The $193 million HAR-CO Credit Union in Bel Air, Md., is looking to convert to a state chartered mutual savings bank for the second time in four years.

In February 2012 after its members approved a conversion proposal, the suburban Baltimore credit union announced it expected to become a mutual bank by April 1 of that year. But a conversion completion was never announced.

Earlier this year, as required by NCUA regulations, HAR-CO published a notice of consideration in a local newspaper that it was exploring a possible conversion.

“As a bank with the increased ability to add customers, we believe HAR-CO would be able to generate substantially greater revenues,” the credit union's notice stated. “The board of directors believes that greater revenues would help support and expand the types of products and services offered to the membership.”'

NCUA financial performance reports show that HAR-CO's loan revenues and membership have been declining over the last five years.

In 2011, the credit union posted total loans of $119 million, which increased to $131 million by the end of 2013, but fell to $114 million by the end of 2015, according to NCUA financial performance reports. What's more, its loan income dropped from $6.7 million in 2011 to $5.2 million in 2015.

Membership has also been declining from 20,005 in 2011 to its current membership of 16,437. Ten years ago, HAR-CO served a membership of 30,104, according to its 2006 Call Report.

At the end of this year's first quarter, HAR-CO recorded total loan revenue of $112 million, down from $116 million at the end of the first quarter of 2015. Loan income also fell slightly from $1.3 million at the end of the first quarter of 2015 to $1.2 million at the end of the first quarter of 2016, according to NCUA financial performance reports.

HAR-CO's net worth at the end of 2015 was 9.32%, lower than the peer average of 10.95%. Its ROAA was 0.27% at the end of last year, lower than the peer average of 0.54%. At the end of 2016's first quarter, the credit union's net worth declined slightly to 9.11% and its ROAA dropped to 0.18%, according to NCUA financial performance reports.

In its public notice, HAR-CO stated there would be no economic benefit to senior management stemming from the proposed conversion. The credit union also noted that it would not need member approval to compensate board members.

Under Maryland law, state chartered credit unions are allowed to pay directors with the approval of their members.

Although HAR-CO does not compensate its board members, the other five state chartered Maryland credit unions insured by the NCUA do pay their board members, according to their IRS 990 forms.

The credit union said the conversion would give it additional business flexibility such as raising new capital.

“As a Maryland-chartered mutual savings bank, however, HAR-CO would have the option to 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 credit union stated. “In the event of a future conversion to the stock form, ownership and control of HAR-CO would be transferred from its current members to those who purchase HAR-CO's stock, including any current members who purchase and pay for the stock. A change to stock form would require separate approvals in the future from the then current HAR-CO board, HAR-CO members and bank regulator.”

However, there is plenty of competition in Maryland.

There are 46 state chartered banks in Maryland, according to the state's Office of the Commissioner of Financial Regulation. During fiscal year 2015, the total assets of Maryland's banks grew by $3 billion to $28.5 billion, even with the receivership of NBRS Financial Bank in October 2014, according to the OCFR's annual report.

The state's banking industry has improved significantly over the past few years, according to the OCFR. Maryland state chartered banks in aggregate have grown their total assets by 11.56%, capital by 13.91%, deposits by 11.93% and increased profitability by 42% over fiscal year 2014.

HAR-CO also said it analyzed the impact of losing its tax-exempt status after converting to a state chartered mutual savings bank.

“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 mutual savings bank charter and the ability to more effectively serve HAR-CO's current and future members,” the credit union's statement read. “We further believe this change would improve our ability to sustain a competitive pricing philosophy while continuing to increase our convenience and service to members.”

The credit union noted that in prior credit union conversions, commentators have said rates and fees for new loans and deposits have been less favorable to members.

“However, our board believes that the conversion would not adversely affect our ability to continue to offer attractive loan and deposit rates and fees following the conversion,” the statement read.

Maryland's OCFR said it received HAR-CO's conversion application on April 21.

“The office will consider the effects of the proposed action on the current members of the credit union applicant to confirm that current members will not be adversely affected by the change in charters,” Summar J. Goodman, deputy director of communications for the Maryland regulator, said. “The application process is lengthy. In addition to our review, the credit union must obtain deposit insurance [from the Federal Deposit Insurance Corporation] and the membership must vote to approve the change as well.”

In its public notice, HAR-CO said members should not expect to receive any conversion related materials from the credit union until the conversion review is completed, which can take several months.

James J. Meehan, who has been president/CEO of the credit union since 1996, did not return a phone call and email from CU Times requesting his comments about the conversion.

HAR-CO was founded in 1955 by the Teacher's Association of Harford County Public Schools.

The last credit union to bank conversion occurred on July 1, 2013 when the $1.8 billion HarborOne Credit Union in Brockton, Mass., one of the oldest credit unions in the country, opened its doors as HarborOne Bank.