Banking Interpretations


March 26, 1992

To: Deputy Superintendent & Counsel Tibbals

From: M. Schussler

Re: Acquisitions of Branches in Home Office Protected Communities

A re-examination of Banking Law §105, prompted by a telephone enquiry concerning a prospective (unidentified) transaction, has led me to conclude that we (or at least I) have been misconstruing the effect of home office protection on acquisitions by state-chartered banks and trust companies ("banks") of existing branches of other banking institutions. Notably, when Manufacturers Hanover Trust Company entered into an agreement to acquire several branches from Goldome, including one located in a home office protected community, the Department acted in the belief that the transaction (submitted as one of a set of branch applications by MHT) would violate Banking Law §105(1). (We approved the branch anyway after the protected bank agreed not to raise an objection, but the "waiver" of home office protection is another matter.) As discussed below, Banking Law §105(1) need never have been considered since the acquisition of the branch was authorized by Banking Law §105(5).

At issue are two subdivisions of Banking Law § 105. Subdivision one contains the general rule that a bank may "open and occupy" a branch anywhere in the state other than in a home office protected community (except one in which its own principal office is located). An exception to this prohibition is made for branches added as a result of the acquisition of another bank or a national bank by merger or otherwise. Subdivision five provides that a bank may "maintain" as a branch office any office acquired from another bank, a national bank, a savings bank, or a savings and loan association as a result of a merger or an acquisition of assets if the merger or acquisition agreement so provides. The latter subdivision was added in 1966 to eliminate duplicative approvals. At that time, branch applications were approved by the Banking Board but mergers and P&As were approved by the Superintendent. However, the Banking Board would separately approve branch locations acquired as a result of a Superintendent- approved merger or P&A.

We have interpreted subdivision five as excluding certain transactions from the branch approval process, but not from the geographical restrictions specified in subdivision one. Thus, a bank could acquire from another bank or a national bank a branch in a home office protected area, but it could not acquire such a branch from a savings bank or a savings and loan association. The reasoning was that subdivision one specifically exempts branches acquired from other commercial banks from the home office protection limitation, but subdivision five, which applies to branches acquired from both commercial banks and state-chartered thrifts, does not make reference to home office protection. We interpreted the exclusion of thrifts from subdivision one and the inclusion of thrifts in subdivision five as reflecting a decision of the Legislature to make a distinction based upon the charter of the selling institution.

That reading of the statute is incorrect. Subdivision one's prohibition on branching in home office protected communities extends only to branches "opened and occupied pursuant to this subdivision" (emphasis added). Branches "maintained" pursuant to subdivision five are not opened and occupied pursuant to subdivision one and are thereby subject to neither the approval process referred to in that subdivision nor the location limitations. Stated another way, subdivisions one and five are each independent authority for a bank to conduct its business through branches, the former through de novo branching, the latter through acquired branches.

The purchase by a bank of even a single branch of a commercial bank or a state-chartered thrift is covered by subdivision five. When adopted in 1966, the subdivision permitted the retention of branches only in the case of a merger with or the "acquisition of all or a substantial part of the assets" of another commercial bank, i.e., a transaction requiring approval under Banking Law §601-b. The subsequent deletion of the language "all or a substantial part" can only mean that sales of individual branches, as well as mergers and equivalent transactions, have no home office protection implications. (Acquisitions of branches from savings banks and savings and loan associations were also incorporated into subdivision five at this time.) Thus, whether a branch purchase is approved by the Banking Department as a merger or a P&A under Banking Law §601-b or as a branch application under Banking Law §29 the location of the branch in a home office protected community is of no moment. In either case, the acquiring bank may "maintain" the acquired location under the authority of subdivision five.

Under this interpretation of Banking Law §105 the final clause of subdivision one is rendered superfluous. Every branch acquired from another bank or a national bank that could be opened and occupied under the authority of subdivision one, and then some, may be maintained under the authority of subdivision five. While the canons of statutory construction require that a statute be read so as to give meaning to every word, the general intent of the statute must prevail. It is clear that the legislative intent behind the 1966 addition of what is now subdivision five was to create two mutually exclusive classes of branch offices, those established de novo and previously existing branches acquired from another institution. It was recognized that the issues raised by a new branch are not raised in the case of an acquired branch. The introductory memorandum accompanying the 1966 chapter notes that "[q]uestions as to the convenience of the offices to the public, which arise in connection with applications for new branches, are not presented since the offices are already in existence". (NYS Legislative Annual 1966, at page 71) Until recent years there was perfect congruence between the institutions listed in subdivisions one and five. Only in 1980 were (mutual) thrift institutions first authorized to sell branches to commercial banks and the following year subdivision five was amended by the addition of the reference to branches acquired from state-chartered thrifts. The legislative history, far from reflecting an intent to limit the ability of thrift institutions to find acquirors for branches, articulates a desire to "facilitate the orderly restructuring of financially hard-pressed thrift institutions by permitting the sale of branches to commercial banks". (Governor's Approval Message for L. 1981, c. 1015, McKinney's Session Laws of New York, 1982 vol.2, at page 2581)

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