Maryland FCU Takes First Step Toward Mutual Bank Conversion
In what has become a rare occurrence, a federal credit union in Maryland has taken the what many see as the first step in the process to change to a mutual bank charter.
The board of directors of the $188 million Har-Co Federal Credit Union has asked for members' opinions about whether the CU should convert from a credit union to a mutual bank charter.
NCUA regulations overseeing the charter change process mandated the member consultation as the first step, but many industry critics have long charged that the step is merely pro-forma and that credit union boards that ask for member input have usually already made up their minds in favor of the change.
The Bel Air, Md., credit union cited several reasons for contemplating the change, including the ability to issue stock to raise capital.
"For example, as a credit union, Har-Co cannot raise capital to support or expand its operation other than by retaining net earnings," the credit union wrote in an announcement on its website.
"As a federal mutual savings bank, however, Har-Co could raise additional capital by changing from the mutual to the stock form and selling stock to members and the public, although a change to stock form is not part of the current conversion proposal."
Critics of credit union to bank charter changes have often charged that the leadership of the converting credit unions push the change in order to cash in on a stock offering at a later date.
Har-Co also listed the opportunity to increase membership and better economies of scale as reasons to change to a bank and argued that those economies will make it more likely that it will be able keep prices low and offer additional products and services from additional branches.
"Our long-trusted brand and countywide branches would be, as a bank, open to any citizen, eliminating the restrictions on banking with Har-Co," the CU said in its notification statement.
"Har-Co would be allowed to offer loan and deposit services to anyone, something it cannot currently do as a credit union. Existing and future branch locations would, as bank branches, be permitted to serve and attract almost twice as many citizens as they can now as credit union branches. The board believes this would enable Har-Co to preserve its tradition of competitive pricing, plus make it easier to cost justify adding branches."
The credit union acknowledged that it would face an increased tax burden as a bank but argued that the ability to make more money would balance that extra load.
"As a credit union, Har-Co is not subject to any federal, state or local taxes, other than real estate property taxes and payroll taxes," the credit union wrote.
"Based upon our analysis and meetings with consultants, the board of directors believes that the tax impact should be more than offset by the enhanced earnings capacity under the federal mutual savings bank charter and the ability to more effectively serve Har-Co's current and future members."
Har-Co did not identify the firms which it had consulted to come to this conclusion and CEO Jim Meehan had not returned a call for comment as of press time.
According to NCUA data, Har-Co had a net worth ratio of 8.41% as of the end of last year and low delinquencies in mortgages, with only one foreclosed mortgage loan. The credit union made $300,538 last year and had a return on assets of 0.16% for the year in 2010.
According to NCUA records, Har-Co belongs to no CUSOs or any surcharge-free ATM network. CUNA confirmed the CU is a member through membership in the Maryland and D.C. Credit Union Association. Har-Co does not belong to NAFCU.
The CU was chartered in 1955 to serve primarily the teachers of Harford County Public Schools. The education connection has continued to this day and its field of membership is open to anyone with children in the Harford County Public Schools.
Har-Co won CUNA's Dora Maxwell Award for Social Responsibility in 2000, as well.
"The simple truth is, credit unions and banks are the same in that they exist to improve the financial health and well-being of their owners," the credit union wrote at the end of a page that recounted the credit union's history.
"Helping you is our first and only consideration. It has been the tradition of our first 50 years. It is the promise to you that we will keep as we head into the next fifty years."
Har-Co members have until March 12 to send their written comments to the board which intends to take up the charter change question on March 16.
The last credit union to have a charter change application before the Office of Thrift Supervision was the First Priority Credit Union of East Boston, Mass. After being before the OTS since July of 2007, the CU withdrew its application on Jan. 22, 2010, according to the regulator's website.