🔒CT, Mass. credit unions eye each other’s turf for depositors

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As part of credit unions’ never-ending search for new depositors, one of Connecticut’s largest member-owned, credit cooperatives, East Hartford-based American Eagle Financial Credit Union, is casting its marketing eyes northward.

Eighty-four-year-old American Eagle in April won permission from the state Department of Banking to extend its depositor marketing into Massachusetts, making it the first Connecticut credit union to expand beyond the Nutmeg State’s borders.

State and federal credit-union charters generally limit their “membership fields” to specific communities, industries or affinity groups.

With $1.9 billion in assets and some 150,000 members, many of whom work or are retired from Pratt & Whitney and its current and former affiliates, American Eagle has an Enfield branch from which it plans to recruit new members residing across the Massachusetts border in Hampden County. Hampden’s Pioneer Valley population of 470,000 reside in, among other communities, East Longmeadow and Springfield, said Brian Kennedy, American Eagle’s senior vice president and chief strategy officer.

And it’s not just American Eagle crossing state lines. In the last three years, Massachusetts has granted two of its credit unions permission to pursue thousands of new members in the Nutmeg State, activity that is raising the ire of some bankers, who have largely been opposed to the continued expansion of credit union membership fields.

That frustration is fueled by bankers’ resentment that, unlike their for-profit business model requiring them to pay state and federal taxes on their earnings, credit unions are not-for-profit, thus tax exempt.

Meantime, Nutmeg State and Bay State banks, too, have blended their turf boundaries in recent years by crossing state borders.

Michael Schenk, chief economist for the Credit Union National Association (CUNA), trade advocate for the nation’s more than 5,700 credit unions serving 104 million members, said American Eagle and the nearly 500 other U.S. credit co-ops with branches in more than one state are reacting to market forces.

“A big part of it has to do with the fact they want to better serve their members,’’ Schenk said. Also, credit unions are moving in where banks have closed branches in markets deemed unprofitable, he said.

“I don’t expect it to go away anytime soon,’’ Schenk said of credit union’s cross-border incursions.

Cross over

In the financial-services border war, Massachusetts credit unions have been a step or two ahead of Connecticut.

According to the Massachusetts Division of Banking, it authorized in March Springfield’s Arrha Credit Union to amend its bylaws, expanding the $140 million-asset nonprofit lender’s approximately 11,000-membership roll to include residents and workers in Hartford, Litchfield and Tolland counties.

Three years earlier, in May 2016, regulators approved Polish National Credit Union, a $13 million-asset Chicopee, Mass., credit co-op, to offer membership to those living or working at a public-private elementary, high or vocational school, or college, in those same three Connecticut counties.

Arrha Credit Union has no immediate plans to expand into Connecticut, said CEO Michael Ostrowski, calling it a “strategic’’ play that his credit union may execute down the road as it seeks to grow.

“In this marketplace,’’ Ostrowski said, “if you don’t grow, you die.’’

American Eagle was aware, Kennedy said, of both Massachusetts credit unions’ efforts to expand southward before asking Connecticut regulators for permission to compete in the Bay State. American Eagle’s move, however, was not a retaliatory one, he said.

“I think what they did was pave the way in terms of the process,” he said.

Growth minded

American Eagle has been actively seeking expansion opportunities for some time. A few years ago it swapped its federal charter for a state one, while also asking permission to expand its membership field to New Haven County, a request that was previously denied by its federal regulator, the National Credit Union Administration (NCUA).

Connecticut greenlit its New Haven request. Since then, a number of other Connecticut co-ops swapped for state charters. The NCUA also recently eased restrictions on federal credit unions’ ability to expand their membership.

In addition to American Eagle’s Enfield branch on Elm Street, less than five minutes from the Massachusetts border, it recently opened its newest branch in Avon, on West Street. That branch is 25 miles from the Massachusetts border. All 19 American Eagle branches/ATM locations are in Connecticut.

American Eagle already serves about 1,500 western Massachusetts members from its Enfield office, Kennedy said. They were customers prior to the recent expansion through their connection to Pratt & Whitney or because they previously lived or worked in Connecticut. American Eagle also is eyeing a North Haven location, he said.

Driving the expansion aims of American Eagle and other credit unions is the existence of a digital infrastructure linking them to their members. Kennedy and other industry experts say they are eager to leverage digital links that make it easy for their depositors to apply, and credit unions to approve, auto, home-equity or other loans and financial services via smartphones or computers.

CUNA’s Schenk said credit unions are “all in’’ on technology used to remotely and conveniently deliver products and services to depositors.

Ruffled feathers

Meantime, the latest market-widening push by one of Connecticut’s biggest credit unions has again stirred up calls from some bankers to strip the member credit co-ops of their not-for-profit status, which shields them from paying federal taxes on their income.

Martin J. Geitz, president and CEO of Simsbury Bank, noted that American Eagle is a well-run institution and among a handful of Connecticut credit unions with assets of $100 million or more. Smaller co-ops, Geitz said, adhere closely to their charters of serving a limited subset of customers, like the aerospace workers at Pratt and Sikorsky Aircraft who were among American Eagle’s early members.

But many other credit unions across the nation have recast their bylaws to troll a larger community or affinity base for members.

Yet, even as their member ranks swell to deliver such profit-generating products as auto, personal and home-equity loans, and such services as bill-paying and fund transfers, they are shielded from state and federal taxes.

“It really begs the question of why they aren’t being treated like banks, and pay taxes,’’ said Geitz, who co-chairs the legislative committee for the Connecticut Bankers Association and is past president of the Connecticut Community Bankers Association.

Credit unions, however, dismiss the criticisms, particularly “coming from an industry that just got a $30 billion tax break in the 2017 federal tax reform,’’ Schenk said.

Among the benefits co-ops provide is helping to fill a gap left by an increasingly consolidated banking industry, he said.

American Eagle’s recently opened Avon branch, for example, is in space that formerly was a Farmington Bank branch before that lender merged last year with People’s United Bank.

“There’s plenty for everybody,’’ American Eagle’s Kennedy said of the bank-credit union scrap for depositors. “The more you define a market, the less geographic boundaries play a significant role.’’