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Banking & Finance Law Report

Category Archives: Community Banking

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Ohio Supreme Court Resolves Certified Conflict Regarding Oral Forbearance Agreements

Posted in Bank Lending, Bank Litigation, Collection and Foreclosure, Commercial Law, Commercial Lending, Commercial Loans and Leases, Community Banking, Ohio Law, Real Estate

Last Spring, we discussed on this blog a trifecta of noteworthy lending cases pending before the Ohio Supreme Court. Today, the Court resolved one of them, and in doing so also resolved a certified conflict among Ohio’s appellate districts regarding whether Ohio’s Statute of Frauds bars a party from relying on an oral forbearance agreement to defeat a judgment that was entered pursuant to a written contract. The court’s unanimous opinion in FirstMerit Bank, N.A. v. Inks, Slip Opinion No. 2014-Ohio-789, is available here.

Daniel Inks, Deborah Inks, David Slyman, and Jacqueline Slyman guaranteed that Ashland Lakes, LLC would repay a $3.5 million loan from FirstMerit Bank. When the LLC defaulted, FirstMerit sued the guarantors, and the trial court awarded judgment to FirstMerit based on confessions of judgment entered by the defendants under warrants of attorney. The Slymans and Inkses then appealed to Ohio’s Ninth District Court of Appeals on the basis that the confessing lawyer did not produce the original warrants of attorney. After filing that (ultimately unsuccessful) appeal, the Slymans and Inkses also moved the trial court for relief from judgment, arguing that FirstMerit was not entitled to recover because it had entered into an oral forbearance agreement with the LLC. The trial court concluded that this argument was barred by Ohio’s Statute of Frauds, and the Slymans and Inkses appealed from that decision as well. The Ninth District Court of Appeals reversed the trial court’s decision on the Statute of Frauds, saying:

By its plain language, …


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Banking & Finance Law Report Top 10: News and Trends from 2013

Posted in Agricultural Lending, Bank Lending, Bank Regulation, Collection and Foreclosure, Commercial Lending, Community Banking, Health Care Lending, Ohio Law, Real Estate

2013 was an active year for the Banking & Finance Law Report. Our authors covered a wide range of topics — from legislative and regulatory changes to court opinions to financing and bankruptcy matters in the healthcare, agricultural and oil and gas industries. To offer a glimpse into the news and trends of the past year, following is a synopsis of the 10 best-read articles of 2013.

1. Major Changes to Affirmative Action Requirements Become Effective March 24, 2014
by Mike Underwood

In just two months, financial institute and other types of employers will need to comply with new affirmative action rules that:

  • Require employers to gather and retain data showing the results of their recruiting and hiring efforts and to set numeric targets for hiring veterans and disabled persons
  • Include significant additional obligations for reviewing, analyzing and documenting good-faith efforts and results
  • Specify that employers must offer applicants the opportunity to self-identify as a covered veteran or disabled person before a job offer occurs

Many employers may face a real challenge identifying and networking with recruiting sources that can refer qualified candidates for their businesses. They also will likely need to adjust data collection, retention, and analysis processes. Read the full article.

2. Ohio Passes Legislation Preventing Recovery on “Cherryland” Insolvency Carveouts in Nonrecourse Loans, Among Other Changes
by Amy Strang

Ohio’s Legacy Trust Act (Am. Sub. H.B. 479), which became effective in March 2013, prohibits the use of post-closing solvency covenants as nonrecourse carveouts in a nonrecourse …


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It’s Easy, People: Read Before You Sign

Posted in Bank Lending, Commercial Lending, Community Banking, Other Articles, Workouts

In a decision that will warm the hearts of vendors everywhere, the Court of Appeals for Ohio’s Eighth Appellate District recently upheld the enforceability of personal guaranty language in a credit application. See Wholesale Builders Supply, Inc. v. Green-Source Development, L.L.C., et al., 2013-Ohio-5129. This decision also serves as a reminder to read before signing.

The form of credit application used by Wholesale Builders Supply, Inc. (“Wholesale”) with prospective customers included the following language:

BY SIGNING THIS AGREEMENT YOU ARE BOTH PERSONALLY AND CORPORATELY LIABLE FOR THE TOTAL OF YOUR PURCHASES BY YOU OR ANYONE DESIGNATED TO SIGN FOR YOUR PURCHASES ON YOUR ACCOUNT.

Defendant Green Building Technology, L.L.C. (“Green”), through its principal John A. Pumper (“Pumper”), executed one of Wholesale’s credit applications, and Green thereafter ordered and received goods from Wholesale, along with invoices from Wholesale.…


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A Hypothetical in Agricultural Lending — Meet Farmer Bob, AgBank and Massive Grain Elevator

Posted in Bank Lending, Commercial Lending, Commercial Loans and Leases, Community Banking, Lien Perfection, Ohio Law

In this hypothetical, we will consider the following circumstances.

  • “Farmer Bob” grows wheat (i.e., crops)
  • “AgBank” has loaned Farmer Bob money secured in part by his wheat
  • “Massive Grain Elevator” wants to purchase Farmer Bob’s wheat

Can Massive buy the wheat and not get the shaft from AgBank? It depends. In 1985 Congress passed the Food Security Act; the provision 7 U.S.C. Section 1961, titled Protection for Purchasers of Farm Products (FSA), constitutes a wholesale preemption of the Uniform Commercial Code (UCC). UCC Revised Article 9-320(a) provides that:

“a buyer in ordinary course of business, other than a person buying farm products from a person engaged in farming operations, take free of a security interest created by the buyer’s seller, even if the security interest is perfected and the buyer knows of its existence.”

In addition, Official Comment 4 to 9-320(a) provides that:

“this section does not enable a buyer of farm products to take free of the security interest created by the seller … however, a buyer of farm products may take free of a security interest under Section 1324 of the Food Security Act of 1985, 7. U.S.C. Section 1631″

Meanwhile, FSA Section 1324 provides that notwithstanding Article 9 of the UCC, farm product buyers, commission merchants and selling agents (buyers in ordinary course) take free of security interests in farm products created by sellers unless one of two exceptions applies: 1) direct notice or 2) special central filing.…


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SEC Guidance for JOBS Act

Posted in Community Banking

Bankers and financial institution executives should note that the Securities and Exchange Commission has released guidance and other information regarding the Jumpstart Our Business Startups Act of 2012, or JOBS Act, that became law a few weeks ago.

The JOBS makes significant changes to how banks and other businesses can raise capital. It does this by:

·         Easing the IPO process and reporting requirements for emerging growth companies;

·         Reducing general solicitation and general advertising restrictions for certain private placements;

·         Creating a new $50 million small public offering exemption;

·         Creating a “crowdfunding” private placement exemption; and

·         Perhaps most importantly, for community banks and bank holding companies, increasing the number of shareholders a private company may have without having to publicly report under the Securities Exchange Act of 1934, including specific thresholds for banks and bank holding companies.

A summary of the JOBS Act is provided here.

The recent SEC guidance and other information is outlined below.


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JOBS Act Impact on Community Banks

Posted in Bank M&A, Community Banking, Corporate Law, Regulatory Restructuring

The U.S. House of Representatives, by a vote of 380 to 41, has passed the Jumpstart Our Business Startups Act, or JOBS Act [link to House Bill], in the form previously approved by the Senate last week [link to Senate Amendment]. The bill now goes to President Obama, who is expected to sign it into law. The JOBS Act could significantly impact community banks, among other businesses, regarding the categories summarized below.

SEC Registration

The JOBS Act increases the threshold for SEC registration from 500 shareholders of record to 2,000 shareholders of record for banks and bank holding companies. The increase allows some banks to raise capital by selling stock to new investors without having to register under Section 12(g) of the Securities Exchange Act of 1934.…


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Historically Low Interest Rates Create Estate Planning Opportunities

Posted in Community Banking

For good or for bad, interest rates are currently near all-time lows, including the “applicable federal rate” (“AFR”) which is used to set minimum interest rates for certain gift and estate tax planning techniques. While bankers and financial institution executives routinely consider the implications of such low rates for their institutions, they also should carefully consider the opportunities these low rates create for their estate planning and for that of their customers. Community bank owners and executives, in particular should not overlook these techniques that may help persevere years of wealth creation.

The October 2011 AFR is 0.16% for short-term obligations (up to 3 years), 1.19% for mid-term obligations (more than 3 years, up to 9 years), and 2.95% for long-term obligations (longer than 9 years). Such low interest rates could make this a good time to consider several estate and gift tax planning strategies that are generally more beneficial during periods of low interest rates. Here are some common techniques for bankers to consider: …


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FDIC REPORTS ON BROKERED DEPOSITS: NO CHANGE NEAR TERM

Posted in Community Banking

In early July, the FDIC issued a report on an important subject to many community bankers: brokered deposits. The report to Congress, dated July 8, 2011, was required under Dodd-Frank and describes its view of the present role of brokered deposits in banking. Critical, of course, is the FDIC’s observation that bank failures are frequently linked to brokered deposits.

Despite industry concerns that the present regulatory system for brokered deposits is outdated and poorly designed, the report concludes the present statutory scheme should not be amended or repealed.

Here is how the FDIC summarized the industry concerns it heard through the public comment process: (i) the brokered deposit statute creates liquidity problems if a bank becomes less than well capitalized; (ii) a combination of the statute and supervisory practices stigmatizes brokered deposits; and (iii) the brokered deposit statute is outdated and has not kept pace with technological change and innovation.…


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Public Companies May Need to Amend Stock Option Plans Soon to Qualify for Exception to $1 Million Compensation Deduction Limit

Posted in Community Banking

Publicly traded companies may need to act quickly to review, and, if necessary, amend their stock option and stock appreciation right ("SAR") plans in order to preserve tax deductions for compensation in excess of $1 million paid to certain executives. The reason for this review is that the Internal Revenue Service (the "IRS") and the United States Treasury Department recently issued proposed regulations that clarify a few items with respect to the application of Section 162(m) of the Internal Revenue Code (the "Code") to such plans. One item relates to requirements that stock options and SARs must meet to qualify as performance-based compensation. Another item relates to a transition rule for companies that initially are privately held but that later become publicly traded companies.

As background, Code Section 162(m) limits the deduction a publicly traded company may take with respect to remuneration paid to its "covered employees"— its CEO and 3 most highly paid officers (other than the CEO and CFO)—to the extent that such compensation exceeds $1 million. The deduction limit does not apply, however, to qualified performance-based compensation. Publicly traded companies often structure their stock options and SARs in a manner to qualify as performance-based compensation.…


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