Iowa regulators put the kibosh on credit union's bank branch purchase

Iowa regulators have halted a sale agreement between a credit union and a bank, the second instance of a state regulator’s intervention in such a deal this year.

GreenState Credit Union in North Liberty, Iowa, agreed in June to buy seven branches and related assets from First American Bank in Fort Dodge, Iowa.

The Iowa Division of Banking said this week that the $5.8 billion-asset GreenState and the $959 million-asset First American finalized the deal before the state agency had given its approval.

“Because First American closed this transaction without obtaining my prior approval, I must act immediately and deny First American’s application,” Iowa Banking Superintendent Jeff Plagge wrote in a March 2 letter.

Credit union-bank deals must be approved by regulators for both parties.

Plagge, a former chairman of the Iowa Bankers Association and the American Bankers Association, said the deal violated a state law that stipulates that banks can be sold only to other banks.

Plagge is also a former president and CEO of Northwest Financial in Arnolds Park, Iowa.

That echoes a decision in Colorado last month when regulators blocked Elevations Credit Union’s attempt to purchase the assets of Cache Bank & Trust.

Iowa has been ground zero for several high-profile credit union battles in recent years, including a fight over the industry’s tax exemption, a branding dispute involving the state’s Board of Regents and, earlier this year, a battle over prize-linked savings programs at credit unions.

One element of Plagge’s decision is likely to be popular with bank groups well beyond Iowa.

Approving the GreenState-First American deal, he wrote, “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.”

That is markedly similar to language bank trades have used as they push back on these transactions, and the Independent Community Bankers of America were quick to praise the Iowa decision.

"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,” the group’s Ppesident and CEO, Rebeca Romero Rainey, said in a release Wednesday. The ICBA, she added, plans to continue to address “the disturbing trend of larger credit unions increasing their taxpayer-subsidized footprint by buying up smaller, tax-paying community banks.”

GreenState defended the transaction, noting it had received approval for the deal from the FDIC, NCUA and the state credit union division, and said the purchase remains completed.

“It’s clear that the efforts of the Iowa Bankers Association have found their way into the process, prompting the letter,” Jeff Disterhoft, president and CEO of GreenState, said in a statement. “The IDOB has been aware of the transaction for over a year now, and at the same time First American’s sale of other branches to a Florida-based credit union neither received or required any such ‘approval’ from the IDOB prior to its sale late last year.”

Credit union-bank deals cropped up frequently throughout 2019 but have moved at a slower pace this year, leading many to speculate whether the trend is actually slowing or this is just a blip. Despite the fact that only a small percentage of the industry is taking part in these deals, it was a hot topic at the Credit Union National Association’s Governmental Affairs Conference in Washington last month.

This story has been corrected to reflect that regulators blocked the sale of the bank's branches to the credit union, not the sale of the entire bank.