GARDNER, Mass.-Now that the purchase is complete and GFA FCU operates the one office of the former Monadnock Community Bank, the credit union is advising any CUs following in its footsteps to prepare for regulatory curveballs when finalizing a deal for a stock-owned bank.
GFA purchased the $82-million bank for $6.4-million, marking the first time a stock institution has been purchased by a credit union. Since late 2011, several CUs have purchased banks, the latest being Landmark CU in New Berlin, Wis.
Both GFA CEO Tina Sbrega and attorney Michael Bell emphasized to Credit Union Journal that the credit union had to be ready for bumps in the road with the groundbreaking purchase, knowing there would be numerous issues they'd face in working with numerous regulators, which too had no experience with a credit union acquiring a stock-owned bank. Bell is a partner with Howard & Howard in Detroit, and represented GFA in the Monadnock dealings.
"We knew the curves would be coming and we told ourselves from the start to be patient. That was a very good thing we did," said Sbrega. "I am not a patient person but I had to become one during this process."
Varied requests and concerns from regulators contributed largely to the unpredictable nature of closing this deal, said Bell, who noted a way had to be devised so that the credit union never touched the bank stock, an impermissible asset for a CU. However, it should be noted, said Bell, CUs can touch other impermissible bank assets, such as commercial loans.
"Strangely enough, in the end the things that were often focused on were issues that had us thinking, among what seemed like many more pressing things to discuss, 'Why are we talking about this?'" said Bell.
Five Regulators Involved
The $429-million CU had to work with five regulatory agencies-the NCUA, FDIC, OCC and state regulators-and through a multitude of regs. Bell said each agency had its own constituencies to honor and please, as well, which added to complexity. He noted the regulators were not accustomed to working together. "We decided to hang on tight, put our heads down, and respond to issues as they arose."
That meant many times Sbrega and Bell had no idea how to respond to a request from a regulator, because there were no precedents nor experiences to draw from for this type of deal.
"Nothing to base a plan of action on, but we would devise a solution. We cannot get specific," said Bell, "but there were some really odd things. But suffice it to say that while we had heavy lifting in front of us, we often found ourselves addressing what-ifs that could occur in 15 years. To get through something like this you have to have a dogged, determined, can-do attitude."
Perhaps just as important as being able to deal with the unexpected details of picking up a bank, the credit union has to establish a clear and open line of communication with NCUA, stressed Sbrega.
"They are very willing to work through the process with you. If you have a good working relationship with them, when those bumps in the road come along you can quickly speak to NCUA and work through the matter. It was a partnership between the credit union and NCUA, which it needed to be."
Arriving At A Valuation
Arriving at a valuation and purchase price that GFA knew would be good for the CU and its members took time, acknowledged Sbrega, much of it being spent on determining the stock value. GFA paid $5.50 in cash for each of the 1.164 million outstanding shares. The price represents 119% of tangible book value, a 13.1% price to deposits, and a 2.73% premium to core deposits. The deal was also contingent on the 2,000-customer bank, which lost $1.8 million in 2011, repaying TARP funds, which it did.
The CEO firmly stated that the credit union had to be ready to walk away from the bidding process, no matter how much time and money had already been invested in the acquisition effort, if the purchase price went above what the credit union was willing to pay. "Not one nickel above or we walk, that's the rules we set and it is what we stuck to," she said. "It's difficult to do that because you get so immersed in the deal, and knowing that the bank was a good acquisition for us-the right market, the right mix of business philosophies."
Other advice from Sbrega: Assemble a team of experts. "From the start surround yourselves with a team of people to compliment your own internal resources. Do that immediately. For example, we needed an attorney with the skills to help us through these uncharted waters and a good investment banking firm for valuing the stock and the bank."
Since GFA FCU took over operation of the bank Dec. 28, the transition has been smooth, both for new members and the previous board of directors, said Sbrega. The CEO said the member transition was made easier by frequent communication to bank customers during the transition. The five-member bank board now serves on GFA's advisory board. It also helped, added Sbrega, that the bank and credit union had the same roots-Monadnock was a state-chartered credit union until it converted to a federal savings bank in 1996.
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