Stinson Was Top U.S. Bank M&A Legal Adviser in 2012
According to data from SNL Financial, Stinson advised on more bank and thrift mergers and acquisitions, and branch sales, than any other U.S. legal advisor in 2012. Stinson advised on 14 whole bank transactions and five branch transactions that were announced in 2012.
We thank our clients and friends for their support, with respect to the following transactions that were closed and/or announced in 2012.
Acted as legal adviser to Liberty Bank,
FSB, in the sale of its Council Bluff
branches to American National Bank
Closed January 2012
Acted as legal adviser to Liberty Bank,
FSB, in the sale of its Granger branch to Earlham Savings Bank
Closed April 2012
Acted as legal adviser to Liberty Bank,
FSB, in the sale of its Spirit Lake
branches to Northwest Bank
Closed April 2012
Acted as legal adviser to Liberty Bank,
FSB, in the sale of its Garner and Klemme branches to Randall Story State Bank
Closed April 2012
Acted as legal adviser to Liberty Bank,
FSB, in the sale of its Iowa Falls branch
to Ackley State Bank
Closed May 2012
Acted as legal adviser to Union Bank
on the sale of its assets and liabilities,
including all deposits,
to Arvest Bank
Closed June 2012
Acted as legal adviser to Liberty Bank,
FSB, in the sale of its Dubuque branch
to Dubuque Bank & Trust
Closed July 2012
Acted as legal adviser to
Kansas State Bank in its purchase of
Sonoran Bank, NA
Closed August 2012
Acted as legal adviser to Exchange National Bank & Trust in
its purchase of Rushville State Bank
Closed August 2012
Acted as legal adviser to First Bancshares, Inc., on its sale to an Investor Group
Closed August 2012
Acted as legal adviser to The First National Bank of Hutchinson on its purchase of
First National Bank of Southern Kansas
Closed September 2012
Acted as legal adviser to First
Community Bancshares, Inc. and
First Community Bank on their sale to Equity Bancshares, Inc. and Equity Bank
Closed October 2012
Acted as legal adviser to Morrill & Janes Bank and Trust in its purchase of
United Bank of Kansas
Closed November 2012
Acted as legal adviser to
First Missouri Bancshares, Inc. and
First Missouri Bank in their purchase of Citizens Bancshares of Blythedale, Inc.
and Citizens Bank of Blythedale
Closed November 2012
Acted as legal adviser to Exchange National Bank & Trust in
its purchase of assets and liabilities, including all deposits, of
Troy State Bank
Closed December 2012
Acted as legal adviser to Liberty Bancshares, Inc. and Liberty Bank
in their acquisition of Stone County
National Bancshares, Inc. and
Stone County National Bank
Closed December 2012
Acted as legal adviser to Liberty Bank,
FSB, in the sale of its Naples and
Bonita Springs branches to
Encore National Bank
Closed December 2012
Acted as legal adviser to Bank of Hays
in the purchase of Farmers’ State Bank
of Jetmore, Kansas
Closed December 2012
Acted as legal adviser to First National
Bank, Hays, Kansas, on its sale of assets and liabilities, including all deposits,
to Astra Bank
Closed January 2013
Acted as legal adviser to BancStar, Inc.
on its sale of Bank Star of the Leadbelt
to Cooper Investments, Inc.
Closed January 2013
Acted as legal adviser to Northland National Bank on its sale of assets and liabilities, including all deposits, to
KCB Bank
Closed February 2013
Stinson Partner to Speak at Illinois Bankers Association Compliance Conference
Join Karen Garrett at the Illinois Bankers Association’s Compliance Conference to be held on May 31, 2013 at the Hyatt Lodge in Oak Brook, Illinois. Karen will discuss emerging technology (mobile banking, twitter, virtual payments, etc.) and it’s impact on your bank. Here’s a link to the conference brochure.
Distressed Bank M&A – The 363 Sale
For financially distressed bank holding companies that own a subsidiary bank worthy of recapitalization, court-approved sales conducted pursuant to Section 363 of the United States Bankruptcy Code (“Section 363″) can be an efficient tool to sell and recapitalize the subsidiary bank.
The global advantages of a Section 363 sale include speed, transfer of assets free and clear of encumbrances and interests, transfer of restricted contracts and avoidance of exposure to claims under fraudulent transfer laws. For a bank holding company, the Section 363 sale allows the bank holding company board of directors to (i) obtain comfort as to the fairness of the purchase price for the subsidiary bank due to court approval of the Section 363 sale and (ii) avoid receivership and the liability associated with the failure of the subsidiary bank. For an acquiring entity, a Section 363 sale eliminates the negative implications associated with a bank being placed in receivership and allows the acquiring entity to purchase the subsidiary bank free and clear of any outstanding claims and obligations against the bank holding company. Some potential purchasers may prefer an acquisition effected under Section 363 instead of a direct investment in, merger with or acquisition of the subsidiary bank from a bank holding company.
The benefits of a Section 363 sale were demonstrated with the recent acquisition of Mile High Banks, a Colorado state chartered bank (the “Bank”), by Strategic Growth Bancorp Inc. (“SGB”) from the Bank’s parent company, Big Sandy Holding Company (“Big Sandy”). Prior to consummation of the acquisition, Big Sandy was in distressed financial condition and had been unable to consummate a traditional recapitalization transaction in part due to the capital structure of Big Sandy and the anticipated difficulty in obtaining approval from all of its shareholders, creditors and trust preferred securities holders. Likewise, the Bank was subject to FDIC supervisory actions, including, but not limited to, a prompt corrective action directive issued to the Bank in late 2011, notifying the Bank that it was “significantly undercapitalized” and requiring immediate action on the part of the Bank.
In September 2012, Big Sandy entered into a definitive agreement with SGB for the purchase of the Bank and then filed for chapter 11 bankruptcy protection in the District of Colorado, proposing to sell the stock of the Bank through a Section 363 court-approved sale. SGB acted as the “stalking horse” and filed its regulatory applications immediately following the Big Sandy bankruptcy filing.
The bankruptcy court approved Big Sandy’s proposed sale procedures and in November 2012, SGB was declared the winning bidder. Among other things, SGB’s winning bid included a $5.5 million payment to Big Sandy, an allocation between the Bank and Big Sandy of a deferred tax asset belonging to the Bank and a capital contribution of $90 million to the Bank. The Federal Reserve and the Colorado Division of Banking approved SGB’s application shortly thereafter. By undertaking a Section 363 sale, Big Sandy was able to successfully sell and recapitalize the Bank when traditional recapitalization structures were not readily available.
The Section 363 sale process, including the negotiation and execution of a definitive agreement and structuring a fair sale process, is highly integrated and requires expertise in mergers and acquisitions, bankruptcy, tax and bank regulatory law. If you have any questions regarding this summary, contact any of Stinson’s Banking and Financial Services attorneys.
Interagency Statement on Impact of Biggert-Waters Act on Flood Insurance Rules
The joint banking agencies released an Interagency Statement that discusses the effective dates of certain provisions of the Biggert-Waters Flood Insurance Reform Act of 2012. The amendments and their effective dates are discussed below.
1. Force Placement of Flood Insurance. The Biggert-Waters Act amends certain terms of the Flood Disaster Protection Act governing a lender’s obligation to force place a policy of flood insurance. The amendments (i) address the fees and premiums that lenders may charge borrowers, (ii) require the lender to terminate force-placed insurance and to refund certain charges to the borrower after the borrower has obtained the requisite coverage, and (iii) permit lenders to rely on a declarations page as confirmation of a borrower’s existing flood insurance.
These amendments became effective upon enactment of the Biggert-Waters Act last summer.
2. Civil Money Penalties. The maximum civil money penalty for violations of the FDPA has been increased from $350 per violation to $2,000 per violation. The amendments also remove the annual cap on such penalties.
These amendments became effective upon enactment of the Biggert-Waters Act last summer.
3. Private Flood Insurance. The Biggert-Waters Act amends the mandatory purchase requirement to require lenders to accept private flood insurance policies as long as the coverage complies with the standards set forth in the Biggert-Waters Act. Lenders are required to notify borrowers that (i) flood insurance is available from private insurance companies or from NFIP directly, (ii) private insurers may provide the same level of coverage as an NFIP policy, and (iii) borrowers are encouraged to compare policies.
These amendments will not be effective until specific regulations are issued at a future date.
4. Escrow of Flood Insurance Payments. Lenders and servicers must establish escrow accounts for flood insurance premiums and fees for covered loans outstanding or entered into after July 6, 2014. Unless state law provides otherwise, a lender may be exempt from the escrow requirement if (i) the institution has less than $1 billion in assets, and (ii) as of July 6, 2012, the institution was not required to escrow taxes or insurance for the term of the loan and it did not have a policy to require escrow of taxes and insurance.
These amendments will not be effective until specific regulations are issued at a future date.
To read the full text of the Interagency Release, click here.
Interagency Guidance on Leveraged Lending
On March 22, 2013, the federal banking agencies issued new leveraged lending guidance to assist financial institutions in providing leveraged lending to creditworthy borrowers in a safe-and-sound manner. The March 2013 guidance updates and replaces guidance previously issued in April 2001. This guidance will serve as the basis of the agencies’ review and examination of financial institutions. The federal banking agencies expect financial institutions engaged in leveraged lending to implement, monitor and review a risk management framework which addresses a number of specific topics, which are addressed, in turn, by the new guidance. The guidance outlines the agencies’ minimum expectations with respect to those topics. A complete copy of the guidance is available here.
Updated Guidance for Regulation II Fees and Routing
The Federal Reserve updated its FAQs for Regulation II Fees and Routing on March 13, 2013. The last minute clarification on the network exclusivity and routing provisions, which go into effect on April 1, 2013, may cause prepaid card issuers to scramble to implement changes to comply. The FAQ reads as follows:
Q2. Must an issuer of a general-use prepaid card that is enabled for processing transactions over a PIN network and an unaffiliated signature network provide or permit activation of the PIN at the time the prepaid card is purchased for the card to comply with § 235.7(a)?
A2. An issuer complies with § 235.7(a)’s prohibition on network exclusivity only if card transactions can be processed over both unaffiliated networks on the card. Transactions can be processed over a PIN network only if the cardholder has a PIN to use for card transactions. Where an issuer intends to meet the requirements of § 235.7(a) by enabling a PIN network on the card, the issuer may comply by activating the card at the time of purchase and providing a PIN at that time or by activating the card by telephone subsequent to purchase and providing a PIN at the time of activation. (Added March 13, 2013)
While most issuers intend to make PINs available to cardholders and inform them how to obtain a PIN, this new clarification appears to imply that process would be insufficient to comply with Regulation II.
FDIC Proposed Rule on Deposits of Foreign Branches of US Banks
Summary
The Federal Deposit Insurance Corporation (“FDIC”) recently issued a proposed rule that provides certain deposits of foreign branches of U.S. banks are not insured deposits.
Background
During September 2012, the Financial Services Authority of the United Kingdom issued a proposed rule, the effect of which would be that branches of U.S. banks in the U.K. would make their deposits payable in the U.K. and the U.S.
The potential FDIC issue is that a foreign branch deposit payable in the U.S. may be considered an insured deposit. For purposes of the Federal Deposit Insurance Act (“FDI Act”), an insured deposit excludes any obligation of a foreign branch of a U.S. bank unless (i) such obligation would be a deposit if carried on the books and records of the bank in the U.S. and (ii) it is expressly payable in the United States. Section 3(l) of the FDI Act (12 U.S.C. 1818(l)).
Proposed Rule
The proposed rule generally provides that a deposit of a foreign branch of a U.S. bank payable in the U.S. and outside the U.S. is not a deposit insured by the FDIC. Thus, the proposed rule generally requires that the foreign branch deposit be payable exclusively in the U.S in order to be FDIC insured, and clarifies, for example, that a foreign branch deposit payable in the U.S. and the U.K. does not satisfy the requirements to be an insured deposit.
The FDI Act generally provides for a depositor preference regime, in which depositors have priority over general unsecured creditors in the event of a bank’s liquidation or bankruptcy. The proposed rule provides that the foreign branch deposits payable in the U.S. and outside the U.S. are treated as deposits for purposes of the preference regime and would receive the same, preferential treatment as the domestic deposits of U.S. banks.
The FDIC welcomes comments to the proposed rule, and, in particular, whether the proposed rule should incorporate an exception for the posting of adequate collateral by the bank. Comments to the proposed rule are due to the FDIC by April 22, 2013. Please contact any of Stinson’s banking attorneys if you have any questions regarding this summary or would like assistance in formulating comments to the proposed rule. Read the full notice of proposed rulemaking, http://www.fdic.gov/news/board/2013/2013-02-12_notice_dis-a_res.pdf.
