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Banking Interpretations

NYSBL Sections 222; 223; 227

From:       Alan M. Weinberg, Assistant counsel

Date:        November 6, 2006

Subject:    Interstate Branching -- Branch Acquisition by [---] (the "Bank")

Issue

Is the proposed branch acquisition by the Bank from [---], N.A. ("Seller") consistent with New York law and, in particular, does it qualify as an "acquisition transaction" under Banking Law Section 223, which permits entry by an out-of-state bank into New York?

Recommendation

As discussed below, we would not object to the proposed transaction under New York's Interstate Branching Act (New York Banking Law, Article 5-C, §§ 222 et. seq.). Section 223 permits entry by an out-of-state bank into New York by means of an "acquisition transaction" which is defined in § 222(7) as "any merger, consolidation or purchase of assets and assumption of liabilities of all or part of a banking institution." The proposed transaction appears to meet the requirements of this definition based upon the facts presented to us.

Background

The Bank, a national bank headquartered in [---], Connecticut, would like to acquire the NY branch office (the "Branch") [---], (NY) of Seller, a national bank headquartered in Newark, New Jersey.

With regard to the acquisition, you provided to us the "streamlined business combination application" filed by the Bank with the OCC and related materials, including the Purchase and Assumption Agreement ("P&A") between the Bank and the Seller. The P&A states that Bank plans to purchase the Seller's assets at the Branch (furniture, equipment and fixtures as described) and deposits and assume the deposit liabilities associated with the deposit accounts at the Branch. (The aggregate amount of such accounts is $[---] as of 6/12/06 and the P&A provides for the payment of a deposit premium of $[---]).

Reasoning

As mentioned above, we would not object to the proposed transaction inasmuch as New York Banking Law Section 223 permits entry by an "out-of-state bank" into New York by means of an "acquisition transaction."

First, Bank meets the definition of "out-of-state bank" for purposes of Section 223, as that term includes an "out-of-state national bank." As I understand it, the Department in the past has allowed one or more such transactions involving the acquisition of a New York branch of an out-of-state bank by an out-of-state bank.

Second, the proposed transaction appears to meet the requirements of an "acquisition transaction" based upon the facts presented to us. An "acquisition transaction" is defined in § 222(7) as "any merger, consolidation or purchase of assets and assumption of liabilities of all or part of a banking institution."

While New York does not permit "de novo" branching into New York, we have concluded on a number of occasions that initial entry by means of an "acquisition transaction" (i.e., acquisition of all or part of a banking institution, including acquisition of a single branch or branches of an institution) is permissible. (See Memorandum in Support, New York State Assembly, 1996 McKinney's Session Law of New York; Governor's Approval Memorandum #2, 1996 New York State Legislative Annual). In contrast, we have found that initial entry into New York by acquisition of merely a New York branch "location" (i.e., without acquiring the branch's banking business) would be inconsistent with the spirit of New York's Interstate Branching Act. In the proposed acquisition, however, the transaction would involve acquisition of substantial assets and deposits, and, hence, would be deemed acceptable under New York's Interstate Branching Act.

Also, we appear to have received notice of the proposed transaction in a manner consistent with Section 225(2) of the New York Banking Law. That section provides that in the case of any acquisition transaction authorized under New York's Interstate Branching Act in which the receiving corporation is not a New York bank (which is the case here),

the out-of-state bank shall file with the superintendent a copy of any application filed with the appropriate state supervisor and appropriate federal banking agency.

Accordingly, we believe that the proposed transaction is consistent with Article 5-C of the Banking Law.

Noted:_____
       SAK

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