Hartford Business Journal

16 Hartford Business Journal • March 2, 2015 www.HartfordBusiness.com Bank skeptics closely eye CUs from page 1 owner-depositors has gotten harder. "We've saturated Enfield to a high degree,'' said Enfield Community CEO William Hagist. Nearby, however, the tiny credit union has found its future, Hagist says, in the many automobile-related businesses and their employees who have sprouted along the Route 5/15 corridor. Enfield Community recently was given permission by its federal overseer to expand its membership field to neighboring towns in Ellington, Somers and Stafford, allowing it to court thousands of potential new customers. In doing so, it joined a growing roster of Connecticut credit unions that have asked for, and gotten permission from their state or federal regulators, to widen their membership fields. That means pursuing customers raised on using bank branches and automated teller machines but also increasingly computers and smartphones to access online and mobile-banking services. The moves also place credit unions more square- ly in direct competi- tion with their fierc- est financial rivals, banks, who have mounting concerns about impending turf wars. Since 2011, the state banking depart- ment, which also regulates state-chartered credit unions, says it has approved three CU applications to widen their community fields of membership. All were related to their change from a federal credit-union charter to a state one, the agency says. East Hartford's First New England Fed- eral Credit Union recently filed papers with the state banking department for similar permission to expand its Hartford County membership boundary to include neighbor- ing Tolland County. So, what's feeding the trend? "My sense is it's a natural evolution that comes from increasing competition in the marketplace,'' said Jill Nowacki, president/ CEO of the Credit Union League of Con- necticut, which provides lobbying, educa- tion and outreach services to member CUs. Turf expansion At the start of this year, Nutmeg State Financial Credit Union, based in Rocky Hill, was granted authority by state bank regu- lators to expand its membership field into New Haven County. The $400 million-asset credit co-op's services — nearly all available to online and mobile users — include savings and checking, plus auto, mortgage and home- equity loans. It also offers small-business accountholders loans ranging from $40,000 to $200,000, a rarity for a credit union. "We're a community credit union, just like a community bank, and we wanted to offer our affordable products and services to customers'' in New Haven, said Nutmeg's CEO John Holt. So far, Nutmeg has opened 100 accounts in New Haven. Its 2015 goal is to boost its 35,500-member roll by 10 percent, with the Elm City generating most of that growth, Holt said. Another East Hartford credit cooperative, American Eagle Financial Credit Union, late last year was granted state approval to swap its former federal CU charter for a state one. Along with that, $1.4 billion-asset American Eagle won the state's permission to widen its central Connecticut community field of mem- bership back into New Haven County. Federal CU regulators' earlier rejection of expansion requests from American Eagle and Nutmeg Federal were the reason both dumped their federal charters, executives for both say. oversaturation American Eagle President/CEO Dean Marchessault said many of its 107,000 mem- bers are current, former or retired United Technologies Corp. employees and their fam- ilies who live in New Haven County. Strat- ford, for instance, is home to UTC's Sikorsky Aircraft division. Employees of UTC's other divisions, including Hamilton Sundstrand, Otis Elevator, Pratt & Whitney and Carrier, are also American Eagle members. American Eagle retreated from New Haven County some years back, Marchessault said, when it chose in 2006 to switch from an indus- try- or company-specific field of membership charter to a community field of membership charter. That means residents, workers and volunteers, even churchgoers, in a specific geo- graphic territory are eligible to join and receive its financial products and services. Once a credit union attains 20 percent to 25 percent saturation of its specific mar- ket, it's typically a sign, Marchessault says, that the institution has mined nearly all its growth opportunities. "We took our field of membership with UTC as far as we could,'' he said. The handwriting was on the wall for American Eagle in 1993, when Pratt & Whit- ney incurred major layoffs and the CU saw its membership dwindle. "Hitching a wagon solely to Pratt & Whitney Aircraft could be challenging,'' Marchessault said. "We needed to find another source of opportunity.'' With its community-field charter in hand, American Eagle expanded its central Con- necticut branch network into Enfield, New- ington, Southington, South Windsor and West Hartford, he said. Asked about a New Haven County branch, Marchessault will only say that his CU is "exploring a number of delivery options in New Haven County at this time." State and federal credit-union rules prevent a single CU from claiming all of Connecticut for membership, but American Eagle comes close. Under its state charter, two-thirds, or roughly 2 million of the state's estimated 3.5 million residents, are eligible to become American Eagle members, Marchessault said. "With each new branch we open, we typi- cally add about 400-500 new members from the community,'' he said. Holt said he is hopeful that someday eli- gibility to join his credit union will be open to all state residents. Technology, too, has hastened the trend of credit unions branching out in search of more depositors, CU officials say. "Having these features means we can help members who have moved out of market, or travel a lot, to stay in touch with their money,'' Marchessault said. "Use of social media is also a feature that allows us to communicate with members on a lot of different platforms.'' American Eagle also has discovered, he said, that many of its younger members still visit their nearest branch, either to use the ATM or to collect information about finan- cial products and services. Displeased bankers But not everyone is happy about credit unions' expanding turf. Banks, in particu- lar, bristle each time they hear a credit union has widened its member access. Bankers say CUs should be forced to stick to their original model of serving household savers who share workplaces or affinities. Credit unions, unlike banks, enjoy a not-for-profit status exempting them from certain federal taxes and regula- tory hurdles. Those savings allow CUs to often charge lower interest rates on consumer loans. "We just want a level playing field,'' said Connecticut Bankers Association 2015 Chair Stephen Reilly, who is CEO of $700 million- asset Connecticut Mutual Holding, parent of banks in Canton, Winsted and Litchfield. "Competition is good, but fair competition.'' Credit union operators deny that their wid- ening membership bases are a threat to banks, particularly smaller community lenders that offer the same deposit, credit, investment and money-transfer services as credit unions. There are plenty of key differences between the two credit groups that minimize CUs' com- petitive threat to banks, officials say. One is that credit unions, with a few excep- tions like Nutmeg State, don't make business loans, CU executives say. Another is that banks can access capital markets, either by issuing debt or selling stock, that credit unions cannot. "I don't get a strong sense,'' Marches- sault said, "that there's a lot of contention between banks and credit unions, and credit unions with other credit unions. There's a lot of room for everybody." n Potential Credit Union Customer Bases To grow their customer bases, an increasing number of Connecticut credit unions are asking bank regulators for permission to expand their membership fields into additional counties and communities. Below is a breakdown of the total population of each county. County Population Fairfield 916,829 Hartford 894,014 Litchfield 189,927 Middlesex 165,676 New Haven 862,477 New London 274,055 Tolland 152,691 Windham 118,428 Total 3,574,097 s O u r C e : u . s . C e n s u s John Holt, CEO, Nutmeg State Financial Credit Union Electric suppliers pay $39M for missing renewable goals The Connecticut Public Utilities Regu- latory Authority has ordered 34 electricity suppliers to submit a total of $38.9 million in alternative compliance payments for failing to meet the state's renewable energy goals. Connecticut's renewable portfolio stan- dard calls for 27 percent of the state's electric- ity to come from Class I, II, and III sources like solar, wind, biomass, and landfill gas by 2020. Each year, companies that supply electricity to residents and businesses are required to have an increasing amount of their supply come from these renewable sources. In 2012, the RPS called for suppliers to use 16 percent renewable power, but PURA recent- ly ruled that 34 of the state's 42 suppliers failed to meet that goal and had to make alternative compliance payments (ACPs), which go toward the state's renewable energy programs. Pay- ments are due March 13. The biggest ACP will be made by New Milford-based supplier Public Power & Utility, which owes $6.5 million. Other notable suppli- ers that made ACPs were TransCanada ($6.2 million), Direct Energy ($3.2 million), Hess ($5.6 million), Viridian Energy ($305,525), Discount Power ($2.8 million), and Dominion ($191,675). The suppliers compete with utilities United Illuminating and Eversource Energy to provide ratepayers with electricity. UI and Eversource also must meet the standard. In 2012, Ever- source met the standard while UI didn't and had to pay $88,942. To make procuring renewable energy more affordable, Gov. Dannel P. Malloy last week pro- posed a joint venture with Rhode Island and Mas- sachusetts to use their collective buying power to pay for significant renewable energy projects. The three states will seek bids this spring from wind, solar, small hydro, biomass, and fuel cell projects of at least 20 megawatts. The states also have other goals such as diversifying the fuel mix of New England's power plants and addressing issues with win- ter heating and electricity reliability. – Brad Kane Facing budget cuts, UConn says Hartford campus remains a priority If the state legislature approves Gov. Dan- nel P. Malloy's proposed budget cuts, UConn would face a $40 million funding gap, likely forcing the school to reduce its workforce, implement unpaid furloughs, and cut pro- grams, President Susan Herbst warned state legislators last week. Does that mean the school's planned $115 million relocation of its West Hartford cam- pus to downtown Hartford is at risk? Probably not, spokeswoman Stephanie Reitz said. "While no final decisions have been made, establishing the downtown Hartford campus is such a major priority for UConn and the Greater Hartford region that we don't antici- pate any change in direction there," Reitz said. Construction on UConn's downtown Hartford campus is slated to start this fall, and UConn plans to start classes in Hartford for the fall semester of 2017. The campus will be located at the old Hartford Times building and accommodate 2,300 students and 250 faculty members. – Matt Pilon RepoRteR's noTebook A customer-service rep stationed at Nutmeg State Financial Credit Union's main office in Rocky Hill. P H O T O | C O n T r i b u T e d

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