Detroit Credit Union Motors South

DFCU Financial Credit Union is using a new base in Florida to draw in more members who need loans for homes, cars and other needs.

The credit union ($6 billion in assets, 232,449 members) has an unusually low loan-to-share ratio: 18.1% as of Dec. 31. Only 290 of the nation’s 4,983 credit unions had a lower ratio, mostly very small credit unions.

Usually, loans are the largest chunk of a credit union’s assets. Here loans accounted for only $1 billion of its $6 billion in assets as of Dec. 31. And while loans grew 16% last year, its assets fell 7%. DFCU Financial’s ROA was 0.79% for the full 12 months of 2022, down from 1.05% in 2021.

The biggest factor was a $628.2 million drop in the value of its available-for-sale debt securities, ending the year accounting for $4.5 billion of its assets.

DFCU Financial used some of its assets to create a better opportunity to grow.

Ryan Goldberg, who was hired from the banking world in April 2022 as DFCU Financial’s president/CEO, announced in May that the credit union had agreed to buy First Citrus Bank of Tampa, Fla., for $94.4 million.

On Jan. 3, DFCU Financial announced it had closed on the purchase. The bank had $692.1 million in assets as of Sept. 30, according to the last quarterly report it filed with the FDIC. It had $4.5 million in net income for January through September, and a $404 million book of loans as of Sept. 30.

DFCU Financial’s move didn’t score on originality. It followed two other northern credit unions jumping not just to Florida, but specifically to Tampa:

• Teachers Federal Credit Union ($9.3 billion, 443,434 members) based on Long Island, N.Y., acquired a national charter in 2018 and in October 2022 announced its first branch outside of New York would be in Tampa.
• Lake Michigan Credit Union of Grand Rapids, Mich., landed in the Tampa market in December 2021, when it completed its purchase of the $656 million Pilot Bank based there. Over the next 12 months, its assets grew 2% to $11.9 billion, and membership grew 6.4% to 459,516. It now has 18 branches in Florida, including five in Hillsborough County.

In an interview with CU Times, Goldberg said buying the bank was a good fit because it was in a growing area with complementary lines of business and managers who wanted to stay on and make the merger work. He offered three considerations for credit unions looking to make a similar move:

1. Consider the geography. Before it bought First Citrus, the credit union had 28 locations in eight Michigan counties – most of them in the metro Detroit area. Those eight counties accounted for 91% of the value of its 2021 residential mortgage originations, according to the latest data from the federal Home Mortgage Disclosure Act (HMDA). The other 9% of residential loans were dispersed among 51 other Michigan counties where it has no branches.

Like a lot of northerners, many DFCU Financial members developed a warmness for Florida – especially between Thanksgiving and Easter. Those short-term vacation relationships sometimes blossomed into second homes or retirement moves.

The credit union estimated that at least several thousand of its members were in Florida based on their entries in the credit union’s seasonal address option.

Obviously, DFCU Financial wanted to be part of its members’ financial journey, even if it was a literal journey to the Sunbelt.

“Michigan is a low to moderate growth market, and we have over time been interested in supplementing the franchise with a higher-growth market that could be nicely correlated with the movements of our membership,” Goldberg said.

So Florida was a target, especially Tampa, one of its largest and fastest-growing metro areas. And it didn’t hurt that its new chief executive grew up in Florida. He graduated in 1993 from Florida State University in Tallahassee with a bachelor’s degree in finance, and spent the next 20 years of his career in banking on the gulf coast from Tampa to Fort Myers. “That helps me be much more relatable to the opportunities in that market, and then ultimately where we can take the company going forward,” he said.

When it bought First Citrus, it acquired its five branches in Hillsborough County, where Tampa is located, and one in St. Petersburg in Pinellas County. The credit union said it was aiming for growth in those counties plus the adjacent Sarasota, Manatee, Polk, Pasco and Hernando counties.

Census data showed the eight Michigan counties where DFCU Financial has branches and the seven Florida counties targeted by DFCU Financial differ little in poverty rates, per capita income and percentages of minorities.

They differ hugely in population growth. The eight Michigan counties’ population grew a mere 0.3% per year from 2010 to 2020, and its population fell 0.5% to 5.5 million in 2021. The seven Florida counties’ population rose 1.6% per year from 2010 to 2020, and growth accelerated to 2.1% to 4.8 million in 2021.

“Tampa is such a high growth MSA: It’s hard to say that you have a Florida presence of any significance if you’re not in Tampa,” Goldberg said. “It gives us an opportunity if we want to build out further density in the Tampa Bay market, [or] move more toward central Florida, toward Orlando.

2. Consider business lines. The credit union was looking for an acquisition where the parts fit and complemented one another.

DFCU Financial’s loan distribution differs from most credit unions its size. It has more residential loans, and very few of its auto loans are from indirect lending.

Home loans account for two-thirds of the credit union’s loan portfolio. Like other credit unions and banks, first mortgage originations fell last year, while home equity and other second liens grew.

Overall, residential real estate originations fell 23% to $376.4 million last year. Other types of loans rose 40% to $203.3 million.

About 22% of DFCU’s loans are for automobiles. Of its $227 million in auto loans at year’s end, only $18 million were from indirect loans. For all credit unions, 55% of auto loans were produced indirectly.

DFCU Financial was almost entirely lending to consumers, and only 3% to businesses. Its relatively new commercial lending department produced $14.8 million in commercial loans backed by real estate last year, more than double 2021’s $5.9 million in volume.

First Citrus was three-quarters commercial lending. It had almost no consumer lending and very few residential mortgages. Of $404.1 million in loans the bank held last Sept. 30, at least $304.7 million was commercial and only $83.9 million was residential real estate.

“They quickly gave us a big jump into the commercial banking space in terms of talent, in terms of business processes, in terms of how they generate business,” Goldberg said.

On top of that, DFCU Financial offers investment services; First Citrus did not.

3. Consider the people. The geography fit, the business lines fit. But what was the attitude of leadership?

Goldberg and his team admired the bank’s management, felt there was a good cultural fit and wanted them to stay on. They didn’t want to deploy people from Michigan or hire others in Florida for leadership positions.

“The first conversation we had with the leadership down there was, do you want to stay and be a part of this company going forward? Because if they didn’t, this wasn’t gonna be the right fit for us,” he said.

As it turned out, First Citrus’ leaders wanted to stay and “be a part of the combined company.” First Citrus had considered banks and other credit unions. The numbers were similar, but Goldberg said he believes the leadership retention and cultural fit made the difference.

“It was a win for the employees, and it’s a win for the combined organization that can do more for members in a wider geographic area,” Goldberg said.

He said DFCU Financial plans to expand organically, add branches and might even consider another acquisition – “whether that is credit union mergers, or whether those are additional bank acquisitions.” However those growth plans work out, Goldberg said he expects that in five years the credit union’s footprint will still be “primarily Michigan and Florida.”

“We believe we’ve got plenty of opportunities to expand in parts of Michigan, as well as to build a Florida footprint,” he said. “But we’re always a willing listener.”