The Federal Reserve Board on Thursday approved Canadian lender VersaBank’s application to acquire Minnesota-based Stearns Bank Holdings.
The approval brings a cross-border acquisition proposed two years ago one step closer to becoming reality. The merger still requires approval from another regulator, the Office of the Comptroller of the Currency.
Versabank said in a press release Friday that it expects a decision to be made “shortly.”
“For over 10 years, we have [business] “We look forward to the opportunity to establish this model in Canada and enter the world’s largest financial market,” Versabank CEO David Taylor said in the release.
Versabank also addressed the acquisition issue in its second-quarter earnings call on Tuesday, saying it “continues to progress in the process of seeking approval of the transaction and expects to receive a decision from U.S. regulators during the second quarter of 2024.”
A search of the OCC database early Friday showed the office received a filing from Stearns Bank Holdings in December 2022 regarding a “substantial change to assets,” but made no mention of any further action.
Stearns Bank Holdings is a single-branch subsidiary of St. Cloud, Minnesota-based Stearns Financial that is independently chartered by the OCC. Acquiring the $78 million in assets Holdings, which focuses on small business lending, would give VersaBank, a B2B digital bank, a back door to a U.S. national banking charter.
““If VersaBank receives a favorable decision from the OCC, it will immediately seek approval of the Stearns Holdings acquisition from the Canadian regulator, the Office of the Superintendent of Financial Institutions,” the bank said in a statement on Friday.
“We have concluded that the balance of benefits and potential adverse effects relating to competition, financial and management resources, public convenience, financial stability, and other factors favors approving the proposal,” the Fed said in a document released Thursday.
The central bank offered just one hint as to why the deal at the OCC continues to be delayed: Representatives of VersaBank and Holdingford have yet to finalize a “strategic plan” for how they will work with the OCC and local leaders to comply with the Community Reinvestment Act.
President Joe Biden in July 2021 ordered bank regulators to “exert greater oversight” of mergers in the sector. The OCC and the Federal Deposit Insurance Corp. have been moving to tighten regulations this year. Acting Comptroller of the Currency Michael Schuh proposed in January that the agency halt its fast-track process for bank mergers. The FDIC proposed greater oversight of transactions in March. Create a bank with more than $100 billion in assets. This measure would make smaller mergers more considerate of their impact on local communities.
This has angered Republican lawmakers, including Rep. Andy Barr of Kentucky, who has introduced a bill to do just that. It aims to shorten the time banks have to wait for regulators’ responses to merger applications.likens the concept to a shot clock in basketball.
“The regulatory indecision, the regulatory indecision, is what we’re concerned about,” Attorney General Barr said at a congressional hearing last month.
VersaBank announced it would acquire Holdingford for $13.5 million in June 2022, and the Canadian bank’s approval timeline has been steadily extended: VersaBank initially said it wanted to complete the transaction by October 2022. Over the course of the year, four successive statements collected by BankRegBlog indicate a lengthening of the process.
““We feel we are in the final stages of the transaction,” Taylor said at a March conference, according to American Banker, adding that the bank was in “fairly good standing” with U.S. regulators.
“We believe we have answered all the questions,” Taylor said at the event two days later. [regulators] If you have more, bring them.”
Holdingford, meanwhile, showed early enthusiasm for the deal.
“It speaks volumes that our Canadian neighbor, Versabank, selected Holdingford as the perfect location to launch its U.S.-based banking and lending operations,” Stearns Bank Holdingford President Heather Pramski said in June 2022. “Versabank has similar values and culture to ours, and we are confident that Versabank will receive a warm welcome in Holdingford as the community gets to know our Canadian partner.”
In its approval on Thursday, the Fed assessed the bank’s capital adequacy levels, due diligence, management resources, anti-money laundering measures, fair lending and compliance with credit reporting agencies (CRAs).
