Holding Company or No Holding Company, That is the Question… / Investor Groups Buying Banks / Regulator Focus on Wholesale Funding

By: Sharon J. Lorman
Jeffrey P. Marsico
Richard B. Trauger, Jr.
Kyle L. Kuster

Guest: Robert Schwartz, Partner, Windels Marx Lane & Mittendorf

Podcast Show Notes:

Our This Month In Banking (TMIB) podcast features discussion with colleagues and other industry thought leaders on interesting banking news that happened this month. TMIB will be available on the last Wednesday of every month here, and on Apple and Droid podcast apps for your listening enjoyment. Join us on your commute or at your desk.
This month Bob Schwartz, Partner at the law firm Windels Marx Lane & Mittendorf, was our guest for the podcast. Mr. Schwartz concentrates on mergers and acquisitions and bank regulatory and securities law. He represents both underwriters and issuers in a variety of capital-raising transactions including public offerings, private placements and mutual-to-stock conversions of thrift institutions. In addition, he represents both acquirers and sellers in merger and acquisition transactions, as well as a range of financial institutions in connection with regulatory matters, including holding company organizations. Mr. Schwartz also counsels a variety of business entities on general issues of business law, such as: executive compensation, contract review, joint venture formation, succession planning and other general business issues. Mr. Schwartz holds a J.D. from Fordham University School of Law.

Topic 1: Holding Company or No Holding Company, That is the Question…
Start time 2:04
This year Bank of the Ozarks in Little Rock, Arkansas dissolved its bank holding company citing that the dissolution will increase efficiency. Reasons for the dissolution included administrative, accounting and regulatory cost savings and eliminating redundancies, including consolidated financial reporting, regulatory oversight and SEC fees. In addition, the Collins amendment of the Dodd-Frank Act has also restricted the use of trust-preferred securities which banks have used to boost capital at their holding companies. Does your bank have a holding company and is it worth the cost?

Topic 2: Investor Groups Buying Banks
Start time 15:44
In July it was announced that Advantage Bank of Lemoyne, Pennsylvania will acquire First National Bank of Lilly. Advantage Bank is a Pennsylvania state-chartered institution that has sought to obtain a banking charter through an M&A transaction since 2016. First National Bank of Lilly had $21 million in assets as of March 31, 2017 and has one branch in Cambria County. Notwithstanding that in the summer 2016 edition of the FDIC’s online publication Supervisory Insights, the FDIC indicated a commitment for new bank chartering, we have recently seen a number of investor groups acquiring existing banks instead of trying to get a new charter. Will we see this trend continue?

Topic 3: Regulator Focus on Wholesale Funding
Start time 27:30
Banks with less than $10 billion in assets are relying more on brokered deposits to support loan growth. As we discussed in our March 2016 episode of This Month in Banking, many banks have increased CRE loans as a means to bolster profitability and their CRE exposures have increased, many in excess of federal guidelines. Community banks have increasingly funded this growth with wholesale funding, particularly brokered deposits. As interest rates increase, banks that have had strong long growth funded with wholesale funding may be setting themselves up for a liquidity problem.

Watch for episode 20 of This Month in Banking to be released on Wednesday, August 30, 2017 and a new episode on the last Wednesday of every month.

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