More than a year after the idea was first publicly floated, the$1.9 billion HarborOne Credit Union in Brockton, Mass., has set a specialmeeting on March 11 for members to vote on its proposed conversionto a mutual co-operative bank charter.

Although James Rice, HarborOne's vice president of marketing,confirmed the special meeting, he said Thursday that 141,000-membercredit union “will not be commenting further at this time given theregulatory constraints around the charter change process.”

The credit union has said among the reasons to convert were theflexibility to expand HarborOne's markets and customer base,increase its lending authority, including small business lending,and gain access to additional capital.

HarborOne's President/CEO James Blake has told Boston media thatbecause HarborOne's field of membership is limited to fourcounties, the credit union has been forced to turn down $70 millionin mortgages and other consumer loans from potential members wholive outside its market.

But soon after the conversion plan was announced Feb. 16 andapproved by HarborOne's board on March 21, it sparked an industry-wide debate and criticism from some creditunion leaders.

A former NCUA attorney, Steve Bisker in Washington, D.C.,disputed HarborOne's reasons for mulling the move, saying HarborOnewas at only 20% of its member business lending cap, based on hisexamination of HarborOne's preliminary online notice filed withregulators.

“The stated 'consequences of conversion' are inaccurate ormisleading at best,” Bisker told Credit Union Times inMarch, pointing to what he said are inconsistencies on HarborOne'sstated need for more capital to lend and its prospects forincreased membership under a mutual charter.

Although HarborOne has increased its total loan portfolio from$1.3 billion in 2008 to $1.5 billion in 2011, its loan income hasdecreased from $73 million to $67 million in the same time frame,according to the credit union's NCUA financial reports.

Its investment income also has fallen significantly from $9.6million in 2008 to $4.1 million in 2011. What's more, its netincome has dropped by 50% from $14.8 million in 2009 to $7 millionin 2011, according to HarborOne's financial statements filed withthe NCUA.

Industry analysts argued credit union frustration over NCUAassessments coupled with the inability to raise capital and expandbusiness lending to compete with banks apparently helped spurHarborOne CU's proposal to convert to a bank.

“Margins have been pretty thin for awhile now and credit unionssee no way to build capital and they don't like paying thoseassessments while seeing so much uncertainty ahead,” Alan Theriaultof Portland, Maine, a conversion specialist, told the CreditUnion Times in February. He also said that at least onebillion-dollar CU was ready to make the switch and so were a handful of $200-$400 millionCUs.

Richard S. Garabedian, a partner at the Luse Gorman Pomerenk& Schick law firm in Washington, D.C., said, “I'd say thecorporate crisis and the sense of many credit unions feeling boxedin” by the onslaught of new regulations and tighter NCUA examrestrictions triggers moves like HarborOne.

Except for the $1.4 billion Technology CU of San Jose, Calif.and a few smaller CUs with conversion plans, there has been a lullin activity, but the trend may be about to change, Garabedian saidin a Credit Union Times article in February. Nevertheless,members of Technology CU overwhelming rejected to convert theirinstitution to a mutual bank in September. Of the total18,000 votes cast, 14,000 voted no to the conversion and 4,000voted in favor of it.

Blake recently told the Boston Business Journal that heis getting “very positive feedback” from members about theconversion proposal.

HarborOne CU had said it hoped the conversion would have beencompleted by end of this year. However, the Boston publicationquoted bankers and industry groups that criticized the NCUA fordeliberately slowing down the conversion process.

NCUA responded by saying the entire process usually takes abouta year to ensure that the credit union's conversion complies withall regulations.

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