Credit Unions Purchasing Community Banks

Winthrop & Weinstine, P.A.
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Winthrop & Weinstine, P.A.

The recent trend of credit unions buying banks has become one of the hot topics in the industry. While the number of actual transactions is quite small relative to the number of mergers and acquisitions that take place each year, the trend has been a featured item at recent financial institution industry conferences and the subject of several articles in industry trade publications. By way of comparison, we note that through September 30, 2019, there have been 18 deals either completed or with expected completion dates in 2019 or 2020 in which a credit union buys a bank. This compares to 298 bank-to-bank transactions either completed or with expected completion dates in 2019 or 2020 and 111 approved credit union-to-credit union mergers.

A credit union purchasing a bank is a relatively complex undertaking, and the purpose of this white paper is to provide credit unions and community banks with the information they need to ensure both buyer and seller are making informed decisions. Wilary Winn’s 500 community financial institution clients are equally divided between credit unions and community banks and we have completed over 250 merger related valuation engagements over the most recent 10 years. Given the complex legal and tax nature of these transactions, we asked firms that specialize in providing advice to community banks – the law firm of Winthrop & Weinstine and Eide Bailly, a top 25 public accounting firm – to partner with us in writing this white paper.

The paper is divided into three sections.

  1. Strategic considerations from the perspective of the buyer and the seller
  2. Tax consequences
  3. Legal and regulatory issues

Strategic Considerations

CREDIT UNION PERSPECTIVE

We believe a transaction in which a credit union purchases a bank could result in beneficial outcomes provided the credit union has compelling strategic reasons to do so. The credit union could be “going on offense” by trying to accomplish one or all of these objectives – expand into new geographic areas, add expertise it does not possess, grow membership, drive economies of scale, or diversify its balance sheet. Alternatively, the credit union’s strategy could be defensive in nature by, for example, purchasing a bank within its geographic footprint to prevent a competitor from entering or expanding its presence in the credit union’s marketplace.

However, the premium required to undertake the transaction might not make economic sense. For example, a credit union cannot legally purchase bank stock in most instances. It must purchase the assets and assume the liabilities of the bank, which is then liquidated. The consideration must be paid in cash and the transaction can have adverse tax effects for the selling shareholders of the bank – especially when the bank is a C-corp. All other things being equal, a credit union purchasing assets and assuming liabilities must be willing to pay more for the target institution than would a bank to offset the tax liabilities and additional legal costs. See the tax and legal sections for more detail.

Moreover, in our experience, a transaction in which a credit union buys a bank is dilutive to GAAP equity and regulatory capital because, unlike a credit union merger where the equity remains in the combined entity, the credit union is buying out the bank’s equity and paying it to the selling shareholders. In addition, any cash paid in excess of the fair market value of the assets purchased and liabilities assumed results in goodwill.

We note that recent transactions have resulted in substantial amounts of goodwill. The following table shows the increased amount of goodwill as a percentage of both buyer’s assets and equity for all credit union to bank acquisitions since 2017.

We caution that while goodwill can currently be counted in a credit union’s regulatory net worth, the NCUA is in the process of reviewing regulatory capital requirements in the context of its proposed and now delayed risk-based capital and the newly promulgated Community Bank Leverage Ratio (“CBLR”). We note that goodwill and other intangibles are deducted from regulatory net worth under the banking regulators’ risk-based capital and CBLR rules as well as the NCUA’s proposed risk-based capital rules.

Finally, we note that the legal process is more complex, and the costs associated with the transaction are higher when a credit union purchases a bank since multiple regulators are involved.

COMMUNITY BANK PERSPECTIVE

When evaluating offers for the bank, shareholders need to ensure that they are comparing the bids on an “apples-to-apples” basis. An all cash bid from a credit union could be the highest gross offer, but the bank should consider the possible income tax consequences, as well as the legal and regulatory costs arising from the transaction to determine the amount it will receive on a net basis. Finally, a seller should consider the net proceeds it would receive for assets the credit union is unwilling or unable to purchase.

PRICE

The following table shows the average deal value/tangible book value over the previous two years for bank-to-bank acquisitions in both the nation and by region. While the focus of this paper is on credit union-to-bank acquisitions, there is limited publicly available information for these transactions. Recognizing the differences between credit unions and banks and the potential tax and regulatory costs associated with the differing deals, we nevertheless believe understanding and utilizing current bank-to-bank deals in the marketplace can be a useful way to benchmark an offer submitted by a credit union.

We note that the average deal value/tangible book value for bank-to-bank acquisitions in the marketplace has increased considerably over the past 5 years as shown in the following graph.

We believe the increase in prices in 2018 and 2019 are due to increased competition for customer deposits, easing bank regulations, lower corporate tax rates, and the hunt for digital capabilities. Going forward, it is difficult to predict whether this trend will continue. The industry is facing potential NIM compression resulting from the reduction in the Federal Funds rate, political uncertainty entering an election year, and the ongoing uncertainty regarding the future health of the economy.

Tax and higher legal costs aside, a community bank might be willing to sell to a credit union because the credit union is willing to pay cash while a community bank might want to merge with the selling shareholders, thus trading one form of illiquid bank stock for another. In addition, the bank should evaluate the bidder’s ability and willingness to serve the bank’s customers, retain its employees, and to ensure a smooth transition in the community in which the bank operates.

CULTURAL CONSIDERATIONS

This might be the most critical area of all. Questions that a credit union might want to ask itself as it considers an acquisition include:

  1. Does the acquired institution have similar goals and values? We believe this will often be the case as credit unions and community banks are both generally focused on serving their communities.
  2. Does the to-be-acquired institution have a similar business model and operating strategy? This very often might not be the case. Credit unions generally focus on consumer and residential real estate loans, while most community banks focus on commercial real estate loans and other business loans. This is reflected in the following two pie charts.

EXPERTISE

One of the reasons to acquire a bank is to obtain specific expertise. A common example is commercial lenders. This can create two complications. The first is ensuring the credit union can retain the loan officers because, in our experience, the loan customers are very loyal to their loan officer. If the loan officer does not stay, the credit union could have difficulty retaining the customer and its deposits. The second complication is that commercial real estate and acquisition, development, and construction loans often comprise a significant portion of a bank’s balance sheet. These loans can be very difficult to evaluate, and an acquiring credit union would either need to possess the expertise to perform due diligence on these loans prior to the acquisition or outsource the work. Finally, we note that a credit union is limited to the amount of commercial loans it can hold on its balance sheet. A federally insured credit union has an individual lending cap for commercial loans to one borrower equal to the greater of 15 percent of net worth or $100,000, plus an additional 10 percent of the credit union’s net worth if the amount exceeding the 15 percent is fully secured. In addition, a federally insured credit union has an aggregate cap on net member loan balances equal to the lesser of 1.75 times its actual or required net worth.

MEMBERSHIP

Another reason for a credit union to acquire a bank is to expand into a new geographic area or expand its field of membership. Retaining members is difficult enough in credit union-to-credit union mergers and can be more challenging when purchasing a bank – the bank customers might simply not want to join. That said, a credit union acquirer might be able to better serve the customers than the acquired bank by offering:

  • Better rates
  • More loan and deposit products (e.g. mortgage lending and consumer loans)
  • Mobile banking
  • More branch locations

The bank’s customer profile might also help the credit union diversify its member base. For example, the banking customers could be older with abundant savings and little need for loans providing the acquiring credit union with additional liquidity.

GOVERNANCE

We believe this is the most persuasive argument for a credit union to consider purchasing a bank versus trying to merge with another credit union. Unlike credit union mergers where the acquired credit union often insists on participating in the governance structure, the bank’s selling shareholders are paid in cash, do not have an ongoing economic interest in the bank, and therefore are often very willing to exit the combined institution.

EMPLOYEES

Retention of the employees the acquiring credit union wants to keep is one of the most critical items in a successful acquisition. The acquiring credit union should gain a keen understanding of the bank’s compensation strategies and structures through its due diligence. It should also identify key employees to retain as well as those who will be terminated on or soon after the acquisition date. This is important for morale, as well to ensure the credit union can enjoy the economies of scale arising from the transaction. We recommend that the acquiring credit union consider the use of stay put contracts for those key employees it wants to retain and legally binding non-compete agreements for those it does not plan to retain.

BALANCE SHEET CONSIDERATIONS

An acquisition of a bank by a credit union could provide multiple balance sheet benefits. The acquisition could reduce concentration risk by diversifying the credit union’s loan portfolio. It could lessen interest rate risk by adding loans that reprice more frequently than the loans in the credit union’s portfolio. Commercial and industrial loans are often variable rate loans and commercial real estate loans often include fixed rate pricing for five or seven years and then reprice to the market. The transaction could also provide additional liquidity through the bank’s core deposits.

The acquiring credit union should model the effects the transaction might have on its ALM profile as part of its due diligence.

The acquiring credit union should also carefully assess its ability to serve the bank’s business customers. This includes considering the credit union’s lending expertise, its ability to retain the bank’s lending team, caps on member business loans, etc. Retaining the business lending relationship is key to retaining the business customer’s deposits.

Last, but not least, the credit union should consider the effect the transaction will have on its capital. In our experience, a transaction in which a credit union buys a bank is dilutive to GAAP equity and regulatory capital because, unlike a credit union merger where the equity remains in the combined entity, the credit union is buying out the bank’s equity and paying it to the selling shareholders. In addition, any cash paid in excess of the fair market value of the assets purchased and liabilities assumed results in goodwill. We caution that while goodwill can currently be counted in a credit union’s regulatory net worth, the NCUA is in the process of reviewing regulatory capital requirements in the context of its proposed and now delayed risk-based capital and the newly promulgated Community Bank Leverage Ratio (“CBLR”). We note that goodwill and other intangibles are deducted from regulatory net worth under the banking regulators risk-based capital and CBLR rules. We note this dilution is not an issue if the acquiring credit union has ample excess capital to deploy.

ACCOUNTING CONSIDERATIONS

Like all mergers and acquisitions transactions, the initial and ongoing accounting for the transaction must be done in accordance with the rules for “purchase accounting”. The accounting can be quite complex and is beyond the scope of this white paper. For details see – link to our bank acquisition white paper – https://www.wilwinn.com/resource/accounting-for-bank-acquisitions-white-paper/.

Tax Consequences

A bank can be one of two kinds of taxpaying entities – an S-corporation or a C-corporation. Whether a bank is one versus the other can have major tax effects on the transaction. The sale of an S-corporation bank can result in taxes at the shareholder level only, whereas the sale of a C-corporation bank can result in taxes both at the bank level and to the shareholders. The form of the acquisition agreement also affects the taxes that will arise from the transaction. An acquisition can be structured as a taxable “purchase & assumption” deal, otherwise termed as a taxable asset sale, where the buyer purchases the bank’s assets and assumes the bank’s liabilities – consisting mostly of the deposit accounts. Alternatively, if the buyer is another bank, bank holding company, or other taxpaying entity, the transaction can be structured as the sale of stock and avoid the “double” taxation. Finally, a bank can also offer its stock as consideration to the selling shareholders, which could result in no tax at the time of the sale provided it is properly structured.

Sellers and buyers need to fully understand the tax consequences as they negotiate the purchase price.

TAXABLE ASSET SALE

Because nearly all states do not permit a credit union to purchase the stock of a commercial bank, an acquisition of a commercial bank by a credit union generally must be structured as a taxable asset sale, where the credit union purchases the bank’s assets and assumes the bank’s liabilities. In this case, the bank charter is left as a shell corporation containing the cash purchase price paid by the credit union. The shell corporation is then likely liquidated with the cash proceeds distributed to the selling shareholders.

As a general rule, a bank buyer prefers to structure an acquisition as a taxable asset sale, because the buyer can amortize and deduct the premium paid for income tax purposes, generally over a 15-year period. The net present value of the deduction of the premium is approximately 22%-25%, decreasing the after-tax purchase price for the bank buyer. Of course, a credit union cannot reap the buyer’s tax benefits of a tax-deductible premium. It must undertake the acquisition as a taxable asset sale simply because it cannot own bank stock in most jurisdictions.

A taxable asset sale of a C-corporation bank generally results in “double taxation”. Any premium paid on the deal will first be taxed at the corporation level, currently at a 21% federal tax rate, plus the applicable state tax rate. After the corporation pays that tax and distributes the remaining sales proceeds to the shareholders, the shareholders will again pay tax on their capital gain from liquidating their stock investment.

We note that any net operating loss or tax credit carryforwards available to the C-corporation can offset the gain from a premium received. Because of the double taxation, most C-corporation sales transactions are structured as stock sales.

On the other hand, most S-corporation sales transactions are structured as taxable asset sales because there is only a single layer of tax on a premium paid. The taxable gain associated with a premium is not taxed at the corporate level. It instead flows through to the shareholders as a taxable gain and in turn increases their stock basis. We note that this tax advantage applies only to S-corporation banks that have made their S- election more than five years before the sales transaction. If the selling bank had not yet reached its fifth anniversary as an S-corporation, it would potentially be subject to the IRC Section 1374. A portion or all of the premium could be subjected to a 21% federal corporate level tax, as well as potentially a state-level corporate tax depending on the circumstances. Thus, an S-corporation that recently made its S-corporation election could also be subjected to the “double tax” penalty of a corporation selling its assets, versus the corporation’s sellers selling their stock and paying a single layer of income tax.

MERGER

If state laws permit a state-chartered credit union to merge with a bank and it does so, the transaction is treated for tax purposes as a taxable disposition of assets, regardless of the fact that the form of the transaction was a merger. This is because a credit union is exempt from federal income tax and the transaction thus falls under IRC Section 501(c)(14). IRC Section 337(b)(2) and Treasury Regulation 1.337(d)-4 outline the rules that apply when a taxable entity, like a bank, transfers all or substantially of its assets to a tax-exempt entity like a credit union. It is a “deemed sale” of the taxable entity’s assets at their respective fair market values with the same result as a taxable asset sale. Further, a credit union does not issue stock to the selling shareholders, so the merger transaction cannot be structured as a tax-free stock-for-stock exchange.

TAXABLE ASSET PURCHASE PRICE ALLOCATIONS

There are other nuances that go into calculating the gain or loss from taxable asset sales. The purchase price is spread amongst the assets of the selling corporation according to the assets’ respective fair market values, pursuant to IRC Section 1060. Depending on the schematics of the purchase price allocation, there could be opportunities for a selling S-corporation to realize an ordinary loss on some assets (tax benefit at the higher ordinary tax rates) and increase the capital gain portion of the transaction (premium/goodwill), with lower rates on capital gains for the S-corporation’s shareholders. A C-corporation pays ordinary taxes and the capital gain income at the same rate; thus, purchase price allocation schematics generally present less of a planning opportunity for C-corporations.

SIMPLIFIED ILLUSTRATION

The simplified illustrations below show the taxes arising from the sales transaction depending on its structure – taxable asset sale versus stock sale – and the form of the tax paying entity – C- versus S-corporation. The illustration does not incorporate any Section 1060 purchase price schematics, so actual results would vary from the illustration, particularly for an S-corporation, where the tax burden could likely be decreased by a purchase price allocation that would produce ordinary losses and increased capital gains, thus reducing total tax burden on the shareholders.

As you can see from the simplified illustration above, there are definite tax consequences that can arise from when a credit union is the purchaser and the seller is a C-corporation. The additional tax cost can be significant and should be a major component in assessing the feasibility of entering into a transaction with a credit union as the buyer.

Legal and Regulatory Issues

There are a number of legal and regulatory issues that must be considered in connection with a potential acquisition of an FDIC insured bank by a credit union.

LEGAL STRUCTURE

As we noted earlier, in the majority of cases a credit union cannot own or acquire the shares of the bank. To be more specific, a federal credit union cannot purchase the shares of a community bank or merge with it. A few states, Florida being the prime example, explicitly allow a state-chartered credit union to merge with a bank. Other states forbid the transaction just as the NCUA does, and the majority of state statutes are silent on the matter.

As such, the legal structure utilized in a credit union’s acquisition of a bank is an agreement for the credit union to purchase all the assets and assume all the liabilities of the bank. This means that there must be an individual transfer of each asset, an assumption of each liability and an assignment of any intangible or collateral rights at closing. This creates a more complex and burdensome legal process to ensure all the required legal documents necessary to complete the transfer of each asset and the proper assumption of each liability are prepared and executed. This process is more complex than what occurs when the transaction is structured as a purchase of stock or merger.

LEGAL AGREEMENT

Any transaction where a credit union purchases a bank must include a definitive purchase and assumption agreement setting forth the key terms and conditions of the transaction. This agreement must be the result of an arms-length negotiation and both the credit union and the bank have duties to protect their respective interests. These fiduciary duties fall to the officers and directors of the credit union and the bank.

Directors and officers of a bank want to maximize shareholder value as part of any sale and minimize any post-closing risk or risk that the sale will not be consummated. This requires the bank to negotiate a definitive agreement that limits the scope of representations and warranties given, reduces the conditions to closing, and eliminates post-closing liabilities. Because directors and officers of a bank ultimately report to the shareholders of the bank, those individuals are often intimately involved in negotiating, reviewing, and approving any agreement. This means that banks will want a detailed legal agreement clearly setting forth the specific representations, warranties, and covenants being made as part of the transaction.

Credit unions have generally used more simplified agreements in credit union to credit union mergers, in part, because the two credit unions become one and no cash is being paid out of the acquiring credit union. Further, a credit union might be less concerned about obtaining representations and warranties or incurring post-closing liabilities in a merger of two credit unions because it retains the capital of the credit union being merged. However, because a bank purchase is an all cash deal, it is important for credit unions to obtain appropriate representations and warranties regarding the condition and status of the bank and have some form of recourse post-closing to protect the credit union from risk of loss due to a breach of the definitive agreement, fraud, or other damages. This requires credit unions to spend more time, care, and legal expenses negotiating and finalizing a definitive agreement than in a typical credit union to credit union merger.

One final difference for both banks and credit unions in any legal agreement for the acquisition of a bank by a credit union concerns the scope of the operating covenants that govern the operation of the selling bank from the date a definitive agreement is signed until closing. Typically, any bank sale will include negotiated operating covenants restricting the selling bank from taking any extraordinary actions from the date the definitive sale agreement is executed through the date of closing. These operating covenants are heavily scrutinized by federal bank regulators to ensure that the acquiring entity is not exerting extraordinary control over the bank it intends to buy prior to actually owning the bank. Typically, the NCUA is more relaxed about a buying credit union’s ability to control bank operations prior to the closing date. This creates an issue of prior control that the bank’s officers and directors need to recognize and address appropriately with the banks. This results in the need for careful negotiation of such covenants in any definitive agreement.

REGULATORY PROCESS

Both the credit union and the bank will be required to file regulatory applications as part of a credit union acquisition. This results in different regulatory considerations for both buyer and seller than what one sees in a bank to bank transaction or a credit union to credit union merger.

NCUA

The NCUA does not yet have a formal framework in place to review and approve the purchase of banks by credit unions. They are working on one and we understand it is forthcoming. However, the NCUA does follow an information process for approving such acquisitions.

As noted above, the purchase and assumption agreement should detail the specific assets to be purchased and liabilities to be assumed, which will be subject to approval by the NCUA. Such a request for approval must include a description of the transaction and include copies of the relevant transaction documents.

In general, when deciding whether to approve a proposed transaction, NCUA regulators will consider the effect on members, financial impact of the transaction, and issues related to field of membership and impermissible assets. For example, credit unions are not permitted to hold certain types of deposits or loans often held by banks. NCUA anticipates this possibility and generally gives a post-transaction period (up to six months) to sell or bring any non-conforming loans into compliance.

Additionally, credit unions must show that they have performed appropriate due diligence on the various loans and deposit accounts at the bank. This could be a challenge if the credit union is involved primarily in consumer lending activities, while the bank being acquired engages in commercial lending, agricultural lending, manufacturing lending, asset-based lending, or other forms of lending with which the credit union is unfamiliar.

We are carefully monitoring the NCUA’s progress on issuing a framework for these transactions. One of our biggest concerns is the continued inclusion of goodwill in regulatory capital. Goodwill and intangible assets like the core deposit intangible (CDI) are direct deductions from banks’ regulatory capital. The NCUA is the only banking regulator not requiring it to be deducted. We note that goodwill and the CDI are deducted from capital under the NCUA’s proposed risk-based capital rules. We understand that the NCUA is reconsidering issuing the risk-based capital rules especially given the recently promulgated Community Bank Leverage Ratio (CBLR) rules for banks with assets under $10 billion. We caution credit unions to consider that the CBLR rules for banks also require that goodwill and the CDI to be deducted from regulatory capital.

FIELD OF MEMBERSHIP

One of the most significant regulatory issues that arises in a credit union’s acquisition of a bank is the field of membership requirements for credit unions. A credit union should not assume that they will be able to automatically acquire and retain all accounts and customers of a bank as part of an acquisition. Credit unions are governed by field of membership requirements and, unlike when a credit union merges with another credit union, in a bank acquisition a credit union’s field of membership does not automatically expand to include the customers of the bank. Credit unions will need to be prepared to address with the NCUA why the former bank customers fit within the credit union’s current field of membership or request an expansion or amendment to their current field of membership. If the identified loans or customers are not properly within the credit union’s existing or amended field of membership, the NCUA will require the credit union to divest of those customers within a reasonable period of time.

BANKING REGULATORS

Banks can be state- or nationally-chartered. State-chartered banks are regulated by the state in which they were formed and by the FDIC – the primary insurer of their deposits. Nationally-chartered banks are regulated by the Office of the Comptroller of the Currency (“OCC”) and the FDIC. In addition, state chartered banks that are members of the Federal Reserve are federally regulated by the Federal Reserve as its primary federal regulator and also by the FDIC. A bank considering a sale to a credit union must file with its primary federal regulator and applicable state regulator.

Once the purchase and assumption is completed, the bank will be a shell charter with minimal to no assets remaining in the organization. As such, for a state-chartered bank, both the federal and state banking regulators will require that the former bank dissolve. In the case of a national bank, the OCC will require that the shell charter be merged into an affiliated entity. This will require a special regulatory application to the applicable federal bank regulator. Additionally, if the bank being sold is a state-chartered bank, the appropriate state banking agency will require an application in connection with the sale. Considerations for each of the FDIC, OCC and Federal Reserve are listed below. Additionally, while a summary of certain requirements that may be applicable to state banks as part of such a sale is set forth below, a complete fifty state review of applicable state bank regulatory requirements is beyond the scope of this paper.

FDIC

Federal law explicitly requires prior written approval from the FDIC before any insured depository institution may transfer FDIC insured deposits to a “noninsured bank or institution” – this includes credit unions because credit union deposits are insured by the NCUA and not by the FDIC. We note this applies even for the sale of a branch by a bank to a credit union if the credit union assumes the deposits of that branch. We note that the FDIC recently indicated that is considering the implications of credit unions buying banks.

The FDIC will require its own interagency merger application to be filed with it even though the sale to the credit union is a purchase and assumption transaction. In fact, an acquisition of a bank by a credit union, regardless of the bank’s primary federal regulator, will require FDIC approval as the FDIC is the only federal bank regulator that can act on the assumption of an FDIC insured bank’s deposits by a credit union. If the FDIC is not the primary federal regulator for the bank, the FDIC will work closely with the OCC or the Federal Reserve (as the case may be) throughout the application review process.

Similar to the application submitted to the NCUA, the FDIC application will require a detailed description of the proposed transaction and copies of the relevant transaction documents. Additionally, the FDIC requires a description of any non-conforming or impermissible assets that the credit union may not be permitted to retain – as noted above, this would include certain types of deposits or non-conforming loans that cannot be held by a credit union. As part of the application, a description of the method of divestiture or disposal and anticipated time period must be submitted to the FDIC. Finally, in reviewing applications which contemplate a credit union as the surviving entity, special consideration is given to the disclosures made to depositors regarding the change in deposit insurance.

OCC

Due to the requirement from the NCUA that the transaction be structured as a purchase and assumption transaction, the OCC requires a two-step process when a credit union seeks to acquire a national bank. The first step is to receive approval for the sale of substantially all the assets and assumption of substantially all the liabilities of the national bank. The second step is to receive approval to merge the then uninsured national bank with and into its holding company. The filings required for both steps can be filed simultaneously with the OCC along with a transmittal letter summarizing the process.

A unique complication can occur if the state where a national bank’s holding company is incorporated in does not provide explicit authority for the merger of an uninsured national bank with and into a state corporation. This will require a state-by-state analysis of permissibility. If this is the case, the national bank may need to include the additional step of forming a subsidiary and first merging the then uninsured national bank into the subsidiary with the subsequent merger into the holding company to immediately follow or finding some other avenue to merge the shell bank out of existence. As with the streamlined process first outlined, the formation of the operating subsidiary can occur all in one filing along with the steps outlined above.

FEDERAL RESERVE

We note that if the bank in question is a Federal Reserve member bank, that the Federal Reserve Board does not currently have formal requirements for its member banks which are considering a sale to a credit union in a whole bank purchase and assumption transaction. However, some form of application to the regional federal reserve bank would be necessary. Due to the low volume of such applications, the Federal Reserve has not yet issued formal guidance on how this application process might work, but given the need to partner with the FDIC, it is likely that the Federal Reserve process would be similar to that required by the FDIC.

STATE BANKING AGENCIES

For state-chartered banks which enter into purchase and assumption agreements with credit unions, once approval is given for the transaction, the key issue from the state’s perspective is the fact that a shell entity with a bank charter remains after consummation of the sale. While each state has its own process for addressing such shell charters, many state rules allow for voluntary liquidation of the bank following such a transaction – though the required shareholder approvals and applications vary state-by-state. As noted above, a survey of all applicable state rules is beyond the scope of this paper.

Conclusion

The acquisition of a bank by a credit union is a relatively complex transaction involving multiple regulatory agencies, federal and state income taxes, and multiple strategic considerations. We hope this white paper has helped readers better understand the ramifications that could arise in undertaking a deal of this type.

The issues addressed in this white paper are complex and are based on general information and examples only. Readers should not rely on the information contained in this paper regarding potential transactions without first seeking advice, input and comments from their independent accountants, attorneys and primary regulators before undertaking the such a transaction. Readers are strongly encouraged to seek such independent advice as the specific facts and circumstances in each particular transaction could lead to different accounting, tax, legal and regulatory interpretations than those described herein.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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  • Readership information is provided to publishing law firms and authors of content to give them insight into their readership and to help them to improve their content.
  • Our Website may offer you the opportunity to share information through our Website, such as through Facebook's "Like" or Twitter's "Tweet" button. We offer this functionality to help generate interest in our Website and content and to permit you to recommend content to your contacts. You should be aware that sharing through such functionality may result in information being collected by the applicable social media network and possibly being made publicly available (for example, through a search engine). Any such information collection would be subject to such third party social media network's privacy policy.
  • Your information may also be shared to parties who support our business, such as professional advisors as well as web-hosting providers, analytics providers and other information technology providers.
  • Any court, governmental authority, law enforcement agency or other third party where we believe disclosure is necessary to comply with a legal or regulatory obligation, or otherwise to protect our rights, the rights of any third party or individuals' personal safety, or to detect, prevent, or otherwise address fraud, security or safety issues.
  • To our affiliated entities and in connection with the sale, assignment or other transfer of our company or our business.

How We Protect Your Information

JD Supra takes reasonable and appropriate precautions to insure that user information is protected from loss, misuse and unauthorized access, disclosure, alteration and destruction. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. You should keep in mind that no Internet transmission is ever 100% secure or error-free. Where you use log-in credentials (usernames, passwords) on our Website, please remember that it is your responsibility to safeguard them. If you believe that your log-in credentials have been compromised, please contact us at privacy@jdsupra.com.

Children's Information

Our Website and Services are not directed at children under the age of 16 and we do not knowingly collect personal information from children under the age of 16 through our Website and/or Services. If you have reason to believe that a child under the age of 16 has provided personal information to us, please contact us, and we will endeavor to delete that information from our databases.

Links to Other Websites

Our Website and Services may contain links to other websites. The operators of such other websites may collect information about you, including through cookies or other technologies. If you are using our Website or Services and click a link to another site, you will leave our Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We are not responsible for the data collection and use practices of such other sites. This Policy applies solely to the information collected in connection with your use of our Website and Services and does not apply to any practices conducted offline or in connection with any other websites.

Information for EU and Swiss Residents

JD Supra's principal place of business is in the United States. By subscribing to our website, you expressly consent to your information being processed in the United States.

  • Our Legal Basis for Processing: Generally, we rely on our legitimate interests in order to process your personal information. For example, we rely on this legal ground if we use your personal information to manage your Registration Data and administer our relationship with you; to deliver our Website and Services; understand and improve our Website and Services; report reader analytics to our authors; to personalize your experience on our Website and Services; and where necessary to protect or defend our or another's rights or property, or to detect, prevent, or otherwise address fraud, security, safety or privacy issues. Please see Article 6(1)(f) of the E.U. General Data Protection Regulation ("GDPR") In addition, there may be other situations where other grounds for processing may exist, such as where processing is a result of legal requirements (GDPR Article 6(1)(c)) or for reasons of public interest (GDPR Article 6(1)(e)). Please see the "Your Rights" section of this Privacy Policy immediately below for more information about how you may request that we limit or refrain from processing your personal information.
  • Your Rights
    • Right of Access/Portability: You can ask to review details about the information we hold about you and how that information has been used and disclosed. Note that we may request to verify your identification before fulfilling your request. You can also request that your personal information is provided to you in a commonly used electronic format so that you can share it with other organizations.
    • Right to Correct Information: You may ask that we make corrections to any information we hold, if you believe such correction to be necessary.
    • Right to Restrict Our Processing or Erasure of Information: You also have the right in certain circumstances to ask us to restrict processing of your personal information or to erase your personal information. Where you have consented to our use of your personal information, you can withdraw your consent at any time.

You can make a request to exercise any of these rights by emailing us at privacy@jdsupra.com or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

You can also manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard.

We will make all practical efforts to respect your wishes. There may be times, however, where we are not able to fulfill your request, for example, if applicable law prohibits our compliance. Please note that JD Supra does not use "automatic decision making" or "profiling" as those terms are defined in the GDPR.

  • Timeframe for retaining your personal information: We will retain your personal information in a form that identifies you only for as long as it serves the purpose(s) for which it was initially collected as stated in this Privacy Policy, or subsequently authorized. We may continue processing your personal information for longer periods, but only for the time and to the extent such processing reasonably serves the purposes of archiving in the public interest, journalism, literature and art, scientific or historical research and statistical analysis, and subject to the protection of this Privacy Policy. For example, if you are an author, your personal information may continue to be published in connection with your article indefinitely. When we have no ongoing legitimate business need to process your personal information, we will either delete or anonymize it, or, if this is not possible (for example, because your personal information has been stored in backup archives), then we will securely store your personal information and isolate it from any further processing until deletion is possible.
  • Onward Transfer to Third Parties: As noted in the "How We Share Your Data" Section above, JD Supra may share your information with third parties. When JD Supra discloses your personal information to third parties, we have ensured that such third parties have either certified under the EU-U.S. or Swiss Privacy Shield Framework and will process all personal data received from EU member states/Switzerland in reliance on the applicable Privacy Shield Framework or that they have been subjected to strict contractual provisions in their contract with us to guarantee an adequate level of data protection for your data.

California Privacy Rights

Pursuant to Section 1798.83 of the California Civil Code, our customers who are California residents have the right to request certain information regarding our disclosure of personal information to third parties for their direct marketing purposes.

You can make a request for this information by emailing us at privacy@jdsupra.com or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

Some browsers have incorporated a Do Not Track (DNT) feature. These features, when turned on, send a signal that you prefer that the website you are visiting not collect and use data regarding your online searching and browsing activities. As there is not yet a common understanding on how to interpret the DNT signal, we currently do not respond to DNT signals on our site.

Access/Correct/Update/Delete Personal Information

For non-EU/Swiss residents, if you would like to know what personal information we have about you, you can send an e-mail to privacy@jdsupra.com. We will be in contact with you (by mail or otherwise) to verify your identity and provide you the information you request. We will respond within 30 days to your request for access to your personal information. In some cases, we may not be able to remove your personal information, in which case we will let you know if we are unable to do so and why. If you would like to correct or update your personal information, you can manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard. If you would like to delete your account or remove your information from our Website and Services, send an e-mail to privacy@jdsupra.com.

Changes in Our Privacy Policy

We reserve the right to change this Privacy Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our Privacy Policy will become effective upon posting of the revised policy on the Website. By continuing to use our Website and Services following such changes, you will be deemed to have agreed to such changes.

Contacting JD Supra

If you have any questions about this Privacy Policy, the practices of this site, your dealings with our Website or Services, or if you would like to change any of the information you have provided to us, please contact us at: privacy@jdsupra.com.

JD Supra Cookie Guide

As with many websites, JD Supra's website (located at www.jdsupra.com) (our "Website") and our services (such as our email article digests)(our "Services") use a standard technology called a "cookie" and other similar technologies (such as, pixels and web beacons), which are small data files that are transferred to your computer when you use our Website and Services. These technologies automatically identify your browser whenever you interact with our Website and Services.

How We Use Cookies and Other Tracking Technologies

We use cookies and other tracking technologies to:

  1. Improve the user experience on our Website and Services;
  2. Store the authorization token that users receive when they login to the private areas of our Website. This token is specific to a user's login session and requires a valid username and password to obtain. It is required to access the user's profile information, subscriptions, and analytics;
  3. Track anonymous site usage; and
  4. Permit connectivity with social media networks to permit content sharing.

There are different types of cookies and other technologies used our Website, notably:

  • "Session cookies" - These cookies only last as long as your online session, and disappear from your computer or device when you close your browser (like Internet Explorer, Google Chrome or Safari).
  • "Persistent cookies" - These cookies stay on your computer or device after your browser has been closed and last for a time specified in the cookie. We use persistent cookies when we need to know who you are for more than one browsing session. For example, we use them to remember your preferences for the next time you visit.
  • "Web Beacons/Pixels" - Some of our web pages and emails may also contain small electronic images known as web beacons, clear GIFs or single-pixel GIFs. These images are placed on a web page or email and typically work in conjunction with cookies to collect data. We use these images to identify our users and user behavior, such as counting the number of users who have visited a web page or acted upon one of our email digests.

JD Supra Cookies. We place our own cookies on your computer to track certain information about you while you are using our Website and Services. For example, we place a session cookie on your computer each time you visit our Website. We use these cookies to allow you to log-in to your subscriber account. In addition, through these cookies we are able to collect information about how you use the Website, including what browser you may be using, your IP address, and the URL address you came from upon visiting our Website and the URL you next visit (even if those URLs are not on our Website). We also utilize email web beacons to monitor whether our emails are being delivered and read. We also use these tools to help deliver reader analytics to our authors to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

Analytics/Performance Cookies. JD Supra also uses the following analytic tools to help us analyze the performance of our Website and Services as well as how visitors use our Website and Services:

  • HubSpot - For more information about HubSpot cookies, please visit legal.hubspot.com/privacy-policy.
  • New Relic - For more information on New Relic cookies, please visit www.newrelic.com/privacy.
  • Google Analytics - For more information on Google Analytics cookies, visit www.google.com/policies. To opt-out of being tracked by Google Analytics across all websites visit http://tools.google.com/dlpage/gaoptout. This will allow you to download and install a Google Analytics cookie-free web browser.

Facebook, Twitter and other Social Network Cookies. Our content pages allow you to share content appearing on our Website and Services to your social media accounts through the "Like," "Tweet," or similar buttons displayed on such pages. To accomplish this Service, we embed code that such third party social networks provide and that we do not control. These buttons know that you are logged in to your social network account and therefore such social networks could also know that you are viewing the JD Supra Website.

Controlling and Deleting Cookies

If you would like to change how a browser uses cookies, including blocking or deleting cookies from the JD Supra Website and Services you can do so by changing the settings in your web browser. To control cookies, most browsers allow you to either accept or reject all cookies, only accept certain types of cookies, or prompt you every time a site wishes to save a cookie. It's also easy to delete cookies that are already saved on your device by a browser.

The processes for controlling and deleting cookies vary depending on which browser you use. To find out how to do so with a particular browser, you can use your browser's "Help" function or alternatively, you can visit http://www.aboutcookies.org which explains, step-by-step, how to control and delete cookies in most browsers.

Updates to This Policy

We may update this cookie policy and our Privacy Policy from time-to-time, particularly as technology changes. You can always check this page for the latest version. We may also notify you of changes to our privacy policy by email.

Contacting JD Supra

If you have any questions about how we use cookies and other tracking technologies, please contact us at: privacy@jdsupra.com.

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