Our Practice

Our practice follows the life-cycle of each of our financial institution clients.

The beginning

There are two ways in which to enter the financial institution business. One is through de novo entry, and the other is through a change in control process.

De novo entry for banks and savings institutions starts with attracting a strong local group of organizers, a qualified CEO and a business plan, including a demographic analysis and an evaluation of the viability of a new bank in the local market. Regulatory applications, capital raising, and other organizational steps, including adoption of sound banking systems and controls, follow. We have more than twenty years of experience forming banks and have successfully formed more than twenty.

It is essential that de novo banks start off on the right foot, building quality in management, the board, systems and controls, policies, and business plan from the beginning. We help support this effort throughout the organizational period, and for virtually all of the banks that we have formed, we have remained as counsel until they are acquired by another institution.

Our legal services for de novo banks include:

Entry through a change in control process involves an entirely different set of issues than a de novo application. We work closely with our clients putting together an investment group, negotiating a shareholder agreement if appropriate, identifying acquisition targets, negotiating with the acquisition targets, applying for financing, preparing a change in bank control application, and developing a viable business plan.

Bank regulatory relationships

A bank with a poor relationship with its federal and state banking supervisors will likely not succeed. Banking is a highly regulated industry, with frequent on-site examinations and regulatory directives and guidance. Having a good working relationship with bank regulators is essential.

We assist our bank clients in fostering and maintaining good working relationships with their regulators. When regulatory criticisms arise or enforcement matters develop, we assist our bank clients in addressing any regulatory concerns and resolving the issues as soon as possible. Resolving regulatory issues while the examiners are conducting the examination is ideal, and we often work closely with our clients to resolve such issues during the examination.

In some instances, when informal resolution of regulatory issues fail, we help defend our financial institution clients against formal administrative actions taken by the federal banking agencies and assist in the resolution of those actions.

Corporate governance and Board responsibilities

With the enactment of the Sarbanes-Oxley Act and other corporate developments, corporate governance and the role of the board of directors have become an essential part of a well-run financial institution.

For our publicly traded financial institution company clients, we provide legal representation on compliance with the Sarbanes-Oxley Act, the other federal and state securities laws and regulations, and compliance with the listing requirements of the national securities exchanges and clearinghouses.

For nonpublic financial institution clients, the corporate governance concepts embedded in the listing requirements of the national securities exchanges and the federal securities laws and regulations are frequently applied informally by bank examiners. Sound corporate governance principles can help a financial institution become a stronger institution. We share our considerable expertise in corporate governance principles and systems in assisting our clients to seek "best practices" for their institution.

Compensation, stock options and grants, and employment agreements

We assist our clients in formulating nonqualified executive compensation plans, stock option, stock appreciation rights and restricted stock grant plans, deferred compensation plans, bank owned life insurance programs, and employment agreements. We also provide advice on the corporate decision-making process involved in making compensation decisions, including best practices in the field.

Compliance

In recent years, compliance has become a major risk source for financial institutions. Noncompliance with the Bank Secrecy Act, consumer laws such as RESPA and state and federal securities laws, among others, creates a substantial challenge for the financial institution and its board and management.

We have been active in assisting banks in developing controls and systems and other preventative or corrective measures designed to minimize violations of the Bank Secrecy Act and other laws, and have defended a number of financial institutions cited by the federal banking agencies (and FINCEN, a bureau of the U.S. Department of Treasury, in the case of the Bank Secrecy Act) as being in violation of such laws.

Geographic expansion and expansion by merger

Banks expand geographically by establishing or purchasing branches, and by acquiring other financial institutions through merger or a purchase and assumption transaction.

We have assisted our banking clients in more than seventy merger or purchase and assumption transactions since 1993, placing Kennedy & Baris near the top among law firms in the United State in terms of number of transactions.

Product expansion

Many banks and other financial institutions are seeking sources of fee income from nonbanking services. These services include mortgage banking and brokerage, insurance agency, broker-dealer and investment advisory activities.

Banks cannot engage in "commercial" activities, but can engage in activities closely related to banking or in activities deemed to be financial in nature. Sometimes the activity must be performed at the holding company level.

Financial institutions enter these businesses by either de novo entry, acquisition, or through a joint venture with an experienced provider.

In the case of de novo entry, we represent financial institutions in obtaining the proper licenses and in the hiring and retention of qualified insurance agents, mortgage loan officers, and licensed securities brokers through employment agreements.

We have acted as legal counsel on a significant number of acquisitions of insurance agencies.

We assist financial institutions in the establishment of joint ventures with mortgage firms, insurance agencies, title companies, broker-dealers, investment advisers, financial advisers, and other financial institutions, including conducting due diligence of the prospective partners and drafting operating agreements and other corporate documents for the joint venture.

We provide legal advice in the developmentof banking and nonbanking products and services that provide our financial institution clients assurances that they are providing such products and services consistent with law, regulations, and guidelines.

We support our clients' efforts to develop and implement strategies to offer a new service, drafting of employment contracts, acquisition agreements and operating agreements, and in establishing separately incorporated subsidiaries or LLCs to carry on the business.

Third party vendor relationships

Banks increasingly are retaining third party vendors to perform a number of functions that banks previously performed themselves. There are a number of reasons for this development, including the expansion of a cottage industry of third party vendors who can, in some instances, perform a higher quality service at a lower cost.

Services provided by third party vendors include data processing, loan review, internal and external audit, website and internet services, and mortgage banking, insurance, and broker-dealer activities. We have represented many banks in their effort to find and establish a relationship with companies providing these and other services.

Capital creation

As financial institutions grow, there will be a need to increase capital unless earnings are retained at a rate supporting such growth.

We have represented financial institutions and their holding companies dozens of times in developing capital strategies and preparing the legal documents necessary for the offering of stock in a public and nonpublic offering.

In recent years, trust preferred securities have become widely available to community banks through participation in investment pools. We have represented financial institution clients in more than twenty-five trust preferred securities offerings.

We have utilized different classes of voting common stock and nonvoting common stock and preferred stock in order to preserve control over the financial institution clients by qualified bankers.

Structural changes and Subchapter S elections

Financial institutions periodically need to evaluate their corporate structure, sometimes in connection with the evaluation of a new product or in connection with an acquisition or an offering.

We have formed many bank and financial holding companies where the need is apparent. However, we have observed many banks forming holding companies without a clear notion of how they plan to use the holding company. We counsel our clients not to form holding companies unless the reasons to form one are compelling. In some instances, we have liquidated holding companies for banks that do not have a need for one.

In evaluating new products, financial institutions need to decide whether to offer the product through the financial institution itself, or through an operating or financial subsidiary of the financial institution, or through its holding company or subsidiary of the holding company. We have extensive experience counseling financial institutions on how to structure the offering of new products and services.

With the enactment of a federal law in 1996 allowing banks to elect to be taxed under Subchapter S of the Internal Revenue Code, there have been more than 2,000 banks that have elected such classification. We played a significant role in the enactment of the legislation through our representation of a bank client desirous of becoming an S Corp, and since enactment, we have represented more than 200 banks in electing S Corp status. In some cases, we assisted our bank clients to use reverse stock splits and cash out mergers to reduce the number of stockholders to less than 100 and to otherwise qualify the shareholder group for an election under Subchapter S, as required by law.

A number of community banks or their holding companies have decided to deregister from SEC registration by reducing the number of shareholders below 500 (or 300, depending on which securities laws or regulations apply to the specific situation). The decision to "going private" involves an evaluation of the advantages and disadvantages of remaining of public company. Compliance with the Sarbanes-Oxley Act, particularly Section 404, which requires internal control attestations, has been quite costly, particularly for smaller community banks. We have successfully represented a significant number of banks through the deregistration process.

Corporate challenges

No matter how well a financial institution is managed, there are occasions where the institution will face unusual challenges. These may come from a variety of sources, including bank regulatory actions, shareholder proxy fights, management changes, adverse publicity affecting the institution's reputation, and lawsuits.

We have represented financial institutions on a variety of corporate challenges, including bank regulatory actions, proxy contests, hostile takeover attempts, and senior management firings. We help develop a strategy that will effectively respond to the crisis, and will guide public companies through the morass of securities laws and regulations to help assure that the company is acting consistent with such laws and regulations.

Exit strategies

At some point in the life of a financial institution, serious consideration is given to selling the institution.

With the experience of more then seventy bank merger and purchase and assumption transactions, we can provide expert advice on how to develop a strategy of deciding whether to sell the institution, and if so, how to go about it to realize the best possible price for the institution's shareholders. We assist financial institutions in finding acquirors and work frequently with investment firms acting as brokers on the transaction. We negotiate and draft merger agreements, "golden parachutes", and related documents, and help prepare any required banking agency regulatory applications.

Proactive involvement with banking clients

We pride ourselves in being part of our bank clients' success. We do that by providing high quality legal services in a cost-effective manner. We also have frequent contact with our bank clients concerning recent legal and regulatory developments affecting them and their board and management, and play a role in identifying opportunities for our clients to enhance their businesses through geographic and product expansion.