James Blake, president and chief executive officer of Brockton-based HarborOne Credit Union, recently met with GateHouse Media reporters to discuss the credit union?s attempt to become reclassified as a bank. HarborOne is the largest state-chartered community credit union in New England, but would be able to expand beyond southeastern Massachusetts if it became a bank. The vote is this month. Below is an edited transcript of the meeting.
This really came out of the impact of the financial crisis on the entire banking structure in the country.
We had a couple of issues that were of concern to us. One: We are a very large auto lender. We have about a $500 million auto portfolio on our balance sheet. The challenge that exists is that today we?re in most of the dealerships that we want to be doing business with. It doesn?t leave much more opportunity for us to grow. ... Most importantly, in the last two years we turned away $140 million worth of lending business from people who couldn?t do business with us because they don?t live or work in our four counties (the credit union?s charter prohibits business outside southeastern Massachusetts).
The second issue then became commercial lending. We started up a commercial lending division a few years ago. And credit unions have a cap on how much commercial lending they can do. So if you take the total assets of the company, only a 121/4 (percent) of the total assets in the company can be in commercial lending. We want to see that number be closer to 25 percent.
How close are you to that cap?
We?re only in the neighborhood of 3 percent today. However, in the last couple years we have added a lot of commercial lending people so by the end of this year we expect to be at $100 million in commercial lending loans.
Any other reasons to become a bank?
The third item is branching. Twenty to 30 percent of the working force commutes to Boston every day and we surveyed them to find out how important it is to have a location in Boston. Obviously, it popped up as yes. ... A fourth issue has to do with the financial collapse that occurred. Credit unions are the only financial institutions in the country that have no way to raise capital. So if we get into a bind there is no way out. Becoming a cooperative bank allows us access to capital if we need it.
Is there any chance for you guys to petition to put branches in Boston?
We could petition to expand our field of membership. ... However the entire banking industry in the state would oppose us on that. ...
What has kept you financially healthy?
We have made the decisions that needed to be made to enhance the earnings of the institution. For example: on indirect lending originally ... if you go back 15 years, credit unions in Massachusetts couldn?t get in the business. So working with state trade associations we filed with the commissioner a bill to allow the credit unions to get into the indirect (auto loan) business. We were the first credit union in the state in the business. We did the same thing to allow us get into the mutual fund annuity and stock business. ... Back when I started here we couldn?t make a mortgage loan over $200,000. How can you do business in this state at that? We likewise got that changed and became the first credit union in the state to do that business. ... We became the first state charter credit union to get into the commercial lending business.
Apparently this type of conversion from a credit union to a bank has never happened in Mass.?
It hasn?t. So people are afraid that suddenly we?re going to turn into some giant institution and that our service and the feel of the institution will change. First off, our financials are our financials, so there?s no sudden great growth track that is going to take place. If there were, we would be doing it now. ... This will allow us to continue to do what we?ve been doing.
Credit unions cannot go public, but is it easier to become a public company, selling stock, from a cooperative bank status as opposed to a mutual bank status?
It?s easier to become a public company as a mutual savings bank. But you do it through a vote. For a cooperative bank, the vote is one member, one vote, opposed to if you have a $100,000 in a mutual savings bank, you get more votes.
How do you overcome the fear that people might have about this being a chance to get more for people connected to the company?
I think you have to look at how we have conducted ourselves as an institution. I don?t think we have ever had a lawsuit by a customer. I don?t think we?ve ever had a lawsuit of an employee. ... If you look at what we have done in the past and it?s the same people in every sense and if we have a history of being honest, ethical and straightforward, why would we set ourselves up to be told, ?I told you so.?
You guys made it through the worst financial crisis in our history since the Great Depression. Why get bigger if it seems like you open your exposure?
We?re almost $2 billion. That is not a small institution for this state. We already have size. We?ve grown significantly already. In the last five years we?ve grown 35 percent. We?ve always grown and the reason is that that growth provides more income to pass on in terms of your rates on deposits and keeping your fees low.
What does the conversion allow you to do? How far can you go?
Anywhere in the state. But we?re a South Shore institution. We have no plans, desires or expectations that we?re going to be a state-wide organization.
How will this affect taxes and income for local communities who have HarborOne?
We?re going to make close to $9 million this year. Take a 35 percent tax on that, and that is what it would generate. ... It goes to the state and to the federal. ... The revenue that we will generate because of increased loan volume will more than offset the taxes we?ll end up paying.
Why has there been no credit union that has converted to a bank in this state?
I don?t know. I will say is that it is a difficult process. The NCUA (National Credit Union Administration) ? they don?t want us to go. ... This is a hard process to go through. You have opposition, and the hardest part is getting people to just vote.
How do people vote?
We mail them a ballot in February. We?ve sent them two mailings already, and we will send them a third one and in the third one it has a ballot. They can either mail it or bring it into a lock box in the branch or they can bring it to a special meeting in March.
How would small businesses benefit from this conversion?
The lending capabilities, the commercial lending side ? it represents a ton of expansion. This past year, in putting the commercial piece aside, we took applications for over $1 billion of loans. This will allow us to do more. ... The direct benefit is companies expanding, growing, hiring more people.
Is there a plan in place for expansion if the conversion goes through?
Not yet, but we will quickly put a plan in place. We?ve held off, partly because, given where the market is today, we haven?t been on a strong growth track because we?ve been conserving capital.
What was the original intent of the credit union?
It was really to help people in the shoe industry. When credit unions and saving banks began, it was really because the factory workers in the state really weren?t welcomed in banks. If you went into some of the original banks in the state, they dealt exclusively with upper income people.
Interest rates. Will they be unchanged, better or worse?
I don?t want to say better, but I do want to say that our interest rates will be managed the same way they have been historically. We look where we are competitively in the market place and price accordingly.
Has the inability of a credit union to become a bank ever caused a credit union to close?
I don?t know. What caused hundreds of credit unions to fail in the last two years or so is the lack of access to capital.
Could this happen again next year if this fails this year?
Yes. That?s a possibility, but we probably wouldn?t try again. If people vote against it then people voted against it.
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