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

 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.

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.

 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.

 http://www.federalreserve.gov/paymentsystems/regii-faqs.htm

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.

The investment funds must have a place of business within the United States and be organized under United States laws. In order to be eligible for an SBIR grant, a business concern that is owned by multiple investment funds must be registered with the SBA when it submits its initial proposal to an SBIR solicitation or announcement.

Why This Matters
The new rule does not change the requirement that an applicant certify its size and eligibility at the time of award only. However, if an awardee is acquired during the performance of an SBIR or STTR funding agreement, it will be required to recertify its size status before the SBA may extend the grant.

Read the full pdf-version, Businesses Partially Owned by Venture Capital, Hedge Fund and Private Equity Firms Now Eligible for SBIR Program.

If you have any questions regarding this summary, contact any of Stinson’s Corporate Finance attorneys.

The Dodd-Frank Act amended the Commodity Exchange Act to prohibit any person other than “eligible contract participant” from entering into a swap unless the swap is on, or subject to the rules of, a board of trade designated as a contract market under the Commodity Exchange Act. 

Treatment of Guarantors – CFTC No-Action Letter

The U.S. Commodity Futures Trading Commission (“CFTC”), in a no-action letter dated October 12, 2012, has taken the position that Dodd-Frank amended the Commodity Exchange Act to subject guarantors and parties pledging assets to secure swaps to the same requirements as direct swap participants.  Accordingly, unless the swap is conducted pursuant to a designated contract market, each party providing credit support for a swap must be an eligible contract participant in its own right.

Definition of Eligible Contract Participant 

There are several ways to meet the definition of an eligible contract participant pursuant to the Commodity Exchange Act.  However, most borrowers qualify under the total assets or net worth test.  An entity qualifies as an eligible contract participant if it has total assets exceeding $10,000,000.  Alternatively, an entity qualifies if it has a net worth exceeding $1,000,000 and has entered into a agreement or transaction in connection with the conduct of its business or to manage the risk associated with an asset or liability owned or incurred or reasonably likely to be owned or incurred in the conduct of the entity’s business. 

While most borrowers will qualify as eligible contract participants under one of the above tests, subsidiary and affiliate guarantors and pledgors may not.   In such event, there is another way to meet the test.  Specifically, under the Commodity Exchange Act, an entity is an eligible contract participant if its obligations under an agreement or transaction are guaranteed or otherwise supported by a letter of credit or keepwell, support, or other agreement by an otherwise qualifying entity.   

What This Means to Lenders

The consequences for failure to comply with the above requirements may include illegality and unenforceability of a guaranty or pledge by the non-qualifying guarantor or pledgor of the swap obligations and potential CFTC enforcement action against the offending swap dealer. 

Given the foregoing, with respect to new financings with a swap component, loan documents should include representations regarding the status of each borrower, guarantor and pledgor as an eligible contract participant.  Either non-qualifying entities should be excluded as guarantors and pledgors with respect to swap obligations or keepwell language, requiring credit parties who are eligible contract participants to provide support for non-qualifying credit parties, should be included.  Finally, severability language should be included in the applicable loan documents to ensure that the failure to meet eligible contract participant status does not affect non-swap related obligations or otherwise invalidate loan documents.    

In the case of outstanding credit facilities, it is unclear whether such facilities need to be immediately amended to avoid defaults as the CFTC has not provided any guidance in this area.  At a minimum, it may be prudent to include a keepwell undertaking from an eligible contract participant credit party for the benefit of non-qualifying credit parties as part of any renewal or other amendment to the facility.