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Silver, Freedman & Taff, L.L.P. “Finding solutions every day.”
© 2011 Silver, Freedman & Taff, L.L.P. All Rights Reserved. | sftlaw.com1
Annual Meeting for:
Presented By:
Martin L. Meyrowitz, Partner
Silver, Freedman & Taff, L.L.P.3299 K Street, N.W., Suite 100Washington, DC 20007202-295-4500
Acquisitions of Banks and Credit Unions
Silver, Freedman & Taff, L.L.P. “Finding solutions every day.”
© 2011 Silver, Freedman & Taff, L.L.P. All Rights Reserved. | sftlaw.com2
Firm Overview
We are an established leader in handling significant transactional and regulatory matters as well as ongoing regulatory compliance issues for commercial banks, savings institutions, credit unions and trust companies as well as their holding companies, affiliates and subsidiaries. Financial institutions are subject to extensive oversight by federal and state governmental regulators. We regularly interact and have strong working relationships with federal and state banking and securities regulators.
Our banking and credit union attorneys provide sound and practical regulatory advice in connection with transactions, including securities offerings and mergers and acquisitions, and regulatory enforcement and compliance matters. We often counsel boards and management on federal and state banking laws and regulations involving bank and thrift holding companies, change in control regulations, lending limitations, privacy regulations, transactions with affiliates, corporate powers, and conflicts of interest. When regulatory examinations raise compliance issues, our experience facilitates a resolution of the matter, and if necessary, the negotiation of a supervisory agreement our clients can operate successfully within.
We regularly advise clients on corporate structure, including de novo bank formations, charter conversions, holding company formations and public and private mutual holding companies as well as capital raises. We did the first mutual to stock conversion and we are the leading law firm in the country in advising credit unions on charter choice alternatives.
M&A Midyear Review
*..but the major players in bank M&Aknow all about the firm’s top men, Barry P. Taff and Robert L. Freedman.
Featured Article in Community Banker
Silver, Freedman & Taff, L.L.P. “Finding solutions every day.”
© 2011 Silver, Freedman & Taff, L.L.P. All Rights Reserved. | sftlaw.com3
Martin L. Meyrowitz
Marty Meyrowitz, has been representing financial institutions and their holding companies for more than 25 years. Mr. Meyrowitz specializes in public and private securities offerings, mutual-to-stock conversions, merger and acquisition transactions, other general corporate and securities matters and executive compensation. He also counsels clients on corporate restructurings, corporate governance practices and bank regulatory compliance issues.
Mr. Meyrowitz has been a speaker on a variety of financial institution issues, including such topics as Sarbanes-Oxley, corporate governance policies and procedures, conversions, merger/conversions, mutual holding company conversions and the acquisition of financial institutions. He has overseen and completed hundreds of capital raising, debt financing and merger and acquisition transactions involving financial institutions.
Following law school, Mr. Meyrowitz entered private practice in Washington, D.C., where he was engaged primarily in corporate, real estate and tax law matters. In 1981, he joined the staff of the Securities and Exchange Commission, where he served for four years in the Division of Corporation Finance, including two years as special counsel of the Office of International Corporate Finance.Mr. Meyrowitz received his B.S. in accounting from the University of Maryland, his J.D. from the University of Miami and his Masters of Law in taxation from Georgetown University. Mr. Meyrowitz is a member of the District of Columbia Bar, the Florida Bar and the Maryland Bar.
EducationUniversity of Maryland (B.S. – Accounting)
University of Miami School of Law (J.D.)
Georgetown University (M.L.T. - Taxation)
PARTNER
SILVER, FREEDMAN & TAFF, L.L.P.3299 K STREET, NWSUITE 100WASHINGTON, DC 20007(D) 202.295.4527(C) 202.255.3031
mey@sftlaw.com
Silver, Freedman & Taff, L.L.P. “Finding solutions every day.”
© 2011 Silver, Freedman & Taff, L.L.P. All Rights Reserved. | sftlaw.com4
1. Investment Banker2. Attorney3. Accountants
A. Identify a TeamA. Price (for stocks)B. Compensation & Job Security
Mergers
B.
Sel
ect T
arge
ts
C.
Sig
n N
on-D
iscl
osur
e
A
gree
men
t
D.
Con
duct
Due
Dil
igen
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E.
Sig
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on-B
indi
ng L
ette
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I
nten
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F.
Neg
otia
te D
efin
itiv
e A
gree
men
t
G.
Pre
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& F
ile
Reg
ulat
ory
App
lica
tion
s
H.
Res
pond
to R
egul
ator
s’ C
omm
ents
I. C
ondu
ct S
hare
hold
er (
mem
ber)
Vot
e if
N
eces
sary
Hot Button Issues
C. Director SeatsD. Loan Loss Reserve LevelsE. Integration IssuesF. Reps & WarrantiesG. Banking FeesH. Timeframe to Complete DealI. Are you Approvable
Issues for Management
J. Structure
a. Mutual and Stockb. Mutual Holding Companiesc. Holding Co. vs. Bank
(i.e. where will the acquired bank be held).
Silver, Freedman & Taff, L.L.P. “Finding solutions every day.”
© 2011 Silver, Freedman & Taff, L.L.P. All Rights Reserved. | sftlaw.com5
Mergers
Add New Lines of BusinessAdd New Lines of Business
Add Key PersonnelAdd Key Personnel
Expand FranchiseExpand Franchise
Add CapitalAdd Capital
Increase EarningsIncrease Earnings
Economics of ScaleEconomics of Scale
ADVANTAGESADVANTAGES
Silver, Freedman & Taff, L.L.P. “Finding solutions every day.”
© 2011 Silver, Freedman & Taff, L.L.P. All Rights Reserved. | sftlaw.com6
Mergers
Stretching CapitalStretching Capital
Personnel IssuesPersonnel Issues
Integration RisksIntegration Risks
Buying Someone Else’s ProblemsBuying Someone Else’s Problems
DISADVANTAGESDISADVANTAGES
Silver, Freedman & Taff, L.L.P. “Finding solutions every day.”
© 2011 Silver, Freedman & Taff, L.L.P. All Rights Reserved. | sftlaw.com7
Bidding on Failed Banks
CURRENT PACE OF
TRANSACTIONS
HOW DO I GET ON THE BID
LIST?
WHAT IS THE MARKETING
PROCESS?
WHOLE BANK AND WHOLE BANK WITH LOSS SHARE
TRANSACTIONS
Silver, Freedman & Taff, L.L.P. “Finding solutions every day.”
© 2011 Silver, Freedman & Taff, L.L.P. All Rights Reserved. | sftlaw.com8
Current Pace of Transactions
2011 FDIC transactions were on pace with 2010 for the first few months of the year. The pace has slowed since the beginning of the year and compared to last year.
A. Identify a Team
44 Failed Bank transactions during first five months of 2011, of which 2 failed banks did not have an acquirer.
78 Failed Bank transactions during first five months of 2010, of which 4 failed banks did not have an acquirer.
Silver, Freedman & Taff, L.L.P. “Finding solutions every day.”
© 2011 Silver, Freedman & Taff, L.L.P. All Rights Reserved. | sftlaw.com9
Interested in Bidding?
BANKS CAN USE FDICCONNECT TO PROVIDE M&A CONTACT INFORMATION FOR INVITATIONS TO BID
BANKS MAY ALSO SEND AN EMAIL TO PROVIDE CONTACT INFORMATION TO: institutionsales@fdic.gov
• Banks may complete a survey to record their areas of geographic interest.
• Submitting geographic preferences does not mean that a bank will be notified of all potential failing institutions in that state.
Silver, Freedman & Taff, L.L.P. “Finding solutions every day.”
© 2011 Silver, Freedman & Taff, L.L.P. All Rights Reserved. | sftlaw.com10
Bid List Criteria
Supervisory Criteria
• Healthy, well capitalized Institutions
• No Compliance, CRA, BSA or Anti-Money Laundering Issues
Total Asset Size & Geographic Criteria
• Total asset size threshold established for invitation is roughly double core deposits of failing bank when bidder is in geographic proximity to failing bank
• Larger total asset size requirements when bidder is located in other states
• Bidders may express preferences for invitation by state
Silver, Freedman & Taff, L.L.P. “Finding solutions every day.”
© 2011 Silver, Freedman & Taff, L.L.P. All Rights Reserved. | sftlaw.com11
Bid List Criteria Example
Failing bank located in “X” State with $100 million in Total Deposits, $20 million in Brokered Deposits.
• Bid List Criteria Used:• Insured financial institutions in “X” State with at least $160 million in total assets (roughly double core deposits of failing bank).
• Insured financial institutions in contiguous states with at least $300 million in total assets (roughly double criteria used above for bidders located farther away from failing bank).
• Insured institutions nationwide with at least $400 million in total assets that have expressed an interest in acquiring institutions in “X” state.
Criteria used will vary from project to project based on characteristics of potentially failing bank, time available for marketing, and other factors.
Silver, Freedman & Taff, L.L.P. “Finding solutions every day.”
© 2011 Silver, Freedman & Taff, L.L.P. All Rights Reserved. | sftlaw.com12
Marketing via IntraLinks
Marketing Process starts with email to Prospective Bidders inviting them to IntraLinks for a specific resolution project.
After executing electronic Confidentiality Agreement, bidders may read an Executive Summary & Transaction Recap.
If interested, may request access to Project’s data room for information about failing bank & transaction terms
• Deposit & Loan Downloads (Customer identifiable information redacted)
• Premises, IT and Other Operational Information• Legal Documents (bid forms, instructions, P&A documents, etc.)• Regulatory Contact information• Key dates, Bid Instructions
Silver, Freedman & Taff, L.L.P. “Finding solutions every day.”
© 2011 Silver, Freedman & Taff, L.L.P. All Rights Reserved. | sftlaw.com13
On-Site Due Diligence
Opportunities for On-Site Due Diligence are not always available, depends upon Resolution Timeline.
Due Diligence scheduled “First Come, First Serve”.
• Time allowed averages one to two days
• Team sizes average three to five
• Affords the review of more detailed information
Structured Program with FDIC hosting bidder access.
Silver, Freedman & Taff, L.L.P. “Finding solutions every day.”
© 2011 Silver, Freedman & Taff, L.L.P. All Rights Reserved. | sftlaw.com14
Bid Submission
FDIC establishes deadline for bid package
Bid Packages include:• Bid (on bid form provided)• Purchaser Eligibility Certificate• Board Resolution• Reaffirmation of Confidentiality Agreement
FDIC selects winning Bid using “Least Cost Test” (proprietary). Additionally, FDIC is required by FDICIA to complete the Least Costly Resolution.
Once winning bidder is selected you will be notified by the Marketing Specialist and Receiver in Charge/Closing Manager.
Silver, Freedman & Taff, L.L.P. “Finding solutions every day.”
© 2011 Silver, Freedman & Taff, L.L.P. All Rights Reserved. | sftlaw.com15
Marketing: Transaction Structures
Purchase and Assumption (P&A)
• Whole Bank
• Whole Bank with Loss Share
• Modified Whole Bank with Loss Share
• P&A with Optional Loan Pools
• Clean P&A
Other Resolution Methods
• Bridge Bank
• Deposit PayoutDeposit Insurance National Bank (DINB)Straight Payout
Silver, Freedman & Taff, L.L.P. “Finding solutions every day.”
© 2011 Silver, Freedman & Taff, L.L.P. All Rights Reserved. | sftlaw.com16
Whole Bank with Loss Share
• “Whole Bank” is a misnomer
• Transfers assets (including loans, ORE, securities) to Assuming Bank unless items are specifically excluded
• Transfers related, bank-owned, businesses (Credit Cards, Safe Deposit Box, Trust, Acquired Subsidiaries, etc.)
• Franchise acquisitions can be for All Deposits or Insured Deposits Only
• FDIC offers up to 80% credit loss coverage in transactions with Loss Sharing, except in transactions where the assets of the Failed Banks are $500 million or more (“Large Loss Sharing Transactions”). In Large Loss Sharing Transactions there are three loss tranches. The 1st and 3rd tranches provide up to 80% credit loss coverage but the 2nd tranche is normally a fixed percentage ranging from 0 to 30% in credit loss coverage.
Silver, Freedman & Taff, L.L.P. “Finding solutions every day.”
© 2011 Silver, Freedman & Taff, L.L.P. All Rights Reserved. | sftlaw.com17
Typically Excluded Assets
• Bank Premises (offered under Separate 90-Day Options)
• D&O Liability Claims
• Prepaid Regulatory Assessments
• Tax Receivables
• Loss Reserves (General and Specific)
• Private Label Asset Backed Securities
• Assets that may be involved in fraud
Silver, Freedman & Taff, L.L.P. “Finding solutions every day.”
© 2011 Silver, Freedman & Taff, L.L.P. All Rights Reserved. | sftlaw.com18
What is Loss Share (LS)?
• Receiver & Assuming Bank share in losses & recoveries on Loss Share assets (80%/20%) unless Assuming Bank’s Bid provides that Receiver’s share is less than 80% or it’s a Large Loss Share Transaction (i.e., Receiver’s credit loss is fixed at a lower percentage on the 2nd loss tranche)
• Generally 50/50 split between the Receiver and Assuming Bank on recoveries of fully charged off assets of the Failed Bank
• Applies to loans, ORE & (infrequently) certain securities
• Single Family LS – 10 year term
• Commercial LS – 5 year term + 3 years for recoveries only
• Cannot (currently) obtain loss share without a deposit franchise
Silver, Freedman & Taff, L.L.P. “Finding solutions every day.”
© 2011 Silver, Freedman & Taff, L.L.P. All Rights Reserved. | sftlaw.com19
What is Loss Share? – Cont.
Permits Assuming Bank to formulate bid to recover all or portions of at least the following (subject to competitive conditions):
• credit losses (Assuming Bank’s percentage of loss share, generally 20%)
• Future income statement vulnerabilities from acquisition of impaired ORE/Loans
• Asset management expenses not otherwise reimbursable under the Loss Share
• Other
Silver, Freedman & Taff, L.L.P. “Finding solutions every day.”
© 2011 Silver, Freedman & Taff, L.L.P. All Rights Reserved. | sftlaw.com2020
WBwLS – Bid Format
• Type of Deposits Assumed (all/insured)
• Deposit Premium Bid (stated as a % of core deposits - All brokered, CDARS and listing service deposits excluded from calculation).
• Asset Premium/(Discount Bid) (stated as a positive or negative dollar amount).
• Loss Share Percentage – 80% Receiver and 20% Assuming Bank unless Assuming Bank decreases Receiver’s Percentage on Bid Form (or in the case of Large Loss Sharing Transactions (assets of $500 million or more), Receiver’s loss share percentage is up to 80% on bid tranches 1 and 3 and generally fixed between 0 and 30% on tranche 2)
Silver, Freedman & Taff, L.L.P. “Finding solutions every day.”
© 2011 Silver, Freedman & Taff, L.L.P. All Rights Reserved. | sftlaw.com21
Type of Loss Share Bids
•Aggressive
•Conservative
•Other
Silver, Freedman & Taff, L.L.P. “Finding solutions every day.”
© 2011 Silver, Freedman & Taff, L.L.P. All Rights Reserved. | sftlaw.com22
Loss Share Transaction Documents
Type of Documents• P&A Agreement• Single Family Loss Share Agreement• Commercial (Non-Single Family) Loss Share Agreement
Certain Key Provisions in Transaction Documents• FDIC as Receiver (not in its corporate capacity) is the party to the Agreements. FDIC
corporate only guarantees indemnification obligations of the Receiver.• Consumer Loans not covered by loss share • Neither investment in nor loans to or assets of an acquired subsidiary are covered by loss
share• If Assuming Bank or its holding company is sold (including by asset sale or otherwise),
or Assuming Bank or its holding company experiences a more than 1/3 change in ownership in a merger or consolidation or a change in control by sale of shares by shareholders, the Receiver must consent to the transaction to preserve loss sharing.
• Mistake in complying with Permitted Advance and/or Permitted Amendment Provisions of Commercial Loss Share Agreement results in forfeiture of FDIC loss coverage with respect to the affected loan.
• True - Up Payment to FDIC
Silver, Freedman & Taff, L.L.P. “Finding solutions every day.”
© 2011 Silver, Freedman & Taff, L.L.P. All Rights Reserved. | sftlaw.com23
Closing Process when Bidding under the Whole Bank with Loss Share
At Closing, FDIC Pro Forma –•Prepares balance sheet of acquired assets and assumed liabilities at book value after reversal of loan reserves with selected investments valued at fair market value
Net of same is “Equity Adjustment (EA)”
Then nets EA with asset premium/discount bid and deposit premium bid•If result is positive, Assuming Bank will wire the FDIC that amount on first business day following bank closing
• If result is negative, FDIC wires the Assuming Bank amount on first business day following bank closing
Silver, Freedman & Taff, L.L.P. “Finding solutions every day.”
© 2011 Silver, Freedman & Taff, L.L.P. All Rights Reserved. | sftlaw.com24
Loss Share Bid Example
Bid• All Deposits• Deposit Premium of 1% (core deposits)• Asset Discount of $11 million
Assumptions• Acquired assets minus assumed liabilities $1 million (EA)• Core Deposits $200 million
Silver, Freedman & Taff, L.L.P. “Finding solutions every day.”
© 2011 Silver, Freedman & Taff, L.L.P. All Rights Reserved. | sftlaw.com25
Loss Share Bid Example – Cont.
• The calculation of the initial wire would be (in 000s):
• Thus the FDIC would pay the Assuming Bank $8 million onthe first business day after bank closing
Equity Adjustment 1,000
Franchise bid:
Franchise % 1.0%
Core deposits 200,000
Total 2,000 2,000
Asset premium (discount) bid: (11,000) (11,000)
Total (8,000)
Silver, Freedman & Taff, L.L.P. “Finding solutions every day.”
© 2011 Silver, Freedman & Taff, L.L.P. All Rights Reserved. | sftlaw.com26
Closing Procedures
• Prior to bank closing, the FDIC and the Assuming Bank will execute the transaction documents.
• At bank closing, the Chartering Authority will close the Failed Bank and appoint the FDIC, Receiver.
• FDIC will have personnel available to cover the branches and they will coordinate coverage with the Assuming Bank.
• Assuming Bank personnel will be needed over the weekend and FDIC will work with the Assuming Bank on who and when needed.
Silver, Freedman & Taff, L.L.P. “Finding solutions every day.”
© 2011 Silver, Freedman & Taff, L.L.P. All Rights Reserved. | sftlaw.com27
QUESTIONS?
27
Bidding on Failed Banks
Silver, Freedman & Taff, L.L.P. “Finding solutions every day.”
© 2011 Silver, Freedman & Taff, L.L.P. All Rights Reserved. | sftlaw.com28
What is a Credit Union?a profit making financial institution that doesn’t pay taxes*.A credit union is…
Recent history:
*Mutual thrifts were in this position until 1951.
Prior to 2009, these issues did not matter because most institutions made money.
Those that had a particular problem, left to become mutual savings banks.
Charter change was available, but was not deemed necessary for survival of a credit union and its members net worth. You could make it.
Acquisitions of Credit Unions
Silver, Freedman & Taff, L.L.P. “Finding solutions every day.”
© 2011 Silver, Freedman & Taff, L.L.P. All Rights Reserved. | sftlaw.com29
Results/Business Planning
• Credit unions will have to pay for a decade or leave the system; and
• Credit unions can face a Japanese economy, i.e., no growth, no earnings, loss of capital, loss of members and not competitive with other types of financial institutions.
Results:
Business planning: • Insurance problem and lack of transparency makes it impossible to plan with reliable numbers.
Silver, Freedman & Taff, L.L.P. “Finding solutions every day.”
© 2011 Silver, Freedman & Taff, L.L.P. All Rights Reserved. | sftlaw.com30
FDIC vs. NCUA
• solve large problems first;• use prepaid assessments to solve problems now;• use TARP and Treasury help to take care of large institutions;• use access to capital to strengthen healthy buyers;• use private investors and foreign banks to help in assisted deals; • be transparent;• be predictable as far as assessments are concerned;• charge large institutions i.e., over $50 billion more and use a risk-based insurance premium system; and• A bank will pay 7 basis points if they become FDIC insured with an average range of 5 to 9 basis points after the examination.
FDIC Philosophy:
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FDIC vs. NCUA (cont.)
NCUSIF: • manage to conserve not merge or liquidate;• no money to solve big problems;• corporate problem appears to be so large that industry cannot quickly pay for it, if at all;• forbearance is widely practiced;• only small institutions are being resolved as a rule;• no transparency;• assessment of 20-35 basis points;• natural person credit union problem is not being dealt with;• no risk-based premium system; • requirement for 1% capital deposit and loss of earnings; and• will not expand bidders list to include banks.
Silver, Freedman & Taff, L.L.P. “Finding solutions every day.”
© 2011 Silver, Freedman & Taff, L.L.P. All Rights Reserved. | sftlaw.com32
Analyst Predicts 11% Capital Min. Coming
LAKE BLUFF, Ill.-In the near future credit unions will need to meet an 11% capital minimum to be considered well-capitalized, which could mean job reductions in excess of 50,000 and the end of the independent share insurance fund, according to one analyst.
But not everyone believes the situation will be so dire, although several analysts have withheld expressing an opinion of their own, and CUNA has indicated some sort of increased capital requirements may be in the offing.
Mike Moebs, CEO and economist of Moebs $ervices Moebs Services, told Credit Union Journal that credit union concerns over the Durbin Amendment are small when compared to a looming issue CUs face over the next two years-a need to produce an additional $5.4 billion in annual earnings overall to be considered well capitalized. Moebs said the best way to accomplish the task, with earnings down due largely to corporate assessments, is to cut expenses, including jobs.
Moebs asserted that an 11% capital requirement will be placed on credit unions and makes the bold prediction that the National Credit Union Share Insurance Fund will be rolled into the FDIC.
Moebs' argument to support what he believes will be the new CU capital standard is the economic crisis has already prompted the FDIC to raise the minimum capital standard for too-big-to fail banks to 7% from 4%.
Credit Union JournalMonday, May 09, 2011By Ray Birch, Reporter
Feeling It On Main Street
"If the too-big-to-fail banks are being required to move to a capital standard three full points higher, so will the Main Street institutions-the credit unions and community banks," said Moebs. "Capital standards will go from 8% (CAMEL 1 standard) to 11%. This is the approach (Treasury Secretary Timonthy) Geitner, (Fed Chairman Ben) Bernanke, and (and former British PM Tony) Blair established in the discussions with the Europeans last summer.“
But how likely is that 11% minimum capital requirement? Economists at CUNA Mutual Group and NAFCU declined to offer an opinion on the issue, while CUNA weighed in saying higher capital standards are not out of the question.
Despite the larger number of bank failures than credit unions during the recession, Moebs contended the credit union insurance fund will be merged with banks' due to NCUA's poor management of the corporate system, the negative view of NCUA and credit unions in a 2010 Treasury report, and a view from the Fed that regulatory consolidation is a good idea.
"No one is saying it, so I will: the new number for credit unions and community banks will be 11% capital to assets," stated Moebs, expecting the consolidation of the financial system and new capital requirement will start to take shape in the next 12 months. But Moebs insisted the signs are already there. "A couple dozen credit unions I have met with in the past few months have told me examiners are saying they have to get capital above 10%."
Silver, Freedman & Taff, L.L.P. “Finding solutions every day.”
© 2011 Silver, Freedman & Taff, L.L.P. All Rights Reserved. | sftlaw.com33
Analyst Predicts 11% Capital Min. Coming (cont.) "No one is saying it, so I will: the new number for
credit unions and community banks will be 11% capital to assets," stated Moebs, expecting the consolidation of the financial system and new capital requirement will start to take shape in the next 12 months. But Moebs insisted the signs are already there. "A couple dozen credit unions I have met with in the past few months have told me examiners are saying they have to get capital above 10%.“
CUNA's Chief Economist, Bill HampeI, said he would not be surprised to find some examiners encouraging capital ratio building, "especially as we come out of a financial crisis and harsh recession. Beyond the 7% threshold to be well capitalized, the amount of necessary capital for any credit union depends on its specific risk profile and growth prospects. I suspect examiners have those factors in mind when suggesting capital ratio targets.“
Todd Harper, chief spokesperson for NCUA, told Credit Union Journal, "As our examiners look at a credit union they will work to make sure that a credit union's net worth is commensurate with the risk on the balance sheet. For a credit union with a simple balance sheet, 7% may be enough capital. But if the CU has a more complex balance sheet, is engaged in riskier activities, or has a FOM that has seasonal changes, it may need to have higher capital."
Digging into numbers, Moebs outlined the problem he said is facing credit unions. With about $90 billion in total industry capital, CUs today have slightly below 10% capital to assets overall-about $9 billion short of reaching 11%. "In round numbers credit unions made $4 billion last year, so they need to add another $5 billion.“
Need For Expense Reduction
Ruling out net interest margin as a means of driving additional revenue in the near term, Moebs said the only remaining options are increasing fees, reducing expenses, or shrinking assets.
Adding fees or shrinking asset size are not good choices at a time when CUs have a chance to take banks' business, he said.
"I think credit unions, as an industry, can become much more efficient and reduce 20% of their expenses, which comes to about $5.8 billion and will raise capital to a level that will be eventually required. Half of that number is going to come from reducing employees. With about 305,000 FTEs among credit unions, that's 52,000 employees. Credit unions have to get their employee structure down to one employee for every $6 million in assets. That means everyone, from the local fire department credit union to Navy Federal."
Silver, Freedman & Taff, L.L.P. “Finding solutions every day.”
© 2011 Silver, Freedman & Taff, L.L.P. All Rights Reserved. | sftlaw.com34
Conclusion
• higher capital requirements
• current FDIC projects 8% ratio vs. 5% today
• credit union analysis project 11% vs. 7% today
Future for Credit Unions:
Banks: • can pursue capital
• have profitable industry
• loan problems are resolving themselves
Credit unions: • cannot raise capital
• most are not making money because of assessments
• loan problems persist
Silver, Freedman & Taff, L.L.P. “Finding solutions every day.”
© 2011 Silver, Freedman & Taff, L.L.P. All Rights Reserved. | sftlaw.com35
Steps in Credit Union Acquisition Process
IDENTIFY MERGER
CANDIDATE
A. DRAFT NON-BINDING LETTER OF INTENT
B. SIGN NON DISCLOSURE AGREEMENT
C. CONDUCT DUE DILIGENCE
D. SUBMIT BID OF NOT LESS THAN WHAT THE CREDIT UNION IS WORTH IN THE MARKET PLACE
E. CU REGULATOR WILL DETERMINE FAIRNESS OF PURCHASE PRICE BASED ON APPRAISAL OR RELATIONSHIP TO OTHER BIDS
F. DEFINITIVE AGREEMENT SIGNED. NEED MANDATORY VOTE OF CREDIT UNION MEMBERS
1. MAJORITY OF VOTES ELIGIBLE TO BE CAST
2. EXTENSIVE DISCLOSURE REQUIRED
G. REGULATORY APPROVAL OF BANKING AND CREDIT UNION REGULATORS
CLOSING
H.
I.
Silver, Freedman & Taff, L.L.P. “Finding solutions every day.”
© 2011 Silver, Freedman & Taff, L.L.P. All Rights Reserved. | sftlaw.com36
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