In an effort to overcome slow membership growth in their home markets, some credit unions are looking to cross state lines by opening new branches and merging with out-of-state counterparts.
The trend angers some in the banking industry, who argue that credit unions’ mission requires them to focus on narrow communities. But for many credit unions, geographic expansion—whether by opening new branches or merging with another credit union in a neighboring region—can be crucial to their ability to maintain or grow their membership at a reasonable pace.
In some cases, credit unions see borders as just arbitrary lines on a map. For example, Freedom Credit Union in Springfield, Massachusetts, recently asked the Connecticut Banking Department to open a loan origination office across the border in Enfield, Connecticut, and hopes to begin operations soon.
“Our experienced consumer and business lending teams have extensive contacts on both sides of the border, but some potential borrowers and depositors were not eligible for membership and therefore were unable to do business with Freedom,” said Glenn Welch, president and CEO of the credit union.
The $652 million asset-based credit union saw just 1% growth in its members from late 2020 to December 2021. It had previously received approval from the Massachusetts Banking Division to expand its scope membership to include Hartford and Tolland counties in Connecticut, which have larger populations than the four Massachusetts counties served by Freedom.
And the Connecticut office is only about 10 miles from Freedom’s headquarters.
Freedom Credit Union is always looking for growth, and when it looked to Hartford and Tolland counties, it saw a lot more business, population and growth opportunities, Welch said. .
The loan origination office will have a mortgage originator and a commercial lender. There will also be additional offices and conference rooms that other employees can use to meet with members or the community, Welch said.
But trying to build brand recognition in a new market is difficult, and the new entrant often clashes with other credit unions in the geographic area, said Geoff Bacino, credit union consultant and former board member. of the NCUA.
However, the value of organic growth shouldn’t be overlooked because of the strong loyalty it can create, Bacino said.
Other credit unions have turned to mergers and acquisitions to add members in other states.
“During strategic planning sessions with credit unions, we often discuss the need for organic growth, but [M&A] is a more challenging – albeit more stable – way to achieve growth,” Bacino said.
For example, the REV Federal Credit Union of Summerville, South Carolina, announced two mergers recently, including one with Hamlet Federal Credit Union in Hamlet, NC.
And the first feedback has been positive. REV saw its net profit increase by about 62% year-over-year at the end of 2021, reaching $7.8 million, according to data from the call report.
Since the Harmlet deal was struck, REV’s lending volume has grown by $25 million in new markets, and it’s also seen a significant increase in membership, according to Dustin Haynes, REV’s public relations manager. .
“We are also expanding our footprint in Wilmington and are currently in the process of securing property to add additional branches,” he said.
But American Bankers Association spokesman Jeff Sigmund said credit unions crossing state lines to expand their business are contrary to their mission to serve well-defined local communities and small groups. customers of modest means.
“This kind of unbridled expansion, which is happening mostly in wealthier markets, is exactly why Congress needs to end tax-exempt status for credit unions and finally demand that credit unions show that ‘They serve all communities, just like banks do,’ said Sigmund.
A spokesperson for the National Credit Union Administration said the regulator does not capture data on interstate branches, but rather self-reports on a credit union’s profile.
Glenn Grau, senior vice president of sales at Pittsburgh-based branch design firm PWCambell, said cross-border expansion is indeed hard to keep up with, particularly because federally chartered credit unions don’t have need to apply for a branch application with the NCUA.
Grau said his company recently had a client in Massachusetts who opened a branch in Hudson, New York, and another based in upstate New York who ventured into Vermont.
“I think it mostly depends on where the growth is and where they can add or serve members,” Grau said.
Welch said Freedom was not looking to add products and services to the Connecticut market that it didn’t offer to its current members, but was looking to offer a local touch. There is a vacuum in the Connecticut market as banks continue to merge, grow and be headquartered in other statesaccording to Welch.
“We seem to be more connected to this region [of Connecticut] than in the counties east of us and therefore the decision,” Welch said.