Monadnock bank acquisition by credit union almost complete
The transaction represents the first purchase of a stock-owned bank by a credit union, and is being watched closely in the banking industry.
Proxy ballots have already been counted, and it looks like the depositors of Monadnock Community Bank are for the most part ready to become members of a credit union, said bank President William M. Pierce. Monadnock Bankcorp shareholders approved the deal in May.
There is no established procedure for such a deal, since credit unions have not historically been able to purchase a bank.
'That's why everyone wants to make sure they cross the t's and dot all the i's in the regulatory process,' said Pierce. 'This is probably setting the precedent for things that will happen in the future.'
Because banks and credit unions are subject to different oversight and regulations, no fewer than three federal agencies have been involved and will have to ultimately sign off on the deal - the FDIC, Office of the Comptroller of the Currency and the National Credit Union Administration, which insures credit union deposits as the FDIC does for banks.
'They are all working very closely together,' said Tina Sbrega, GFA president and CEO. 'I would suspect we're on the last leg of this process, and that the approvals should be imminent. We've satisfied all of their questions and concerns.'
Sbrega said she expected regulatory approvals to be complete by November, in time for a closing before year's end, after which Monadnock Community Bank would cease to exist. Its one location in Peterborough would become the second New Hampshire branch for GFA, which already has a branch in Rindge and seven others in Massachusetts.
The $6.4 million cash deal amounts to $5.50 per share of Monadnock Bankcorp, and will set the stage for the liquidation of Monadnock Community Bank, while GFA acquires all of its assets and liabilities.
The deal will also set the stage for Monadnock Community Bank to repay the balance of a $2 million loan it received in 2008 through the Troubled Asset Relief Program. The bank had been making payments until 2010, when its default rate on commercial loans grew so large as to attract the attention of federal bank regulators.
In November 2010, the U.S. Office of Thrift Supervision issued a cease and desist order preventing the bank from issuing any more business loans. Regulators declined to accept any more TARP payments until the bank became more solvent, and urged it to find a merger partner. The $1.8 million balance on the TARP loan is expected to be rolled into the closing, Sbrega said.
While the closing will represent the first-ever purchase of a stock-owned bank by a credit union, it is not the first credit union purchase of a bank. The stage was set for the GFA purchase when the United Federal Credit Union of St. Joseph, Mich., acquired the assets of the Griffith Savings Bank of Griffith, Ind., a mutual bank, in late 2011. According to a financial industry news service, SNL Financial, banking regulators may begin to find more options for credit unions, which remain relatively strong, to acquire some of the nation's troubled banks, whether stock-owned or mutual.
A mutual bank is owned by its depositors, as is a credit union, although a credit union cannot offer many of the loans or services available at a bank, especially certain types of business or commercial loans. A stock-owned bank is owned by its stockholders.
Michigan-based attorney Michael Bell, who worked on the Griffith Savings Bank transaction, was brought in by GFA to help close the Monadnock deal.
'There is a phenomenon where there is a small institution like (Monadnock), and they might not be attractive in the banking world, but they are in the credit union world,' Bell told SNL Financial in an article published earlier this year. 'I think there are deals out there that are good for credit unions that may not make sense for a bank.'
The Monadnock bank was originally chartered as a credit union for the Automotive Wholesalers Association of New England in 1971, and converted to a federal savings bank in 1996.
Regulators are anxious to find solutions for troubled small banks with only one or two branches that are not attracting interest among potential buyers in the banking industry. Credit unions could play a major role in rescuing such institutions.
The credit union movement emerged in the late 19th century to provide access to banking services for working class depositors who were being turned away by the financial institutions of the time.
New Hampshire was home to the nation's first credit union, St. Mary's, founded by French-speaking immigrants to Manchester in 1908. America's Credit Union Museum at 418 Notre Dame Ave. now occupies the location from which St. Mary's Credit Union first operated.
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Dave Solomon may be reached at email@example.com@unionleader.com