- In October, M1 Finance founder Brian Barnes announced the purchase of First National Bank of Buhl.
- The small, Minnesota bank is a test case for new features for M1 and gives Buhl growth capital.
- Barnes and Buhl’s CEO explain why the acquisition works and what’s next for the bank’s pig mascot.
Randy Peterson knew a sale was in the cards for the First National Bank of Buhl. Having worked at the Minnesota bank for nearly two decades, he’d seen other small community banks consolidate.
Established in 1902, the First National Bank of Buhl has just two branches, one in Buhl and a main office in nearby Mountain Iron. Its 11 employees serve roughly 900 customers with some $30 million in assets. Banking in the area is concentrated, according to a recent OCC filing: Just two institutions, Wells Fargo and US Bank, control some 50% of the market where Buhl is located.
“With trying to keep up with regulations and the cost of software and everything else, a sale was a matter of time. It was destiny at some point,” Peterson, who took over as CEO of the First National Bank of Buhl in 2013.
Peterson had two main concerns when the time came to make a deal. That Buhl’s employees got to keep their jobs. And that the bank’s mascot, Penny — taking the form of either a 9-foot-tall styrofoam pig originally made for a local parade or a pink Volkswagen modified by Peterson to resemble a pig — got to stay.
“We’ve got a lot of customers from it,” Peterson said. “They say, ‘You know what, if you have a giant pig in your driveway, I think I want to bank with you guys.'”
First National Bank of Buhl
And while Peterson expected another bank would be the eventual landing spot for Buhl, an unexpected buyer came along in January 2021: Brian Barnes, founder and CEO of fintech unicorn M1 Finance.
Peterson was familiar with M1 from an account he had with the investment app, but he was surprised to hear that a Chicago-based startup with $5 billion in assets was interested in Buhl.
“We joked that it was like the Jetsons meeting Mayberry,” Peterson said.
But in actuality the odd couple wasn’t so odd.
As a fintech, M1 doesn’t have a national banking charter of its own, instead partnering with banks like the Iowa-based Lincoln Savings Bank to offer checking and savings accounts.
For Buhl, meanwhile, Barnes brings both the capital necessary for tech upgrades and the experience of building a fintech from the ground up.
‘He had to match the personality of the bank’
Barnes heard of Buhl from M1’s human-resources head’s spouse, a lawyer who had represented an acquirer that had backed out of buying Buhl at the beginning of the pandemic. Buhl had already been through the contracting process and due diligence, the lawyer told Barnes, all it needed was a new name to fill in the blanks.
Buhl declined to disclose the failed acquirer.
Shortly after reaching out, Barnes traveled from his home base of Chicago to visit Peterson at the bank’s headquarters, where the weather was -40F. Peterson gave him a tour of Buhl and Mountain Iron — with populations of roughly 1,000 and 2,900, respectively — introduced him to all the employees, and walked him through opening a checking account.
After a month and a half of talks, Peterson was reassured that M1 wouldn’t swallow the bank whole but invest in Buhl’s growth while keeping its small-town spirit — and Penny.
“He has grand ideas and he has the technology to do it, but he’s a very real person, and it just felt right,” Peterson said. “He had to match the personality of the bank. He’s a very down-to-earth person.”
The deal — which took about six-and-a-half months to get approved by regulators — was announced in October in a blog post on M1’s website.
The transaction was unique in that Barnes, not M1, bought the First National Bank of Buhl. Because Barnes personally owns the the bank, M1 can “benefit from a new product feature perspective,” without having to go through a longer regulatory approval process that comes with a fintech becoming a bank holding company, Barnes said.
It took LendingClub just shy of a year to close its acquisition of Radius Bank. SoFi’s proposed acquisition of Golden Pacific Bancorp, which was announced in March, has still yet to be approved.
“Ideally M1 would have bought the bank, but we just have a little bit of work to do before we’re ready to bite that bullet and become the bank holding company,” Barnes said.
Barnes declined to disclose how much he paid for the bank, but said it was in line with traditional bank valuations. In Buhl’s case, which had $2.6 million in equity capital at the end of the second quarter, that would imply a sale value in the range of roughly $2.5 to $5 million.
Buhl will be a test case for new banking tools
When Peterson joined Buhl as its CFO in 2004, upgrading tech consisted of transitioning from “green screens” — computers with ancient operating systems — to PCs, he said.
In the years since, Peterson said, the bank has grown its assets by more than three times, from about $11 million to $30 million in the second quarter, per FDIC data. It’s a figure that “on a grand scale isn’t a lot, but when you think about it, in terms of what it started from, that’s quite a bit of growth,” he said.
For years, however, the First National Bank of Buhl confronted the same problem that many other community and regional lenders face across the country: It lacked the money to really go after the major tech upgrades that have come to define modern banking and financial technology.
“We were somewhat capital restrained for many years, and you have to have some capital to jump into that arena,” Peterson said.
As one example, Peterson pointed to Buhl’s development of a mobile app for customers.
“That mobile app cost 20% of our annual income. That’s expensive, and we had a customer base of 900 customers. You’re talking significant expense per customer to be able to do it,” Peterson said.
“We still do it, but it just gets to the point where most small banks look at it and say, ‘I just don’t think I can keep up with this,'” he added.
What’s next for Penny’s Crew
Now, Barnes has come to Buhl promising a balance of both continuity and change. To start, Buhl’s employees — known as ‘Penny’s Crew’ — now have new laptops, high-speed internet, and compliance tools, Barnes said. According to Peterson, the bank is following its normal schedule of raises but pay “has been a little bit better” since the acquisition.
Further down the line, Barnes said he envisions working with Buhl to offer through M1 any sort of “deposit product, any payment product, any lending product” that might typically be offered by traditional banks through the fintech’s app.
The First National Bank of Buhl’s website now lists 13 open job opportunities added in recent days, ranging from an assistant general counsel to a vice president of finance. For Buhl, which has had roughly the same staff for the past six years, the openings represent a more-than-doubling of the bank’s current headcount.
Employees at Buhl also now have new avenues for career growth that might not have been previously possible at a bank of its size. “This makes advancement opportunities for everybody, because it’s going to scale everything up considerably,” Peterson said.
“The unknown part, there’s always a fear. But from the other side too, we’re very open here. We’ve always been very open and everyone wants the ability to have some of the technology that we couldn’t afford,” he added.
For his part, Barnes was able to add one other sweetener into the deal when he purchased the First National Bank of Buhl. He said he is open to giving Penny a larger profile — literally.
“I told [Peterson] there’s a marketing budget if he wants to make it bigger. There may be a bigger Penny at some point.”
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