The Iowa Superintendent of Banking has denied an application filed by First American Bank, Fort Dodge, Iowa, to cease business in relation to a deal to sell its assets and liabilities to a credit union. Superintendent of Banking Jeff Plagge announced his decision to turn down the application in a March 2 letter.
Plagge said Iowa law requires the assets and liabilities of the bank be sold to another bank or institution insured by the Federal Deposit Insurance Corporation. Green State Credit Union, the proposed acquirer, is insured by the National Credit Union Share Insurance Fund. Plagge says when the Iowa legislature amended state banking law in 1995, it deliberately excluded credit unions as candidates for purchasing assets and liabilities from banks which voluntarily cease operations.
Plagge said First American Bank and Green State finalized their deal prior to the conclusion of a public comment period that is part of the State of Iowa approval process on bank transactions.
“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,” Plagge wrote in a letter to Stephen H. Locher of the Belin McCormick, P.C., law firm in Des Moines. “Because First American closed this transaction without obtaining my prior approval, I must act immediately and deny First American’s application.”
Internet users on March 4 attempting to access the First American website were redirected to the website for Green State. The landing page states: “First American Bank is now Green State Credit Union.”
Green State Credit Union, formerly called the University of Iowa Credit Union, announced last June it would purchase First American, which has seven branches, including two in Des Moines. The bank has about $200 million in loans and $500 million in deposits. Green State has $5.5 billion in assets and 200,000 customers.
Earlier, First American sold three offices located in Florida to a Florida credit union. Plagge said First American asserted the Iowa Division of Banking has no approval authority over the deal with Green State because the Superintendent did not approve First American’s sale in the Florida transaction.
“Your argument ignores the distinction between a transaction where a bank sells a small portion of its assets and liabilities to another party … 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,” Plagge said in his letter. He said Iowa law requires such proposed transactions to receive Superintendent approval.
The move was quickly applauded by the Independent Community Bankers of America. “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,” said ICBA President and CEO Rebeca Romero Rainey in a March 4 statement. “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.”
In his letter, Plagge acknowledges the tax implications of bank assets transferring to a credit union. “If I reached a different conclusion on this matter and approved this application, it would establish a precedent that could lead to more tax-paying financial institutions being purchased by tax-exempt financial institutions. That, in turn, could adversely affect the budget of the State of Iowa.”