In a settlement aimed at avoiding a lengthy lawsuit, the Iowa Division of Banking and First American Bank “agreed to disagree” in an order that will allow First American to cease banking operations and transfer substantially all its assets and liabilities to GreenState Credit Union.

First American Bank, based in Fort Dodge, on Feb. 29 had completed the sale of its seven branches to GreenState Credit Union after receiving approval from the Iowa Division of Credit Unions and the National Credit Union Administration, but prior to a decision by the Iowa Division of Banking. The division subsequently denied the application last week.

The sale of the branches to GreenState, formerly University of Iowa Community Credit Union, represents the first transaction in which an Iowa credit union has acquired all of the assets of an Iowa bank and converted them into credit union branches. The acquisition includes two Des Moines branches of First American as well as its Clive, Urbandale and Waukee branches, and its two Fort Dodge branches.

“In light of the extremely unique circumstances regarding this transaction and the application, First American and the Superintendent agree it is in the best interests of all involved, especially the First American customers impacted by the transaction who are confused regarding the status of their deposits and loans and who deserve a timely resolution of this matter — to settle this dispute,” according to the settlement.  

In the agreement, Iowa Superintendent of Banking Jeff Plagge stated that he “will quickly deny” any similar future transactions.

As part of the settlement, First American Bank acknowledged that it failed to follow the banking division’s statutory approval process, and the bank has agreed to pay $110,700 to the division to cover “all costs and expenses incurred in the discharge of the duties imposed upon the superintendent” related to the matter.

First American Bank in 2017 sold its Jewell, Roland and Webster City branches to Availa Bank, and in March 2019 announced plans to sell its Ames, Ankeny and Sioux City branches to Availa as well. Last year, First American sold its assets in Florida to MidFlorida Credit Union including branches in Cape Coral and Naples, as well as a loan production office in Boca Raton.

First American Bank’s sale of substantially all its remaining assets and liabilities to GreenState was unprecedented, the division said in the settlement document. The fact that First American Bank did not have to receive approval when it sold its Florida branches to a credit union also created confusion regarding the division’s role in the sale of the remaining assets, according to the settlement.

“Because the proposed transaction was unprecedented in Iowa and for the IDOB, it required a great deal of legal research and work in order to come to a firm opinion of the Superintendent’s role in the matter and how the Iowa Banking act applied to the application,” the settlement stated. “That took time and contributed to First American’s confusion regarding whether the Superintendent had to approve the application before the sale closed. But several important public policy considerations underpinning financial regulation means that First American’s conclusion cannot be correct and that the Superintendent’s right to rule on these types of transactions absolutely stands.”

John Sorensen, president and CEO of the Iowa Bankers Association, in an emailed statement  called the transaction “an unlawful acquisition of an Iowa bank.” With its tax-exempt status, the $6 billion GreenState Credit Union is being subsidized by Iowa taxpayers by about $25 million annually, he said.

“The subsidy is provided for service to people of modest means,” Sorensen wrote. “It is difficult to understand how buying a rival commercial bank would align with this tax-exempt purpose. It’s time to end the free ride for large, bank-like credit unions.”

Murray Williams, president and CEO of the Iowa Credit Union, said in an emailed statement: “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.”