WASHINGTON — As they visited Capitol Hill last week more than 1,100 bankers carried a variety of messages, including opposition to a credit union business lending bill, but it all boiled down to this: they told lawmakers there is virtually no difference between community banks back home and credit unions, except for the financial advantage credit unions have through their tax exemption.
"I don't have a problem with competing with credit unions, if they want to pay federal income taxes," said Samuel Laverack, president of New Hampshire's Meredith Village Savings Bank, during the American Bankers Association's annual Government Relations Summit. "If you put me on a level playing field then I'll compete."
Laverack, whose 143-year-old savings and loan was exempt from federal income taxes until 1954, says the tax exemption is worth a 34-basis-points differential-his federal tax rate-in competing with nearby credit unions.
Credit Union Journal interviewed more than a dozen bankers at the ABA's annual convention, just down the street from where 4,000 credit union executives and volunteers were meeting for CUNA's annual Government Affairs Conference.
"I believe credit unions are banks that have a special tax advantage," said Joseph Ficalora, president of New York Community Bancorp in Westbury, N.Y., and an ABA director. He said the best argument against the increase in the member business loan cap for credit unions is to protect community banks from the unfair competition the tax exemption gives credit unions.
"This is a tax incentive," said Ficalora. "You shouldn't have the same playing field occupied by people who are playing with different rules."
John Barnett, president of BankTrust in Brewton, Ala., added, "Thirty-five cents of every dollar I make goes to taxes; what do they pay?"
E. David Locke, president of McFarland State Bank in suburban Madison, Wis., put the financial advantage from the credit union exemption even higher, noting that his $500-million bank pays about 40% of its income in both federal and state income taxes. "That's a 40% pricing advantage; you can do the math," he said.
Locke said the tax exemption makes it difficult to compete with the three $1-billion credit unions in the Madison market, which dwarf the average community bank in the state, which has $170 million in assets.
Randy Ferrell, president of Virginia's The Faquier Bank, said he was unable to compete with local credit unions for small business loans because of what he estimated was a 20 to 25 BP pricing advantage built in from the tax exemption. "They outprice us," he said.
"It's very difficult competing with that. We have to be as efficient as we can be," said Christopher Bergstrom, regional president of Cardinal Bank in the Washington suburb of McLean, Va., who put the value of the tax exemption at 40%. "Banking is a low-margin business as it is."