The 20,000 member, $353 million GFA Federal Credit Union,headquartered in Worcester Mass., moved a bit closer to finalizinga purchase of a stock-owned thrift when a majority of thebank’s shareholders voted to approve the deal.

More than 99% of the shareholders who voted at the May 31meeting approved the transaction. The $83 million MonadnockCommunity Bank had been a credit union until it converted itscharter in 1996. It has since fallen upon harder economic times andhas been looking for a merger partner.

Under the terms of the sale that the shareholders approved, thetransaction will cost the credit union approximately $6.4 millionin cash.

Headquartered in Peterborough, N.H., Monadnock operates oneoffice in Hillsborough County, N.H.

The Monadnock office would become a full-service GFA branch.Upon consummation of the acquisition, GFA will serve customersthrough a network of nine full-service branches, seven in northcentral Massachusetts and two in New Hampshire, with combinedassets of $429 million and deposits of $318.3 million.

If it meets further regulatory terms, this will be only thesecond time a credit union has purchased a savings bank.

“We are pleased that our shareholders voted to join GFA FederalCredit Union. This new partnership will not only expand service toour customers, communities and employees but will ensure tocontinue the same care and commitment characteristic of Monadnock,”said William Pierce Jr., CEO of Monadnock.

“Monadnock Community Bank has served its members and communitywell for over 40 years,” said GFA CEO Tina Sbrega. “We look forwardto building upon the tradition of customer service and communitycommitment and bringing greater convenience not only to Monadnockcustomers but to the members of GFA as well.” Sbrega also notedthat this extension of GFA’s footprint further into New Hampshirefits well with recent strategic growth initiatives.

The two institutions expect the transaction to close sometime inthe fourth quarter of this year, but sources familiar with thetransaction noted that the shareholder vote was only one of thehurdles 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 firmof Kotz Sangster. “It was a very important hurdle because it wasone we couldn’t control,” he added. Bell is advising the creditunion through the transaction.

In addition to approval from the stockholders, the credit unionand bank will need the approval of the NCUA, the Office of theComptroller of the Currency and the FDIC, according to Bell, withthe NCUA and the OCC taking the lead role.

Bell explained that the deal’s unprecedented nature is one ofits most challenging aspects, particularly that there is noprecedent for a credit union buying a stock-owned thrift.

“When GFA approached me about doing this, I did someinvestigation and told them there is nothing in the [Federal CreditUnion] Act that said you can do this, but there is nothing thatsaid you can’t, so let’s go for it,” Bell said.

The proposed deal was so novel that Bell said that among GFA’sfirst moves had been to work with the NCUA to create an applicationfor the agency to evaluate and approve the deal. “That’s how faroutside the box we were,” Bell said. “We had to work with NCUA tobuild the box.”

Now that the vote has been passed, Bell said GFA and the bankwould work with the regulators to address each of their differentconcerns, and he expressed confidence that each agency’srequirements would be satisfied in the end. But he also stressedthat the job would likely not be easy because each regulator wouldhave specific concerns and agendas–some of which might not even beknown just yet.

“I think one thing that might have prevented these sorts ofdeals from going forward before might have been the uncertaintyaround doing them,” Bell said. “I think GFA is doing the creditunion and banking industry a real service by being willing to bethe first one to do this.”

Bell explained the NCUA’s concerns centered around what hecalled “impermissibles” that might be in the bank’s operations andstructure that GFA, as a credit union, would not be able to do. Forexample, there might be a question about how a bank’s depositorswould become credit union members. Or what to do about bankdepositors that might not be in the credit union’s field ofmembership. Or the bank might have investments or loans on itsbooks that a federal credit union would not be allowed to have. Allthese sorts of questions would need to be answered, Bell said.

But he expressed confidence that they would all be met andovercome. He deferred questions on what OCC’s concerns mightinclude to Richard Garabedian, an attorney with the Washington D.Cfirm of Luse Gorman, Pomerenk & Schick, which is advising thebank through the transaction. Garabedian did not return calls forcomment as of press time.

Bell differed with Garabedian’s published comments about whetherthe GFA-Monandnock transaction represented a potential trend foradditional mergers between credit unions and thrifts. Garabedian ison record expressing doubt about whether enough credit unions wouldhave sufficiently strong capital positions to allow them to makesimilar purchases.

But Bell countered that he had already been taking calls fromcredit unions interested in buying area thrifts and observed thatcredit unions need to be in a strong capital position in order tobe approved to merge. Bell said that there was nothing about thistransaction that necessarily required GFA to have a strongercapital position than it would have had to have to merge with acredit union of similar size.