By Colin Barrett, President/CEO, Tennessee Bankers Association
On Wednesday, August 11, a shockwave went through the Tennessee banking industry when Orion Federal Credit Union announced it would acquire Financial Federal Bank in Memphis. And while unfortunately these deals have been on the rise around the country in recent years, this was the first one in Tennessee. Financial Federal, a strong, well respected Memphis bank with approximately $750 million in assets and a focus on commercial real estate lending, will be one of the largest acquisitions of its kind in the country.
Orion Federal Credit Union began as a small credit union whose mission was to serve teachers in Memphis. However, it was able to use its tax advantaged status and weak regulatory oversight to grow to a position where it can acquire a $750 million bank. With this proposed bank acquisition, they have openly abandoned their desire to serve people of modest means, stating in their press release that this will allow them to grow their commercial real estate portfolio.
Once this acquisition is completed, Orion will be nearing a $2 billion financial institution. But the question is not what they will become, but what they will no longer be.
Orion will not be well capitalized. Barring an additional capital raise, their GAAP capital to assets would appear to be around 6% after the acquisition—a number that would have banking regulators knocking down your door. But the National Credit Union Administration acts more as a cheerleader than a regulator—greedily turning a blind eye to safety and soundness while encouraging credit unions to stray from their original mission.
Because of Orion’s tax-exempt status, removing Financial Federal from the tax roll will result in a loss of approximately of $15 million in local, state, and federal tax revenue over the next decade.
In addition to the tax impact on the community, this will lessen access to credit for the poorest in Memphis. Unlike Memphis and all Tennessee banks, credit unions have no regulatory requirement to adhere to the Community Reinvestment Act. Financial Federal provided $31 million in community development loans from April 2013 to June 2018. Orion will have no incentive to maintain that level of community support.
Bank acquisitions by credit unions have fueled passionate discussions by the TBA board over recent years. There is debate about whether these acquisitions should be prohibited in statute, even if they already are. And there is discussion around what can be done at the state and local level to reign in credit unions.
But whatever we do on the state level will continue to pale in comparison to the work that needs to be done in Congress. Whether it is credit unions buying banks, expanding their business lending or opening their membership to anyone who can fog a mirror, the part I find most frustrating is the blind eye turned by members of Congress.
As I shared recently with our delegation, we are reaching an inflection point in the debate about credit unions. This isn’t just about losing loans due to unfair competition. It is about losing the community banking model. The one that has made Tennessee the greatest state in the nation. The one that doesn’t just look to cherry pick the wealthiest customers, but the one that knows we all succeed when everyone in the community succeeds.
If you care about the future of banking, I encourage you to call your Congressman and Senators today. Make your voices heard. This has been a long, hard fought battle for years, but the stakes have never been higher.