🔒Cross-border incursion: Freedom Credit Union the latest lender to jump state lines in search of growth

Where other banks see a state border, Freedom Credit Union President and CEO Glenn Welch sees an in-road to a new market.

That’s the reason underpinning the credit union’s application to the Connecticut Department of Banking to open a branch in an office building at 115 Elm St. in Enfield, which will be its first Nutmeg State location.

Freedom’s expansion into Connecticut is part of a cross-border incursion that several other financial institutions have taken in recent years, as smaller lenders see growth opportunities from large bank mergers, such as Buffalo, New York-based M&T Bank’s union with People’s United Bank. The void in local, personalized customer service gives smaller institutions an opportunity to woo dissatisfied customers and fill gaps in local markets, bankers say.

Welch said the merger creates “an even greater need for individuals and small businesses to be served in the northernmost counties of Connecticut.”

Freedom, which has $650 million in assets and 10 branches, has received approval from the Massachusetts Division of Banks to expand its field of membership to include Hartford and Tolland counties.

The expansion will more than double the number of people and businesses the credit union can serve. Welch said he sees no reason to allow the border between two contiguous states to impede Freedom’s ability to serve customers on either side.

“The region transcends political boundaries,” Welch said. “It comprises the Hartford, Springfield and New Haven metro areas and is centered on seven counties, linked by a shared economy, history and culture, and by features including Bradley International Airport, rail lines, Interstate 91 and the Connecticut River.”

Credit union charters usually limit their membership fields to specific communities, industries or affinity groups. In Freedom’s case, that meant only people who lived, worked or attended schools in four Massachusetts counties — Hampden, Hampshire, Franklin and Berkshire — qualified for membership prior to its approved expansion.

The number of credit unions and banks headquartered in Connecticut has decreased in recent years due to merger activity. That has led many smaller banks to expand in-state, seeing an opportunity with fewer players in the market. There were 32 Connecticut-based banks at the end of this year’s first quarter, down 24% from the first quarter of 2017, when 35 banks were based in the state, according to Federal Deposit Insurance Corp. data.

There were 86 credit unions in Connecticut at the end of the first quarter, down 14% from five years earlier when 101 not-for-profit cooperatives were operating in the state, according to data from the National Credit Union Administration.

There have been a number of other financial institutions that have crossed the Connecticut/Massachusetts border in recent years to do business.

Mass. incursion

Westfield Bank, which is based in Westfield, Mass., has locations in both states. The publicly-traded community lender opened its first Connecticut branch in Granby in 2013, followed by one in Enfield the following year.

Executive Vice President Kevin O’Connor said Westfield was “very pleased” with the branches’ performance and opened two more locations, one in West Hartford — the bank’s financial services hub for Connecticut — and another in Bloomfield.

“We have significant market share for many of the communities we serve in Massachusetts, and while we continue to grow in Massachusetts, we want to expand with future growth into similar communities in Connecticut,” said O’Connor, whose bank has $2.6 billion in assets. “I’m not sure why others have followed, but it’s very similar to the types of communities and customers.”

In 2018, PeoplesBank, the largest community bank in western Massachusetts, acquired First National Bank of Suffield to establish its first Connecticut location. It’s planning a new 2,000-square-foot banking center at 50 Cedar Ave. in South Windsor, and last year opened a branch in posh West Hartford Center. The South Windsor location will be its fifth in the state.

PeoplesBank, with $3.6 billion in assets, is a mutual lender, which means it can generate profits but cannot be bought or sold.

President and CEO Tom Senecal said recent merger activity has created more of a need for community banking.

“We feel that mergers and acquisitions create disruptions in the market, and when disruptions occur people usually flock to community banks or mutual banks,” Senecal said.

Some borrowers, especially commercial ones, like dealing with a community bank rather than a larger operation because decisions are made more efficiently, he said. Also, they have access to people who are familiar with the community in a brick-and-mortar setting.

“The local decisions are important on the commercial side as it expedites the decision-making process — it doesn’t go through a large bureaucracy of decision makers,” Senecal said, noting that roughly 70% of PeoplesBank’s commercial lenders are in Connecticut.

East Hartford-based American Eagle Financial Credit Union, with $2.4 billion in assets, also crossed state lines, when it won approval in 2019 to serve customers in Massachusetts’ Hampden County.

Relationship building

While mutual banks and credit unions have different business models, they both focus on the value afforded by a local approach to banking. In Freedom Credit Union’s case, entering the Connecticut market will mean establishing business relationships with new customers already familiar with their organization.

“Many people that live close to the state border shop, dine, seek entertainment, etc., by crossing the border between the states,” Welch said. “We had businesses that had relationships with the staff of the credit union that wanted to bank with us, but also did not qualify for membership.”

Freedom’s Enfield branch, less than 7 miles from its Springfield, Mass. headquarters, is expected to open in July.

Freedom has about 32,000 members and has seen significant growth in assets due to lower consumer spending during the pandemic, with “steady but slow” membership growth, Welch said.