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First State Bancorp of Monticello is now entirely owned by its employees.
The bank’s employee stock ownership plan bought all remaining outstanding shares of the company’s common stock on Dec. 24.
John W. Corley, president and chairman of the company, said the new ownership arrangement is extremely rare because of the complexity and difficulty in putting it together.
He said he believes fewer than two dozen banks in the United States are 100 percent employee-owned.
Those figures were backed up by Corey Rosen, senior staff member at the National Center for Employee Ownership, who estimated the number between 10 and 20.
First State Bancorp is the holding company for First State Bank, with locations in Monticello, Champaign, Tuscola, Atwood and Hammond, and First State Bank of Bloomington, with locations in Bloomington and Heyworth.
First State Bank was established by a group of Monticello businessmen in 1945. Corley was named president of the bank in 1981, and since then, the company has grown from a single bank to a multi-bank holding company.
It is Piatt County’s largest bank and will continue to have local impact through corporate sponsorships of area events, according to Corley.
“First State Bank has a long history of success, and we have always thought it essential to contribute back to the communities we serve,” said Corley. “We are one of the community’s strongest employers, and have consistently been Piatt County’s largest real estate lender.”
The company’s board of directors includes Corley, William Abbott, Verner Falk, William Tracy and Robert Miller. They average nearly 30 years of board service per person.
“We have several people at or reaching retirement age, including me,” said Corley, 64, who prior to the Dec. 24 transaction was the bank’s major shareholder.
“We were looking to the future of the company and observing what was going on in the marketplace,” he said. “We didn’t really like the idea of just selling the company. We had seen how larger banks diminish the importance of local communities when they take over smaller banks.”
Plan 26 years in making
At the same time, the directors wanted an arrangement that would be “fair and beneficial” to the owners, he said.
That led to them working with the employee stock ownership plan.
That plan, started about 26 years ago, owned about 25 percent of the company before the December transaction.
The remaining shares in First State Bancorp were owned by about 40 shareholders, Corley said.
Corley said the directors started the planning process about five years ago and worked on the actual transaction about two years.
The arrangement had to get approval from the Federal Reserve Bank of Chicago ― which it did only days before the transaction took place.
The deal was also dependent on financing.
“We had to prove creditworthiness to get a loan large enough to buy out all the shareholders,” Corley said.
A loan was made to the company, which in turn made a loan to the employee stock ownership plan. Bank earnings are expected to pay off the loan over 30 years, he said.
But “the banks have to be successful to make the ESOP successful,” he added.
Altogether, the transaction was valued at just under $25 million, he said.
First State Bancorp has about 100 full-time-equivalent employees.
Corley said he was pleased with the transaction’s outcome.
“Shareholders are getting a good price for their stock ... and employees are not having the disruption of another big company taking them over,” he said.
The plan ensures an independent operating structure that will benefit local communities and provides employees “with an ownership interest in their work,” he said.
When asked whether all shareholders were willing to sell, Corley said, “A lot of the people are area people who see the merit in keeping independent banking operations.”
Corley said the Employee Stock Ownership Plan has an independent trustee who will monitor the work of the board of directors.
Typically, trustees “don’t get actively involved in running the company, but they oversee and make sure the bank is being managed successfully,” he said. “Generally, they don’t change governance of the company.”
Corley said he’s getting older, but plans to continue his roles as president and chairman for a while.
“I’m going to be around for the foreseeable future,” he said.