The 20,000 member, $353 million GFA Federal Credit Union, headquartered in Worcester Mass., moved a bit closer to finalizing a purchase of a stock-owned thrift when a majority of the bank’s shareholders voted to approve the deal.
More than 99% of the shareholders who voted at the May 31 meeting approved the transaction. The $83 million Monadnock Community Bank had been a credit union until it converted its charter in 1996. It has since fallen upon harder economic times and has been looking for a merger partner.
Under the terms of the sale that the shareholders approved, the transaction will cost the credit union approximately $6.4 million in cash.
Headquartered in Peterborough, N.H., Monadnock operates one office in Hillsborough County, N.H.
The Monadnock office would become a full-service GFA branch. Upon consummation of the acquisition, GFA will serve customers through a network of nine full-service branches, seven in north central Massachusetts and two in New Hampshire, with combined assets of $429 million and deposits of $318.3 million.
If it meets further regulatory terms, this will be only the second time a credit union has purchased a savings bank.
“We are pleased that our shareholders voted to join GFA Federal Credit Union. This new partnership will not only expand service to our customers, communities and employees but will ensure to continue the same care and commitment characteristic of Monadnock,” said William Pierce Jr., CEO of Monadnock.
“Monadnock Community Bank has served its members and community well for over 40 years,” said GFA CEO Tina Sbrega. “We look forward to building upon the tradition of customer service and community commitment and bringing greater convenience not only to Monadnock customers but to the members of GFA as well.” Sbrega also noted that this extension of GFA’s footprint further into New Hampshire fits well with recent strategic growth initiatives.
The two institutions expect the transaction to close sometime in the fourth quarter of this year, but sources familiar with the transaction noted that the shareholder vote was only one of the hurdles the two institutions still faced.
“It was only one hurdle, but it was a very important hurdle,” explained Michael Bell, partner with the Detroit, Michigan law firm of Kotz Sangster. “It was a very important hurdle because it was one we couldn’t control,” he added. Bell is advising the credit union through the transaction.
In addition to approval from the stockholders, the credit union and bank will need the approval of the NCUA, the Office of the Comptroller of the Currency and the FDIC, according to Bell, with the NCUA and the OCC taking the lead role.
Bell explained that the deal’s unprecedented nature is one of its most challenging aspects, particularly that there is no precedent for a credit union buying a stock-owned thrift.
“When GFA approached me about doing this, I did some investigation and told them there is nothing in the [Federal Credit Union] Act that said you can do this, but there is nothing that said you can’t, so let’s go for it,” Bell said.
The proposed deal was so novel that Bell said that among GFA’s first moves had been to work with the NCUA to create an application for the agency to evaluate and approve the deal. “That’s how far outside the box we were,” Bell said. “We had to work with NCUA to build the box.”
Now that the vote has been passed, Bell said GFA and the bank would work with the regulators to address each of their different concerns, and he expressed confidence that each agency’s requirements would be satisfied in the end. But he also stressed that the job would likely not be easy because each regulator would have specific concerns and agendas–some of which might not even be known just yet.
“I think one thing that might have prevented these sorts of deals from going forward before might have been the uncertainty around doing them,” Bell said. “I think GFA is doing the credit union and banking industry a real service by being willing to be the first one to do this.”
Bell explained the NCUA’s concerns centered around what he called “impermissibles” that might be in the bank’s operations and structure that GFA, as a credit union, would not be able to do. For example, there might be a question about how a bank’s depositors would become credit union members. Or what to do about bank depositors that might not be in the credit union’s field of membership. Or the bank might have investments or loans on its books that a federal credit union would not be allowed to have. All these sorts of questions would need to be answered, Bell said.
But he expressed confidence that they would all be met and overcome. He deferred questions on what OCC’s concerns might include to Richard Garabedian, an attorney with the Washington D.C firm of Luse Gorman, Pomerenk & Schick, which is advising the bank through the transaction. Garabedian did not return calls for comment as of press time.
Bell differed with Garabedian’s published comments about whether the GFA-Monandnock transaction represented a potential trend for additional mergers between credit unions and thrifts. Garabedian is on record expressing doubt about whether enough credit unions would have sufficiently strong capital positions to allow them to make similar purchases.
But Bell countered that he had already been taking calls from credit unions interested in buying area thrifts and observed that credit unions need to be in a strong capital position in order to be approved to merge. Bell said that there was nothing about this transaction that necessarily required GFA to have a stronger capital position than it would have had to have to merge with a credit union of similar size.