment referred to a federal requirement that credit union members have something in common, such as an employer, organization or geographic area.
“We have a couple of credit unions that have a 72-county community,” she said, including Summit Credit Union.
In some cases, credit unions posted higher earnings in 2016 than banks with more assets. Summit, with nearly $2 billion less in assets than Johnson Bank, Racine, had net income of $35 million, while Johnson Bank had $30 million. UW Credit Union, with comparable assets to Nicolet National Bank, Green Bay, reported net income of $34 million, compared with Nicolet’s $19.6 million.
Oswald Poels said the tax exemption is largely responsible. “I know it’s a big factor. We figure it’s a 40 percent pricing advantage,” she said.
Oswald Poels said she has met with members of Congress three times this year, so far — including last week — urging a law change that would require credit unions with at least $1 billion in assets to pay income taxes.
“They’re not paying income taxes, so they are not supporting government services that you and I and everyone in the state supports. There’s no longer a policy justification for that,” Oswald Poels said.
Summit’s Sponem said staying small “makes no sense to me. If you are serving people well, of course you are going to grow. Businesses have two choices: you either grow or you’re going to die.”
Since Sponem became CEO 15 years ago, Summit has grown from four branches to 34, including the three in high schools. She said she expects to add more as members request additional locations. Summit also plans to build a new headquarters along I-94 east of Madison in 2018.
UW Credit Union has 24 branches, seven of them added since 2011. “We expect, over the next five years, to open perhaps two to three more branches,” Kundert said.
He said he doesn’t think the growth of credit unions has blurred the lines separating them from banks.
“Credit unions are owned by our members, not by investors or shareholders — it doesn’t matter how big we are,” Kundert said. “I think it’s been positive for Wisconsin’s economy. There are so many options, ultimately, consumers benefit from the competition.”