Credit Union Leadership as a “Civic Trust”

In describing Jeanne D’Arc’s 110 year history yesterday, I said their leadership was fulfilling a “civic trust.” What does that mean when describing a credit union’s role?

The word “trust” refers to the fiduciary responsibility  of  credit union leaders to be conscientious  stewards of the member’s resources and affairs.   “Civic” enlarges the scope of that oversight to the entire community of citizens from which members join.   This public duty is confirmed by credit union’s tax exemption and their democratic one-person, one-vote governance.

As I researched Jeanne D’Arc’s legacy, an article about a credit union’s conversion to a bank was published.   The occasion was the retirement of Jim Blake the CEO of Brockton Credit Union, founded in 1917, which he rechristened HarborOne Credit Union in 2004.

As the credit union’s President, one of his industry honors was to be chosen by his peers as Chairman of the Massachusetts CUNA League.

In 2013 he initiated a controversial two-step conversion to make HarborOne a stock owned bank.  At the time the 96-year-old, $1.8 billion credit union was the largest state charter in New England.  The move was controversial.  The member vote was just over 60% in favor.

The result of the conversion was to transfer the “common wealth,” that is the approximately $200 million in reserves, to private owners. The new bank’s shareholders received the benefit of this equity but no payouts for credit union owners.

In his February 27, 2022 retirement interview with the Banker and Tradesman Blake shares his thinking about this decision.

The excerpts below  illustrate a different understanding of cooperative’s obligations than that followed by Jeanne D’Arc’s leadership.  I have added emphasis to certain of his statements.

Q: How did you end up at Brockton Credit Union?

A: A search firm that had called me over the years called because Brockton Credit Union was looking for a CEO. I didn’t know what a credit union was. The company told me about them, and I went to the commissioner of banks’ office and talked with them about Brockton Credit Union and then looked at their financials. When I looked at it, I said, “This looks like a mutual savings bank, and they don’t pay taxes.”

Brockton Credit Union at the time was the largest community credit union in the country. I was hired as the chief operating officer, and the expectation was that if things worked out, the CEO was going to retire and I’d take over.

Most of the people that were CEOs of credit unions grew in the credit union industry, and so their view of the industry was guided specifically toward credit union structure and financial capability. I’m not saying anything bad there – I’m saying it’s good.

That wasn’t my focus. I looked at the organization as a financial institution, and we had a credit union charter. The more I got into it, the more I liked it because we were doing really good things, and it was consistent with the history of what credit unions were about at the time.

Q: What led you to convert to a bank?

A: My position had always been that as a credit union, the charter worked for us. As long as the credit union charter worked, we would continue to be a credit union. But if the charter got in the way of the success of the company, then the organization should consider what other options were available.

That was unusual in the sense that credit unions didn’t want to hear comments like that. But the industry changed, and the economy changed. Then we started moving toward the Great Recession, and from my standpoint, that was the real issue for us. We didn’t have much in the way of foreclosures during that period.

What was obvious, as I pointed out to the board, is that we are the only financial institution in the country that has no ability to raise capital.

“We’ve just gone through a Great Recession where it hasn’t impaired us in capital,” I said, “and if this is what we’re dealing with, what do you think the next recession is going to look like? As a board, are we in a position to risk the future of the institution because of the charter, as opposed to having the capability to raise capital if needed?”

And we then talked about all the other issues that, from a product standpoint, we couldn’t get into. We couldn’t do business in Boston; we couldn’t do mortgages over $225,000; and we wanted to get into the indirect auto lending business.

Q: What was the process like?

A: It was a difficult decision to make because we knew that the entire industry was going to attack us. And they did. There were only 35 credit unions that had ever converted to banks. We were the largest credit union to convert to a bank.

Additionally, we were the largest community credit union in the country, and we had received numerous national accolades and trophies about what we do in the community.

We had the [National Credit Union Administration] that was absolutely opposed to us becoming a bank. The NCUA changed their policies as to how a credit union can become a bank, and we were required to send three proxy documents to all of our depositors that said that there’s really no reason for the credit union to convert to a bank.

We had our membership vote in Randolph at Lantana, and we had staff and police prepared in case there were protests. We had one of the largest in-person votes that had taken place in a conversion, and 96 percent of the customers said “yes” to convert to a bank. So, needless to say, it worked well for us. 

Q: When you converted to a bank, did you plan on going public as well?

A: No. When we became a bank in July 2013, we had a couple of things we wanted to do. We wanted to have the ability to go into Boston, and we wanted to buy a mortgage company. It worked for us until we began to get to a point where we needed capital for the growth that we were looking at in the future.

Q: Is HarborOne different from what you envisioned in 2013?

A: We’re totally different because I never had a vision of us being where we are, in terms of the business we’re in and the size that we’re at. This is a tough business, and I say that because the regulatory requirements and competitive environments and credit cycles that you go through – you do the best you can, and you still get bit.

We’ve never had a regulatory issue of any kind. We’ve never had a quarter in our history of losing money. Most of the years when we’ve had CRA ratings, they’ve been outstanding. I just wanted to grow the bank and certainly had no vision of anything like this at all.

End of Interview.

To see HarborOne’s regulatory environment as a bank, one can review the 110 page 2020 SEC 10K filing for the bank and its holding company here.

Other readers might find this link more appropriate.

One Reply to “Credit Union Leadership as a “Civic Trust””

  1. Demutualisation stories often don’t have a happy ending. In the UK, mortgage lending was used to be dominated by building societies, which are financial cooperatives very similar to credit unions.

    In 1989 the first one decided to convert into a bank, and a decade later most others had followed. The campaigns to demutualise required the support of the majority of the members in a democratic vote, and were often organised by “carpetbaggers”, people who joined the building societies for the sole purpose of looting them. Members were offered windfall profits ranging from hundreds to thousands of pounds from demutualisation, but a 2005 all-party inquiry showed that the members ended up paying higher mortgage rates and receiving lower savings rates than they received from the windfall (on average) in 4 years after the demutualisation. The inquiry also found there had been a big rise in remunerations enjoyed by directors following the demutualisation without corresponding improvement in performance, and in fact, quite the opposite.

    The inquiry however points out that there were exceptions – the Northern Rock that demutualised in 1997 was portrayed as the poster boy of demutualisation and was described as the “principal success story”. The story, however, did not have a happy ending – in 2007 the bank experienced the first “run on the bank” in Britain in 150 years, with customers queuing outside Northern Rock branches, often for hours, to withdraw all their savings until the bank crashed, plunging the British economy into the deepest economic crisis in generations.

    In the US too, the Washington Mutual converted from customer ownership to a conventional firm and went public. It did see growth as a result – until it didn’t, and ended up in a massive collapse that marked the largest bank failure in U.S. history.

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