HAVERHILL, Mass. — By the time you read this story, members of the $98 million Northeast Community Credit Union will have met to consider and vote upon the proposed merger of their credit union with the nearby Haverhill Bank and depositors in the bank will have begun gearing up for a similar meeting.

Under Massachusetts' law, which governs credit union mergers, 66% of credit union members attending a special meeting have to vote for the merger and the regulation appears to apply to this deal as well.

Once the meetings are conducted and assuming the members and depositors vote in favor of the merger, the CU will have to submit a formal application to NCUA to approve it. The two state chartered financial institutions have set their meetings to consider and vote upon the merger for Sept. 13 (Northeast) and Sept. 18 (Haverhill Bank).

The unique nature of the merger seems to have bypassed NCUA's 30-60-90 day notification and ballot procedures for CU-to-bank charter conversions since this is not considered a charter conversion, even though at the end of the procedure a credit union will have ceased to exist and credit union members will begin their financial lives anew as bank customers.

Massachusetts' law has for years allowed the merger of a state chartered CU and a state chartered bank under its merger procedures without recognizing any substantial difference between the two. However, according to the credit union, theirs is the first such merger to date.

Northeast and Haverhill Bank jointly informed their members and depositors of the intention to merge at the end of July. The credit union and bank have said that they expect their members and depositors to approve the deal.

The singular nature of the merger, the only one in the history of the Commonwealth, for example, and the nature of Massachusetts' law which allows the merger, means that NCUA will find itself in the somewhat unique position of evaluating what is in effect a charter conversion under rules that the agency normally applies to mergers.

This takes a procedure that, in other circumstances, may be among the most regulated of credit union processes and throws it into a very amorphous situation. NCUA's regulations that oversee mergers are contained in part 708(b) and generally don't discuss many requirements for state chartered credit union mergers. State chartered credit unions have to get prior approval of the agency for their merger, but that is when they merge with other credit unions. They have to follow their state's regulations and have to submit a plan to the agency, but the regulations governing that plan, for example, presuppose that the credit union will remain a credit union.

The Federal Credit Union Act, section 1785/205, appears to offer one set of criteria the agency could use when it lines out that NCUA will evaluate CU mergers by a number of measures including “whether the credit union is a cooperative association organized for the purpose of promoting thrift among its members and creating a source of credit for provident or productive purposes.”

This would seem to be a key point, except that Haverhill Bank is a mutual bank that under Massachusetts' law shares many aspects of governance with credit unions.

This leaves the agency trying to thread a needle on the matter, not wanting to seem unconcerned about whether credit union members know what they will be giving up if they agree to the merger while, on the other hand, not wanting to seem as though it is arbitrarily closing the door on it.

The degrees of difference in disclosures between the two procedures are one thing that may trouble the agency.

For example, if the two institutions have followed the existing merger rules the CU and the bank will have had to publish Massachusetts' Division of Bank's notice of the merger application published in local media. In addition they will have had to publish the notice in their branches as well and the Division will open a public comment period on the application. If need be, the Division can also decide to call a public hearing to take more community input on the question, the Division's regulations said, but the Division has not yet commented on any such action.

By contrast, under NCUA's charter conversion regulations, all members of the CU would have had to receive disclosure notices about the decision as well as made public notices. Should it decide not to approve the merger, the agency's problem may be a lack of specific statutory or regulatory reasons for doing so.

NCUA Director of Public and Congressional Affairs John McKechnie said the agency's role in the merger only really began when the merger application arrived and would not speculate on what criteria the agency would use when evaluating it, other than to point to the FCUA.

Part of the background for the evaluation may be how the CUs members and other CUs look at the merger.

Robert Kimmett, senior vice president with the Massachusetts' Credit Union League said the league firmly believed that the credit union charter is the best one for credit union members, but also believed that credit unions, as democratically governed institutions, should do what their members want them to do.

He also said that the league did not expect the merger to signal a wave of similar moves across the state.

“We view this as a particularly singular event,” Kimmett said. “The nature of this credit union and this bank, the shared history that members of their boards share, the relatively small size of the community they serve, the focus they each have on that community, all of that argues that this is not something which was as likely to happen anywhere else.”

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