HAR-CO Plans Conversion

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BEL AIR, Md.-HAR-CO Maryland FCU last week notified members and the NCUA that it plans to convert to a mutual savings bank.

If successful, it would become the first conversion in more than two years. Officials at HAR-CO were not immediately available for comment.

The $188-million HAR-CO has posted a letter to members on its website (www.harcocu.org) in which it says the move to mutual savings bank would allow it to "increase membership and economies of scale to better meet the current and future needs of our members." The statement adds that as a bank it would be "open to any citizen, eliminating the restrictions on banking," and that it would be "allowed to offer loan and deposit services to anyone, something it cannot currently do as a credit union."

"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 statement reads. "As a bank with the increased ability to add customers, we believe HAR-CO would be able to generate substantially greater revenues, which would help support and expand the types of products and services offered to the membership."

HAR-CO's letter to members states that it currently "cannot raise capital to support or expand its operation other than by retaining net earnings. 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."

The CU's December 2010 5300 Call Report shows it has $15.8 million in capital, giving it a ratio of 8.51%, which NCUA defines as "well capitalized." The credit union reported a $300,538 net gain in 2010. HAR-CO has 26,590 members with a multiple SEGs. It was chartered in 1955 to serve school employees in the Baltimore suburbs of Harford County.

In a statement to Credit Union Journal, Jennifer M. Simmons, interim CEO with the Maryland & District of Columbia CU Association, said, "While the Board of the MD & DC Credit Union Association firmly believes that the credit union charter provides the best vehicle for serving the financial needs of consumers, we do support the right of member/owners to exercise democratic control of their credit union. The association encourages credit unions considering conversion to make their decisions based solely on the best interest of the members and that the credit union provides full, plain-language and timely disclosures to the membership so that an informed decision can be made by the member/owners."

In its statement, HAR-CO Maryland FCU addressed the issue of the loss of its tax exemption should it convert to mutual savings bank. "The board has considered that a conversion to a federal mutual savings bank will end HAR-CO's tax exemption," the credit union said. "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. 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. We further believe this change will improve our ability to sustain a competitive pricing philosophy while continuing to increase our convenience and service to members."

Time To Pull No Punches

At least one person believes other CUs in HAR-CO's market should begin reaching out to those members now. "From a pure brand and marketing viewpoint their local and regional CU competitors should absolutely start targeting their membership," said Paul Lucas, a marketing consultant in Fairfax, Va. "There is no nice way to do this, and their competitor CUs should aggressively target and acquire market share while it's there for the taking and they are in limbo spending their time and resources trying to get their members to approve the charter change."

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