NCUA Reviewing Massachusetts Credit Union’s Application to Merge With Bank

In March 2022, Arrha Credit Union President/CEO Michael Ostrowski wrote an opinion article for a local news site, MassLive, on how credit unions are filling the void left behind by several smaller community and larger banks that disappeared because of mergers.

“As more and more local community banks merge, it has left an opportunity for credit unions, especially Arrha Credit Union, to fill this void and become the local choice,” Ostrowski said while noting the credit union is excited about the future. “Arrha Credit Union is located in West Springfield (Mass.), and we are filling that void. We are the local choice.”

But over the last two years, something apparently has changed in filling that void for Ostrowski and the credit union’s board of directors because the NCUA is currently reviewing Arrha’s application for permission to ask its 9,456 members to merge with the $378 million Pittsfield Co-operative Bank, headquartered about 55 miles from the credit union.

“The application is under review,” an NCUA spokesperson said.

On July 30, the $147 million Arrha’s board of directors voted to approve the proposed merger with the Pittsfield-based bank. Within 30 days of that vote, federal regulations required the credit union to submit a Notice of its Intent to Merge and Request for NCUA Authorization (NIMRA) application to conduct a member vote.

The proposed merger first came to light in a June 29 public notice published in a local newspaper, which was required by federal regulations.

While the public notice included the usual benefits of the proposed merger – economy of scale and financial capacity, expanded products and services, operational efficiencies and increases in earnings – it also stated the “consolidation may result in the reduction of certain employees and operational transition may cause disruption.”

Specializing in mortgage lending, Pittsfield Cooperative Bank’s 59 employees operate four branches that serve 28,000 customers and manage $266 million in loans, $286 million in deposits and $53 million in capital, according to its second quarter FDIC financial filings. The bank, which opened for business in 1889, posted a net income of $113,000 in the second quarter.

“Pittsfield Cooperative Bank believes that combining with Arrha Credit Union will create economies of scale and an expansion of services for their members and our customers,” Pittsfield Co-operative Bank President/CEO J. Jay Anderson, said in a prepared statement.

Chartered in 1929, Arrha’s 27 employees operate three locations, and manage $110 million in loans, $122 million in total shares and deposits, and $12.4 million in equity, according to NCUA financial performance reports. The credit union posted a loss of $9,222 at the end of the second quarter.

Ostrowski did not respond to several email and phone requests from CU Times for additional comments and information about the proposed consolidation.

Arrha’s NIMRA application, under review by the NCUA, included 15 different documents and statements such as the merger plan, the proposed merger agreement, a copy of the bank’s last two examination reports, copies of all contracts reflecting any merger-related compensation or other benefit to be received by any director or senior executive, a statement of the merger valuation of the credit union, and a statement of whether any merger payment will be made to the members and how much of a payment will be distributed among members.

The NCUA can disapprove of the proposed merger if the NIMRA application lacks the required documents, if the merger payment offered by the bank to the members is less than the merger valuation, or if the application fails to explain the nature and amount of any compensation to be received by the credit union’s directors or senior executives in connection to the merger or to justify that compensation, according to federal regulations.

If the NCUA approves the NIMRA application, the proposed consolidation will be voted on by the credit union’s members. At least 20% of the members eligible to vote must participate in the vote, according to federal regulations.

The member ballot must include about 10 different disclosures such as the potential profits by officers and directors because the credit union merging into a mutual savings bank is often the first step in a two-step process to convert to a stock-issuing bank or holding company structure. In such a scenario, the bank’s officers and directors often profit by obtaining stock in excess of that available to other members.

Arrha also will be required to disclose on the ballot to members that they may experience changes in loans and savings rates because credit unions typically charge lower rates on loans than banks and usually pay higher rates on savings products than banks.

READ MORE: Arrha CU’s public notice on proposed merger with Pittsfield Cooperative Bank