The Federal Reserve on Thursday approved Canadian lender VersaBank’s application to acquire Minnesota-based Stearns Bank Holdingford.
The approval puts the 2-year-old cross-border acquisition proposal one step closer to fruition. The combination needs one more U.S. regulator to sign off: the Office of the Comptroller of the Currency.
In a press release Friday, VersaBank said it expects that decision “shortly.”
After that, Canada’s Office of the Superintendent of Financial Institutions must give the transaction a green light.
“For well over a decade, we have proven out our [business] model in Canada and now look forward to the opportunity to enter the world’s largest financing market,” VersaBank CEO David Taylor said in the release.
VersaBank also addressed the acquisition question Tuesday in its second-quarter earnings release, saying it “continues to advance the process seeking approval” of the deal “and expects a decision from US regulators during the second calendar quarter of 2024.”
A search of the OCC database early Friday indicated the agency received an application in December 2022 from Stearns Bank Holdingford related to a “substantial change in assets,” with no mention of further action.
Stearns Bank Holdingford is a single-branch subsidiary of Saint Cloud, Minnesota-based Stearns Financial and has its own charter with the OCC. Acquiring $78 million-asset Holdingford, which focuses on small-business lending, would give VersaBank, a B2B digital bank, a back door to a U.S. national bank charter.
“Should VersaBank receive a favourable decision from the OCC, it will immediately seek approval of the Stearns Holdingford acquisition from its Canadian regulator, the Office of the Superintendent of Financial Institutions,” the bank said Friday.
The Fed, in documents it made public Thursday, said it “concludes that the balance of benefits and potential adverse effects related to competition, financial and managerial resources, convenience to the public, financial stability and other factors weigh in favor of approval of the proposal.”
The central bank left one crumb as to why the deal might be seeing continued delay at the OCC: VersaBank and Holdingford representatives have yet to finalize a “strategic plan,” in coordination with the OCC and community leaders, for how they will adhere to the Community Reinvestment Act.
President Joe Biden in July 2021 ordered banking regulators to “provide more robust scrutiny” of mergers in the space. The OCC and the Federal Deposit Insurance Corp., for their part, have moved to tighten regulations this year. Acting Comptroller of the Currency Michael Hsu in January proposed his agency halt expedited bank merger procedures. The FDIC in March proposed closer scrutiny of deals that create banks with more than $100 billion in assets. Under the measure, smaller mergers would give greater consideration to the impact on local communities.
That’s drawn the ire of some Republican lawmakers, such as Rep. Andy Barr, R-KY, who has put forward a bill seeking to curtail the amount of time banks wait for a regulatory response on merger applications, likening the concept to basketball’s shot clock.
“The regulatory purgatory, the indecision, is what we’re concerned about here,” Barr said last month at a hearing on Capitol Hill.
VersaBank announced in June 2022 that it would acquire Holdingford in a $13.5 million deal, and the Canadian bank’s timeline for expected approval has steadily expanded. VersaBank at first said it hoped to complete the deal by October 2022. Over the next year, four successive statements gathered by BankRegBlog illustrated a lengthening process.
“We feel we're in the final stages of closing the purchase," Taylor said at a March conference, according to American Banker, adding that he has “quite a good relationship” with U.S. regulators.
“We think we've answered all the questions," Taylor said at an event two days later. "If [regulators] have more, bring them on."
Holdingford, meanwhile, showed early enthusiasm for the deal.
“It speaks volumes that our Canadian neighbor, VersaBank, has chosen Holdingford as the best location to launch its U.S.-based banking and financing,” Heather Plumski, president of Stearns Bank Holdingford, said in June 2022. “VersaBank shares our values and culture, and we’re confident VersaBank will be welcomed with open arms in Holdingford when the community gets to know our Canadian partner.”
In its approval Thursday, the Fed noted the banks’ sufficient capital levels, due diligence, managerial resources, anti-money laundering efforts, and fair-lending and CRA compliance.
