Springfield-based Premier Source Credit Union has an application pending before the state Division of Banks to open its membership up to people who live or work in Hampden and Hampshire counties, as well as students enrolled in colleges, universities or post-high school technical programs in the two counties.
Kelko Credit Union started by servicing employees of Westvaco, an envelope and paper products company in western Massachusetts. Sixty-five years later, a lot has changed. Now operating under the name Premier Source Credit Union, the Springfield-based institution has 3,800 members and $26 million in assets. Although it is never likely to be a major player in the financial services industry, Bonnie Raymond, chief executive officer of Premier Source, said expansion at some level nevertheless is key to survival of her institution.
Credit unions have sought to maintain a unified image within the industry, but the rules of the game have slowly, subtly changed as areas of membership grow and territories overlap, increasing competition. Credit unions have always been allowed to expand their memberships to cover communities and geographic areas such as towns, cities and counties, but as companies move, go out of business or see more turnover than in the past, expanding membership parameters to include larger territories has become necessary, according to those in the industry.
According to Robert Kimmett, senior vice president of marketing at the Massachusetts Credit Union League, while many credit unions still serve specific businesses or trade groups, the trend for state-chartered institutions seeking to expand is to do so geographically.
Leaders at Premier Source are seeking to expand the institution’s membership capabilities in that fashion in hopes of continuing to grow and thrive as a credit union. The credit union currently has an application pending before the state Division of Banks to open its membership up to people who live or work in Hampden and Hampshire counties, as well as students enrolled in colleges, universities or post-high school technical programs in the two counties. If the pending change receives approval, Premier Source leaders hope to see the credit union’s membership grow by between 10 percent and 20 percent per year in the future, according to Raymond.
In 2005, seven state-chartered credit unions expanded their memberships in Massachusetts. Two of those credit unions went from having trade association- or industry-based memberships to geographically based membership guidelines. The others were expanding on already-established community membership charters or adding more associations to their membership roster. The previous year, eight membership expansions were granted by the Division of Banks, including three institutions that shifted from industry or association memberships to cover geographic areas.
“We are not looking to be the biggest. We are looking to grow,” said Raymond
Raymond said switching over to a community-based membership is one of the few avenues credit unions can take to grow in the industry.
“It really is the only way to do it. You can only saturate the group you have so much,” she said.
Premier Source has been grown quite a bit since its first merger in 2000 with Twin Meadows Credit Union. It merged again the following year with Spalding Employees Credit Union. And two years ago the credit union took on its new name.
It now services 11 different groups of people, including the towns of East Longmeadow, Hampden and Longmeadow. Though another merger might seem like it would also help the credit union achieve some of its goals, Raymond said it really was not a viable option if the credit union still hoped to maintain its identity. Many smaller credit unions seem to be disappearing, and Raymond said she did not want to see Premier Source absorbed by a bigger credit union.
“There are only so many [smaller credit unions] left to merge with,” she said. “You’ve got to survive.”
‘Extensive Process’
Even as Raymond notes that smaller credit unions are becoming more rare, so too are banking industry leaders. Banks have been battling credit unions over their tax-exempt status for years, arguing that some credit unions are growing beyond the initial concepts under which they were created.
In 1909, Massachusetts adopted a law to create a charter for credit unions. It was the first of its kind in the nation, but the concept caught on and became widespread. The original idea was to serve the little guy, often identified as the average blue-collar worker. The institutions were given a tax-exempt status for servicing populations where financial needs were not being adequately met.
But today some of the bigger credit unions are acting more like banks, say many in the banking arena. And if bigger credit unions want to compete with the banks, they should not have the luxury of skirting around tax requirements, bankers say.
In April 2005, The House Committee on Ways and Means conducted a congressional hearing that included an overview of the tax-exempt sector. Several banking organizations weighed in on the matter, questioning the need for credit unions to maintain their tax-free tradition.
“Over the years, two distinct credit union industries have emerged. The first adheres to its statutory mission. The other hides behind the small credit union image to preserve its tax exemption,” wrote America’s Community Bankers in its comments to the committee.
ACB’s comments also mentioned Pittsfield-based Greylock Federal Credit Union’s radio advertisements, which told listeners if they “have a pulse” they would be eligible to join the $800 million-asset credit union.
In 1952, mutual banks lost their tax-free status after Congress ruled they had become too “bank-like” to receive such an advantage, according to the ACB. “Yet many of today’s credit unions look more like commercial banks than the mutuals of 53 years ago – offering share draft accounts [checking] and small-business loans,” stated ACB.
Kimmett said the debate is a topic that comes up every year, but credit unions still serve a vital role and adhere to their original mission. Because of that, he said, the tax-exempt status credit unions is unlikely to change.
“It [efforts to change the tax exemption] made no headway. They [Congress] did make sure the response back to the credit unions is that we continue to serve people of average means,” said Kimmett. “These discussions have taken place year in and year out.”
Kimmett said mutual banks were more or less bullied into giving up their tax-exempt status. He also said he believes they regret it. “Mutual banks let that happen to them,” he said. “It wasn’t anything that was beneficial to the mutual bank industry.
Kimmett also said it is important to note as larger credit unions such as Greylock look to redefine their images, the scope of their efforts to grow is somewhat exaggerated bankers. Greylock’s commercials ran on local radio stations in Western Massachusetts only, he said.
“It played within a narrow audience,” he said. “There is no reason credit unions should hide under a bushel basket.”
Kimmett said several credit unions are expected to remake their images in the new year, and expanding memberships is always being evaluated.
“Credit unions are looking at a shrinking pool of members,” said Kimmett. “There is definitely a shift going on. The changing nature of [business] makes it difficult for [industry-based] credit unions to thrive the way they used to.”
Joseph A. Leonard Jr., deputy commissioner and general counsel for the Division of Banks, is directly involved in the process of screening credit union expansion appliations. He said that credit unions are often looking to expand, and part of his job is to weigh just how well they will be able to serve their new fields of membership once given approval.
“It’s usually a very extensive process. There’s a lot that goes into it,” he said. “Many of the [membership expansion applications] that come in are cut back in some way from the way they are proposed.”
Leonard said the idea is not to allow credit unions to expand their memberships so as to invite in more new members than they can effectively serve.
Boston-based Postal Community Credit Union’s application process took several years. At one point, the credit union considered converting to a bank because its community charter was not getting approval, said Julie Perham, Postal Community’s marketing director. However, Massachusetts at present does not allow state-chartered credit unions to become banks even though the process is allowed at a federal level. Last January, Postal Community received regulator approval to add two out of the five counties it had requested to serve.
“It definitely helped our growth a little bit,” she said, adding the credit union issued $10 million more in real estate loans over the past year.
But for now, many of Postal’s branches are tucked inside post offices in non-public areas, she said. The $130 million credit union, which has 9,800 members, refers to itself as midsized, but likely will seek another community-based membership expansion in the future to make up for changes in its initial industry-based membership pool, Perham said.
“We saw a decline within our own industry – less postal workers. And that has resulted in less members,” said Perham.
