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Banking & Finance Law Report

Tag Archives: Community Banks

FDIC Guidance on Agricultural Credits

Posted in Agricultural Lending, Bank Lending, Bank Regulation, Commercial Lending, Community Banking, Regulation and Compliance

At a time of relative affluence in the farming industry, the FDIC has issued a warning on a need for monitoring agricultural credits. FIL-39-2014 (July 16, 2014) suggests that banking institutions of all sizes should carefully consider a recent, negative projection by the U.S. Department of Agriculture.

While current market conditions are good, the projection suggests there will be a slowdown in the growth of the farming and livestock sectors and that agriculture may be affected by adverse weather and declining land values, among other factors.

The guidance suggests that financial institutions should work carefully with agricultural borrowers when they experience financial difficulties. The guidance states that the FDIC’s supervisory expectations previously expressed in a 2010 financial institution letter continue (although the letter is rescinded in light of the current letter).

Cash flow analysis, secondary repayment sources and collateral support levels must be considered in order to properly analyze agricultural credits, according to the guidance.

The guidance notes that smaller farms and ranches rely on the personal wealth and resources of the owners, including off-farm wages. A universal review of the financial strength of the credit is required.

The guidance also notes workout strategies must be specifically tailored for agricultural credits in light of experience in the 1980’s with depreciating farm land values, among other factors. The guidance suggests that properly restructured loans to farming operations with a documented ability to repay under the modified terms will not be subject to adverse classification because the value of the underlying collateral …


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Personal Liability, Bank Directors and the Business Judgment Rule

Posted in Bank Regulation, Community Banking, Corporate Governance, Corporate Law, Regulation and Compliance

Last April, a trade association for bank directors, the American Association of Bank Directors reported the results of a survey designed to measure the impact of concerns about personal liability on the decision of bank board members to resign and by individuals to turn down board seats on banking organizations.

One of the key concerns, the survey highlighted, is the possibility of an FDIC lawsuit against the directors if a bank failure occurs. The fear was bank directors would be liable for decisions made as directors notwithstanding what is commonly referred to as the business judgment rule. Generally, the business judgment rule shields corporate directors, including bank directors, from liability when board decisions result in losses to the corporation or to shareholders.

The AABD mentioned in particular a then pending lawsuit in Georgia arising out of FDIC claims related to the failure of Buckhead Bank. These claims against the directors sounded in simple negligence regarding the making of loans. And the directors had asserted the business judgment as a defense.

A few days ago the Georgia Supreme Court ruled on the matter and the decision is worth a review by bank directors and managers even though they don’t do business in Georgia. The Georgia Supreme Court decision elegantly summarizes the business judgment rule including its history and common law origins. So the opinion is a useful “read” for bankers everywhere because the development of local jurisprudence in most states is likely similar to the process described in the opinion.

The …


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Intellectual Property and Banking – The Complications of Distinguishing Your Bank Name

Posted in Bank Regulation, Community Banking, Intellectual Property

Expansion of Banking: What happens when First National Bank is no longer First?

Ask any community banker and she will tell you that bank name disputes are on the rise. The Third Federal Circuit Court of Appeals attributes the rise of bank name disputes to “an outgrowth of aggressive and expansionist banking flowing from the Congressional liberalization… of national banking laws.” Citizens Financial Group, Inc., v. Citizens Nat’l Bank, 383 F.3d 110, 112 (3rd Cir. 2004). This case is one of many examples of disputes arising between two financial institutions, in similar geographic regions, operating under identical or a confusingly similar name (e.g., Citizens National Bank of Evans City and Citizens Financial Group, Inc.).

Today we are accustomed to large banks having developed into multinational corporations, such as JP Morgan Chase or Wells Fargo, but this growth occurred in most cases only in the late twentieth century. But the banking industry began with banks being purely local entities, the sole bank within a town or a smaller city as opposed to multi-branch banks within the same metropolis or state. For many banking organizations, this is still true. Within these towns, the use of names like First National Bank or Columbus City Bank were distinctive enough because that was the only show in town and everyone knew where they were banking. It was unlikely that another First National Bank two towns over would confuse or mislead consumers. The National Bank Act fostered the practice of bank names being rather undistinctive …


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Ohio Financial Institutions Tax – Draft Regulations

Posted in Bank Regulation, Tax Law

The Ohio Department of Taxation recently released draft administrative regulations (the “Regulations”) designed to implement the new Ohio financial institutions tax. The new tax takes effect Jan. 1, 2014 and replaces the corporation franchise tax and dealers in intangible tax, which financial institutions have historically paid in Ohio.

The Regulations state that the tax has been designed based upon two fundamental concepts:

  1. The tax return will be reported on a consolidated basis at the highest level of ownership rather than on a separate entity basis.
  2. The equity of the consolidated reporting group will be based upon generally accepted accounting principles reported to the appropriate federal regulatory agency rather than on a federal income tax basis.

The most significant aspects of the Regulations deal with how financial institutions will file tax returns to pay the tax. Bank organizations that are owned through a holding company structure will report the equity of the holding company and all of the entities over which the bank holding company exercises significant influence on a form called an “FR Y-9.” A financial institution that is required to file the FR Y-9C pursuant to Federal Reserve Board regulations will instead report the total equity capital from its FR Y-9C on its Ohio financial institution annual tax return.…


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Dodd-Frank Act Anniversary

Posted in Bank Regulation

In July the second anniversary of the signing of the Dodd-Frank Act passed, giving community bankers an opportunity to consider where things stand. For some banking institutions, particularly larger ones, it has been an active two years even though at least half of the regulatory requirements of the Act remain to be finalized. For smaller institutions, as will become clear, the action appears to be just beginning.

The sweeping overall scope of the Act is underscored when one considers there have been significant delays to much of the parts and pieces of the regulatory actions required under the Act. Yet much has been done.  According to various reports, there have been more than 100 finalized regulations under the Act and, there has been public comment requested on nearly as many significant proposals. 

The most critical regulations for smaller financial institutions are those proposed in recent months: new regulations on capital adequacy and new consumer lending regulations from the Consumer Financial Protection Bureau, the formation of which is thought to be one of central accomplishments of the Act.…


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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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