HarborOne Chafes on FOM and Regs
Now there are two large credit unions, the $1.8 billion HarborOne Credit Union of Brockton, Mass., and the $1.5 billion Technology CU of San Jose, Calif., making plans to convert to mutual bank charters.
A third credit union pursuing charter change is the smaller $193 million HAR-CO FCU, based in Bel Air, Md.
The news of the latest conversion consideration by HarborOne involves special historic twists in structure and seemed to jolt the industry.
According to insiders and statements made by HarborOne, the conversion move was apparently linked to a variety of factors, including capital and loan restraints, field of membership restrictions and unease over onerous regulatory burdens, the result of new NCUA policies as it seeks to comply with the Dodd-Frank Act and other new statutes.
In Massachusetts, HarborOne said it has filed preliminary conversion papers with state regulators and the NCUA. It also set a March 21 vote of its board to organize a “cooperative bank charter,” a restrictive Massachusetts vehicle dating back to the 1860s.
Detailing its co-op plans on its website, HarborOne said it had started soliciting comment from its 141,000 members on the concept. If the board decides to go forward and all goes as planned and clears legal hurdles, HarborOne would switch to a bank by August or September.
The co-op bank structure would empower the metro Boston CU to expand business loans and mortgages, increase capital and branch into downtown Boston and elsewhere in the state, according to James Blake, HarborOne president/CEO and a former chairman of the Massachusetts Credit Union League.
Though Blake had not returned phone calls from Credit Union Times about the precise plans, he told Boston media that HarborOne’s FOM is limited to four counties. He said also HarborOne has been forced to turn down $70 million in mortgages and other consumer loans from potential members who live outside its market.
HarborOne, founded in 1917, has 15 branches and is the second largest CU in New England.
Meanwhile, in California, there has been no word from Technology CU on its board's plans to consider a conversion plan after detailing the proposed switch Oct. 3 on its website. Echoing comments similar to HarborOne on capital and FOM limits, Technology said it would seek member comment prior to a Nov. 2 board meeting, but the CU since then has made no formal comment about the processing of the application with the NCUA, the FDIC or other agencies.
Barbara Kamm, president/CEO of Technology, told Credit Union Times last week, “I cannot discuss the conversion plan.”
A spokeswoman for the California Department of Financial Institutions said Technology “is working with the NCUA on required documents and there has been no member vote yet.”
As for HarborOne, analysts contend frustration over NCUA assessments coupled with inability to raise capital and expand business lending in line with bank competition apparently figured in the HarborOne move.
“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 seeing so much uncertainty ahead,” maintained Alan Theriault, a Portland, Maine, consultant and adviser to CUs seeking a charter switch.
Theriault, who heads up his own firm, CU Financial Services, said he knows of at least one billion-dollar CU ready to make the switch and a handful of $200 million to $400 million CUs in the same boat.
Another consultant, Richard S. Garabedian, a partner at Luse Gorman Pomerenk & Schick, a Washington law firm, credited the “corporate crisis and the sense of many credit unions feeling boxed in” by the onslaught of new regulations and tighter NCUA exam restrictions for triggering the HarborOne conversion consideration.
As it has in other conversions bids, CUNA, joined by the Massachusetts Credit Union League, was careful to stress choice in CU decision making on conversions.
"Ultimately, the interests of the members of the credit union need to be protected,” said CUNA President/CEO Bill Cheney. "That can only happen when the members, who will make the decision on whether to convert from a credit union to some other institution, have all of the facts about the impact on them as a result of the change, provided with complete transparency."
Cheney added that it is CUNA's view that the credit union charter is the best option for the members of a credit union.
Echoing that line, several top CEOs in Massachusetts CUs voiced support for the CU charter despite its faults.
John Bissell, executive vice president of the $1.1 billion Greylock FCU of Berkshire, the state’s third largest, said it had no interest in following HarborOne. “We are confident our model is the right one,” he said. He noted that Greylock continues to serve Berkshire County successfully and profitably. “But we cannot speak for HarborOne,” said Bissell.
Many CU leaders said they were taken aback by the HarborOne action and had not known in advance it was coming, but they still expressed dismay. Some also said it was puzzling in light of the Bank Transfer Day boomlet and consumer anger over moves by Bank of America and others to impose new fees.
“We cannot speak for HarborOne, but we believe this is a great time to be a credit union,” said a spokesman for the $4.2 billion Digital FCU of Marlborough, the state’s largest.
Robert Cashman, president/CEO of the $957 million Metro CU of Chelsea, joined in, saying he was somewhat surprised by the HarborOne proposal. However, he added, his CU firmly believes that the cooperative charter is best. Cashman is a CUNA director and a director at the Massachusetts league.
Garabedian noted there had been a recent general lull in conversion activity with a few exceptions, but the trend may be about to change.
“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 president/CEO of another Massachusetts CU, David L’Ecuyer of the $350 million Central One CU, Shrewsbury, said he sympathized with HarborOne’s decision. He added that he would not begrudge the charter choice.
“Jim Blake apparently based his charter decision on field of membership restrictions,” said L’Ecuyer. L’Ecuyer said he, too, finds FOM rules inhibiting as well in doing mergers outside home counties but not enough to make him switch charters.
“Look, you take the good with the bad, and there are 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.”