Editor's Note: This story has been updated since it was initially reported to include new information related to the closing of the sale.
DES MOINES, Iowa–While the Iowa Division of Banking announced its intent to block the sale of First American Bank’s remaining Iowa-based assets and branches to Green State Credit Union, the deal has actually closed, according to the parties involved.
In a letter to an attorney representing the credit union sent on March 2, the regulator said it was denying the acquisition because of a violation by the bank and credit union of an agreement to wait until a comment period ended before finalizing the deal. There has been some speculation within credit unoins that the denial letter had political motivations, as Iowa Superintendent of Banking Jeff Plagge is a former bank CEO, former chairman of the Iowa Bankers Association and former chairman of the American Bankers Association.
But in a separate letter from attorney Stephen H. Locher to the Iowa Division of Banking the two parties said the state regulator has no authority in the matter. Sources told CUToday.info the deal is now complete.
"Neither the credit unions nor FAB were under any obligation under Chapter 524 or otherwise to submit an application to the Division for approval of these credit union transactions," the letter reads. "Instead, the transactions were akin to, for example, the acquisition by a nationally-chartered bank of the branches or assets of a state bank. The national bank is not required to apply for approval to a state regulatory agency that has no supervisory authority over it.
"There is nothing in Iowa Code Chapter 524 that requires a state bank to obtain Division approval prior to selling branches to a credit union," the letter continues. "The Division did not, for example, provide approval of or raise objections to FAB’s sale of branches to MID-FLORIDA Credit Union in 2019, nor could it have. It simply does not have the authority. Likewise, FAB was under no obligation to submit anything to the Division in connection with the sale of branches to GreenState. Accordingly, it was entirely appropriate for FAB to close the GreenState transaction while still awaiting IDOB approval on FAB’s separate plan to cease the business of banking."
Green State announced in mid-2019 it planned to purchase seven First American Bank branch locations and the assets, all in the central region of Iowa. At the time Green State announced the deal it said it expected to have it wrapped up by year-end 2019.
Green State said the deal would represents approximately $200 million in loans and $500 million in deposits, as well as 10,000 new members.
Violation of Agreement
In a letter to attorney Locher announcing its decision, Iowa Superintendent Plagge wrote, "First American’s application requires the approval of the superintendent of banking pursuant to Iowa code 524.1309. This application also required First American to publish public notice and allowed a period for public comment. First American published notice on February 4, 2020, and the comment period was scheduled to end on March 5, 2020. I have been waiting until the end of that comment to issue my decision, but it came to my attention on March 1, 2020 that first American and Green State had already finalized the proposed transaction. The parties did this despite knowing that the approval of the Iowa Division of Banking was required. In fact, letters issued by the Iowa Division of Credit Unions and the National Credit Union Administration acknowledge that approval of this proposed transaction was contingent upon approval by, among other regulators, the Iowa Division of Banking.
“In your letter of March 2, 2020, you assert that the Iowa Division of Banking has no approval authority over the proposed purchase and assumption transaction between First American and Green State because the Superintendent did not approve First American’s previous sale of individual branch locations to a Florida-chartered credit union. Your argument ignores the distinction between a transaction where a bank sells a small portion of its assets and liabilities to another party, which was the case in the Florida transaction you cited, and a transaction like this one where a bank intends to sell substantially all of its assets and liabilities and cease the business of banking. In the second case, the bank must receive approval from the Superintendent pursuant to Iowa code 524.1309 before consummating the transaction. Because First American closed this transaction without obtaining my prior approval, I must immediately deny First American’s application.”
The letter further notes the deal has been approved by the FDIC and NCUA.
The regulator's full letter can be found here.
But Locher told the regulator, "...There is nothing in Iowa Code Chapter 524 that requires a state bank to obtain Division approval prior to selling branches to a credit union. The Division did not, for example, provide approval of or raise objections to FAB’s sale of branches to MID-FLORIDA Credit Union in 2019, nor could it have.3 It simply does not have the authority. Likewise, FAB was under no obligation to submit anything to the Division in connection with the sale of branches to GreenState. Accordingly, it was entirely appropriate for FAB to close the GreenState transaction while still awaiting IDOB approval on FAB’s separate plan to cease the business of banking."
In a statement, First American Bank added, "First American Bank has had ongoing and constructive dialogue with the Iowa Division of Banking since receiving the Division’s letter on March 2, 2020. First American Bank is proud of the open and transparent relationship it has had with the Division over the years and is optimistic the present dialogue will lead to an acceptable outcome that does not impact the already-closed transaction with GreenState Credit Union. First American Bank will not otherwise comment while the process plays itself out.
Hailed by Bankers
Prior to new developments that the sale has closed, one bankers' group hailed the letter from the Iowa Division of Banking.
"ICBA and the nation's community banks commend the Iowa Division of Banking for blocking the purchase of a tax-paying community bank by a tax-exempt credit union,” said Independent Community Bankers of America President and CEO Rebeca Romero Rainey. “Like a Colorado State Banking Board decision earlier this year, the Iowa state superintendent of banking found that the transaction would have violated state statutes requiring that banks be sold to other banks.
"Following these landmark decisions, ICBA continues calling on other state agencies to examine their banking statutes to determine whether allowing state credit unions to buy the assets of state-chartered banks is legal and in the best interest of taxpayers,” Romero Rainey continued. “The surge in credit union acquisitions of community banks worsens banking industry consolidation, reduces tax revenues for local communities, and furthers the credit union industry's unbridled encroachment into full-service banking.
"ICBA will continue to raise concerns with the disturbing trend of larger credit unions increasing their taxpayer-subsidized footprint by buying up smaller, tax-paying community banks. Through the ICBA Credit Union Task Force and our 'Wake Up' campaign, ICBA is encouraging federal and state policymakers to re-examine the credit union industry’s tax and regulatory subsidies and to open their eyes to these financial firms' risky practices and irresponsibly lax oversight."
Deal Blocked in Colorado
One state regulator has blocked a bank sale to a CU. In January, the Colorado State Banking board stopped a plan by Boulder, Colo.-based Elevations Credit Union to purchase the assets of Cache Bank and Trust in Greeley, Colo. In that case the Colorado regulator pointed to the wording of state law.