In an effort to overcome slow membership growth in their home markets, some credit unions are looking to cross state borders through both the opening of new branches and merging with out-of-state peers.
The trend rankles 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 — may be crucial to their ability to sustain or increase their membership at a reasonable rate.
In some cases, the credit unions see borders as just arbitrary lines on a map. For example, Freedom Credit Union in Springfield, Massachusetts, recently applied to the Connecticut Department of Banking to open a loan production office right across the state line in Enfield, Connecticut, and hopes to begin operations soon.
“Our experienced consumer and business lending teams have significant contacts on both sides of the border, but some potential borrowers and depositors did not qualify for membership and thus were unable to bank with Freedom,” said Glenn Welch, Freedom’s president and CEO.
The $652 million-asset credit union's membership grew saw only 1% from the end of 2020 to December 2021. It previously received approval from the Massachusetts Division of Banks to expand its field of membership to include Hartford and Tolland counties in Connecticut, which have larger populations than the four counties in Massachusetts that Freedom serves.
And the Connecticut office is only about 10 miles from Freedom’s headquarters.
Freedom Credit Union is always pursuing growth, and when it turned south to Hartford and Tolland Counties, it saw significantly more businesses, population and opportunities to grow, Welch said.
The loan production office will have a mortgage originator and a commercial business lender. There will also be additional office and conference room space for other employees to use to meet with members or the community, Welch said.
But trying to build brand recognition in a new market is hard, and the new entrant often runs up against other credit unions in the geographic area, said Geoff Bacino, a credit union consultant and former NCUA board member.
However, the value of organic growth should not be overlooked given the strong loyalty that it can create, Bacino said.
Other credit unions have turned to M&A as a way 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 difficult — albeit more stable — way to achieve growth," Bacino said.
For instance, REV Federal Credit Union in Summerville, South Carolina, announced
And early returns have been positive. REV's net income grew by about 62% in 2021, to $7.8 million, according to call report data.
Since the Hamlet deal closed, REV’s loan volume has grown by $25 million in the new markets, and it has also registered a significant uptick in membership, according to Dustin Haynes, REV’s public relations manager.
“We’re 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 of state lines to expand their business runs contrary to their mission of serving well-defined local communities and small groups of customers with modest means.
“This kind of unbridled expansion, which is primarily taking place in the most affluent markets, is exactly why Congress needs to end credit unions’ tax-exempt status and finally require credit unions to show that they are serving all communities just like banks do,” Sigmund said.
A spokesman for the National Credit Union Administration said the regulator does not capture data on cross-state branching but instead it is self-reported on a credit union’s profile.
Glenn Grau, senior vice president of sales for the Pittsburgh-based branch design firm PWCampbell, said cross-border expansion is indeed tough to track, especially because federally chartered credit unions do not need to apply for a branch application with the NCUA.
Grau said his firm recently had a client in Massachusetts that opened a branch in Hudson, New York, and another based in upstate New York that ventured into Vermont.
“I think it is mostly driven by where the growth is and where they can add or serve members,” Grau said.
Welch said Freedom is not out to add any products and services in the Connecticut market that it does not offer to its current membership, but it is trying to offer a local touch. There is a void in the Connecticut market as banks continue to merge,
“We seem to be more connected to this region [of Connecticut] than to counties east of us and thus the decision,” Welch said.
