Credit union frustration over NCUA assessments coupled with the inability to raise capital and expand business lending to compete with banks apparently helped spur HarborOne CU’s proposal to convert to a bank, industry analysts said Wednesday.
Just how many other large or mid-size CUs might soon look seriously at following the lead of the $1.8 billion HarborOne of Massachusetts was a question mark. Conversion consultant Alan Theriault of Portland, Maine said he knows of at least one billion-dollar CU ready to make the switch and a handful of $200-$400 million CUs in the same boat.
“Margins have been pretty thin for awhile now and credit unions see no way to build capital and they don’t like paying those assessments while seeing so much uncertainty ahead,” maintained Theriault.
Richard S. Garabedian, a partner at Luse Gorman Pomerenk & Schick, a Washington law firm, added, “I’d say the corporate crisis and the sense of many credit unions feeling boxed in” by the onslaught of new regulations and tighter NCUA exam restrictions triggers moves like HarborOne.
Except for the $1.4 billion Technology CU of San Jose, Calif. and a few smaller CUs with conversion plans still in the offing, there has been a lull in activity, but the trend may be about to change, maintained Garabedian.
“With Dodd-Frank, there are a lot more credit unions out there looking at this option,” said Garabedian who claims to have done the last major conversion, in 2009 of Rhode Island’s Coastway CU in Cranston becoming Coastway Community Bank, a mutual.
The capital issue seemed paramount for HarborOne as well as the need to expand its physical presence in metro Boston, said Garabedian.
The president/CEO of one Massachusetts CU, David L’Ecuyer of the $350 million Central One CU, Shrewsbury, said he sympathized with HarborOne’s decision.
“I don’t begrudge (HarborOne CEO) Jim Blake’s decision based on what he sees as a charter choice apparently based on field of membership restrictions,” said L’Ecuyer adding he often finds FOM rules inhibiting as well in doing mergers outside home counties.
“Look, you take the good with the bad and there advantages that we have as a credit union that you can’t as a mutual savings bank,” said L’Ecuyer. “It all depends on your own circumstances.”
Another consultant, Marvin Umholtz of Olympia, Wash. noted a major barrier in conversions is the lengthy process.
“Even if a credit union's leaders started looking into the option today, it could take a year or more to leap all of the due diligence and regulatory hurdles that would lead to a membership vote on the conversion,” said Umholtz. The one exception “that would catalyze a rush to the exits would be if credit unions were subject to federal and state income taxes.”