Iowa Regulator Denies Bank Branch Sale to CU...Guess What? It Already Happened

On March 2, the Iowa Department of Banking denied First American Bank’s application to sell its seven branches to Iowa’s largest credit union, the $5.7 billion GreenState Credit Union.

But there is just one very big problem.

First American Bank and GreenState closed on the purchase deal over the weekend of Feb. 28 weekend and the branches are already operating under the credit union’s brand. The acquisition was originally announced in June, pending regulatory approvals.

Iowa Division of Banking Superintendent, Jeff Plagge, had planned to make his decision about the bank and credit union proposal after the March 5 public comment period ended, according to Plagge’s emailed six-page March 2 letter to a Des Moines lawyer, Stephen H. Locher, who represents FAB.

Plagge’s letter was in response to Locher’s March 2 emailed letter that argued there is nothing in Iowa’s banking laws that obligates or entitles the Iowa Division of Banking to participate in this approval process of the credit union’s bank branch acquisition deal because it had already been approved by the FDIC, the NCUA and the Iowa Division of Credit Unions.

In his letter, Plagge detailed why he denied the bank’s proposal to sell its branches to GreenState, and it appears the bank superintendent was not very pleased that the bank and credit union closed on the deal before he made his decision.

“I have been waiting until the end of that (public) comment period to issue my decision, but it came to my attention on March 1, 2020 that First American and GreenState had already finalized the proposed transaction,” Plagge wrote. “The parties did this despite knowing 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 acknowledged that approval of this proposed transaction was contingent on approval by, among other regulators, the Iowa Division of Banking. Because First American closed this transaction without obtaining my prior approval, I must act immediately and deny First American’s application.”

However, Locher contended the Iowa Division of Banking has no authority over the underlying credit union transactions.

Before announcing the proposed sale of its seven branches to GreenState, FAB agreed to sell its three Florida branches to the $4.4 billion MIDFLORIDA Credit Union in Lakeland in May 2019. And in March 2019, the bank sold three other Iowa branches to Avalia Bank in Carroll.

“Regulators other than the (Iowa) Division (of Banking) were solely responsible for approving the credit union transactions. Specifically, the FDIC approved the transfer of deposit liabilities to MIDFLORIDA and GreenState, respectively,” Locher wrote. “The National Credit Union Administration and the Florida Office of Financial Regulation approved the MIDFLORIDA transaction in accordance with their status as lead regulators of the acquiring entity. Similarly, the NCUA and Iowa Division of Credit Unions, as lead regulators of the acquiring entity, provided final approval of the GreenState transaction.”

Because FAB and GreenState obtained the only regulatory approval they needed, Locher noted, it was not improper of them to close the branch acquisition transaction while FAB’s application was pending in the Iowa Division of Banking.

However, the bank superintendent said First American’s proposal does not comply with an Iowa banking law clause that only allows a bank’s assets and liabilities to be sold to another state bank, national bank or financial institution insured by the FDIC. He also cited a second clause in Iowa’s law that does not authorize a credit union to assume all deposit liabilities of an Iowa-chartered bank.

“Green State is not a state bank or a national bank, nor is it a financial institution insured by the FDIC,” Plagge wrote. “As Superintendent of Banking, I therefore cannot approve First American’s proposed plan under this clause.”

Plagge also wrote that First American and GreenState must also maintain all financial records from the respective institutions separate until this issue is resolved.

“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,” FAB said in prepared statement. “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.”

GreenState did not respond to CU Times‘ requests for comment.