-Messenger photo by Chad Thompson
GreenState Credit Union, 1207 Central Ave., formerly First American Bank, opened for business recently.
The president of the Iowa Credit Union League said a decision handed down from the Iowa Division of Banking to block a sale of a Fort Dodge bank’s assets to a credit union represents a conflict of interest.
“It is shameful for the superintendent of the Iowa Division of Banking to inject politics and personal gain into a legal business transaction,” said Murray Williams, president and CEO of the Iowa Credit Union League, in a written statement on Thursday.
Jeff Plagge, superintendent of the IDOB, made the decision on March 2 to deny an application from First American Bank, of Fort Dodge, to sell its business operations to GreenState Credit Union, of North Liberty.
Plagge is also CEO of Northwest Financial Corp., the parent company to Northwest Bank.
“He serves as the regulator and regulated for a bank he owns and leads,” Williams said.
Northwest Bank has branches in the Des Moines and Fort Dodge markets.
And Williams said those branches compete with the branch locations that First American Bank chose to sell to GreenState Credit Union.
“Mr. Plagge’s attempt to halt this business transaction would benefit his bank and himself personally,” Williams said. “This is blatant conflict of interest that Mr. Plagge should have disclosed.”
According to Shauna Shields, bank bureau chief for the IDOB, Iowa Code allows for the superintendent to be an owner and/or employee of entities regulated by the Iowa Division of Banking. Furthermore, it’s required the superintendent to be a banker.
The code states, “a person shall not be appointed who has not had at least five years’ experience as an executive officer in a bank.”
“The result of these two code sections working together is that historically Iowa superintendents of banking have almost always been active bankers,” Shields said. “By the nature of the position, superintendent decisions affect financial service providers in the state, including banks in the same markets as the superintendent’s bank.”
Shields continued, “The fact the code requires the superintendent to be a banker who can be involved in a bank while serving as superintendent indicates the Iowa Legislature concluded this market impact is an acceptable trade-off in exchange for the expertise a banker brings to the position.”
Shields contends that because of the qualifications required for the position of superintendent, no superintendent who is an active Iowa banker could make a decision on a matter relating to a statewide financial institution otherwise.
Shields added, “The Division walls the Superintendent off from participating in any decisions regarding the superintendent’s own bank.”
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First American Bank and GreenState Credit Union publicly announced their arrangement in the summer of 2019.
The acquisition represents about $200 million in loans and $500 million in deposits.
The IDOB received formal notification on Feb. 4. The comment period for the transaction was to end March 5.
The agreement was to become effective Feb. 29, pending receipt of final regulatory approvals.
But when GreenState opened without receiving final approval from the IDOB, Plagge decided to deny First American Bank’s application.
GreenState, with its $5.5 billion in assets and 200,000 members, opened its Fort Dodge office to customers in recent days. The business was robbed at knife point on Monday in an unrelated incident. No employees were injured during the robbery, in which an undisclosed amount of money was stolen, according to Fort Dodge police. Ted Hammersley, who is accused of the holdup, was arrested immediately.
The IDOB made the decision to block the transaction between the bank and credit union on the same day of the robbery.
Jeff Plagge, superintendent of the IDOB, explained the decision in a letter dated March 2.
“Because First American closed this transaction without obtaining my prior approval, I must act immediately and deny First American’s application,” Plagge said in the letter.
Plagge said the bank and credit union moved forward “despite knowing that the approval of the Iowa Division of Banking was required.”
Banks and credit unions have different standards and regulations for proposed transactions.
Iowa Code requires that banks like First American adopt a plan for the acquisition of its assets and assumption of its liabilities by another state bank, national bank, or other financial institution insured by the Federal Deposit Insurance Corporation. The statute does not refer to credit unions as authorized purchasers.
The bank and credit union are to maintain separate records until the issue is resolved, according to Plagge.
First American Bank representatives John A. Fisher, president and CEO; and Richard Stark, chairman of the board of directors, declined to comment on the matter on Wednesday. The two referred questions to Des Moines Attorney Stephen Locher, of Belin McCormick.
A call to Locher’s office has not yet been returned.
Williams said the transaction between First American Bank and GreenState Credit Union is not unique.
“Credit union purchases of banks have occurred in 14 states over the last eight years,” Williams said. “In fact, the recent sale of FAB branches to a Florida credit union was met with no objection from the Iowa Division of Banking in late 2019.”
Williams said the ICUL doesn’t get involved with mergers and acquisitions of their membership, but believes “Iowa consumers win when they have more access to not-for-profit, member-owned credit unions.”
She continued, “The acquisition of these branches by an Iowa credit union ensures all deposits stay with an Iowa-owned institution and are not sent out-of-state. The new credit union members will benefit financially to the tune of millions of dollars from the credit union’s better rates and lower fees. In addition, the state treasury will see increased tax revenue as highlighted by a 2019 financial analysis verified by ISU economist Dr. Keri Jacobs.”