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Banking Interpretations

NYSBL Sec. 222 & 223

July 11, 2001
Via Facsimile

Mr. Anthony Dos Santos
Licensing Manager 
Office of the Comptroller of the Currency
Northeastern District 
1114 Avenue of the Americas - Suite 3900 
New York, NY 10036

Re: [ ] N.A. / Application to acquire branch of [ ] Community Bank


Dear Mr. Dos Santos:

This is to advise you that New York State Banking Department ("Department") staff and representatives of [ ] N.A. ("Buyer") met on July 5, 2001 to discuss the above-referenced transaction, and the Department will not formally oppose the branch acquisition, should it be approved by the OCC.

The transaction involves Buyer's purchase of certain assets and liabilities of a branch of [ ] Community Bank ("Seller") located at [ ] New York. Seller's branch is located in a supermarket, and Seller is planning to consolidate much of the business of said branch with another of its existing branches located approximately 150 feet away in an adjacent shopping center in a relocation.

The assets and liabilities to be transferred consist of nine non-IRA certificates of deposit totaling $205,000 in cash. In addition, Buyer will assume Seller's lease. According to Buyer, Seller was willing to sell said CDs, as they are owned by customers having a "single relationship" with Seller, but Seller was not willing to sell any other deposits of the branch.

New York's Interstate Branching Act (the "Act") (New York Banking Law §§ 222 et. permits entry by an out-of-state bank into New York by means of an "acquisition transaction", which is defined in the Act as "any merger, consolidation, or purchase of assets and assumption of liabilities of all or part of a New York banking institution". Legislative memoranda accompanying the Act indicate entry into New York by out-of-state banks would be permissible through the acquisition of "one or more branches" of an existing New York institution. (See Memorandum in Support, New York State Assembly, 1996 McKinney's Session Laws of New York, p. 1980; Governor's Approval Memorandum #2, 1996 New York State Legislative Annual, p.8). Unfortunately, the legislature did not provide a more precise standard other than "acquisition of a branch". In so doing, the legislature failed to give any guidance as to any de minimus requirement that must be met under the law, although it did decline to permit de novo entry by out-of-state banks.

Most interstate branch transactions presented to the Department to date have involved the acquisition of at least all or substantially all of the assets of a branch of a New York bank. The Department believes such transactions clearly are consistent with legislative intent. In at least one case, the Department opined that merely the acquisition of a branch facility (i.e. real estate) would not be sufficient to constitute an "acquisition transaction" under the Act.

Although the Department believes that Buyer's proposal involves scant more than purchase of a branch premises leasehold, we would not formally oppose the transaction in the absence of a more definite legislative standard. As discussed in our meeting with Buyer, the subject transaction involves the purchase of a branch from the Seller. A branch located in a supermarket is indistinguishable from a traditional brick-and-mortar branch for purposes of New York Banking Law. Accordingly, the acquisition of the remainder of the branch's lease would be analogous to the acquisition of the real estate lease or the building itself in the case of a brick-and-mortar branch. Consistent with our prior decisions, if the transaction consisted of nothing more than a lease or purchase of a branch facility and/or the facility's equipment, furniture or fixtures, we would not consider it an "acquisition transaction". However, in this instance, although the Seller chooses to retain many of its customers' deposit liabilities and apparently has no loans to transfer, Seller is transferring a portion of its deposit business to Buyer. Buyer's purchase of such deposit business triggers a regulatory filing requirement of a Business Combination Application by Buyer to the OCC. The transaction appears to be an arms- length negotiated deal between Buyer and Seller for a portion of the business as well as Seller's branch location. Accordingly, the transaction would appear to meet the technical legal requirements of New York's Act.

Buyer has informed us that it intends to relocate its New York operations to [ ] New York, New York, subsequent to its purchase of Seller's branch. In this connection, it is filing a branch closing notice with your office. We have informed Buyer that once the branch has been closed, it cannot serve as an entry point for any future "acquisition transactions" by any out-of-state bank.

We trust that the foregoing is helpful.

Sincerely,

P. Vincent Conlon 
Deputy Superintendent of Banks 
U.S. Financial Services Division

CC: [ ]