Business Combinations

Business Combinations

Comptroller’s Licensing Manual

Washington, DC
April 2006

Business Combinations

Table of Contents

Introduction............................................................................................................. 1
Types of Combinations ............................................................................................ 2
Same State Combinations with Banks and Thrifts............................................. 2
Interstate Combinations under the Riegle-Neal Act.......................................... 3
Interstate Combinations Between National Banks and
Insured State and Federal Thrifts .................................................................. 5
Transactions Involving Bank Holding Companies ........................................... 5
Reorganizations to Become a Bank Holding Company Subsidiary ..... 5
Reverse Triangular Mergers................................................................ 6
Acquiring a Bank Subsidiary of a Bank Holding Company................. 6
Interim Bank Combinations ............................................................................. 7
Common Uses ................................................................................... 7
Chartering and Organization Requirements ....................................... 8
Capitalization and Directors .............................................................. 8
Structure Issues .................................................................................. 9
Timing Issues ..................................................................................... 9
Purchase and Assumption Transactions ........................................................... 9
Expansion and Contraction of Assets or Activities .......................................... 10
Combinations Involving Uninsured Entities ……………………………………….10
Insured National Bank Combining with an
Uninsured Depository Institution ................................................. 10
Uninsured National Bank Combining with an
Uninsured Depository Institution ................................................. 10
National Banks Merging with Nonbank Subsidiary or Affiliate ......... 11
Decision Criteria.................................................................................................... 12
Competition .................................................................................................. 13
Affiliated and Nonaffiliated Combinations ....................................... 13
Merger Screens ................................................................................ 13
Review Process................................................................................ 14
Combinations Involving Uninsured Depository Institutions ............. 14
Financial and Managerial Resources.............................................................. 14
Convenience and Needs and CRA................................................................. 15
Anti-Money Laundering Efforts ...................................................................... 15
Application Process ............................................................................................... 15
Prefiling Discussions...................................................................................... 16
Filing the Application .................................................................................... 16
Expedited Review.......................................................................................... 17
Competitive Issues ........................................................................... 17
Rapid Growth .................................................................................. 17
Examinations and Investigations....................................................... 17
Streamlined Application ................................................................................ 18
Standard Processing....................................................................................... 18
Other Agencies’ Competitive Review Process ............................................... 18
DOJ Post-Approval Waiting Period .................................................. 18
Prospective Competitive Factors Report ........................................... 18
Public Notice and Comment Period .............................................................. 19
Meetings and Hearings .................................................................................. 20
Emergency Combinations.............................................................................. 20
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Expeditious (10-day, 5-day) Combinations ....................................... 20
Immediate Combinations................................................................. 21
Shareholder Considerations........................................................................... 22
Proxy Disclosures ............................................................................ 22
Timing of OCC Approval and Proxy Release.................................... 22
Shareholders’ Notice and Meeting ................................................... 23
Shareholder Approval ...................................................................... 23
Application Issues.................................................................................................. 24
Accounting ................................................................................................... 24
Affiliated Combinations ................................................................... 24
Nonaffiliated Combinations ............................................................. 24
Push-down Accounting.................................................................... 26
Affiliate Transaction Restrictions .................................................................... 26
Sections 23A and 23B – Provisions.................................................. 28
Sections 23A and 23B – Exemptions................................................ 29
Bank Name ................................................................................................... 31
Directors’ Residency and Citizenship Requirements ...................................... 31
Dividends and Capital Reduction .................................................................. 31
Fiduciary Powers ........................................................................................... 31
Investment in Bank Premises ......................................................................... 32
Legal Issues ................................................................................................... 32
Liquidation Account ...................................................................................... 32
Main Office Designation ............................................................................... 32
Resulting Bank Charter Number .................................................................... 33
Undercapitalized Banks................................................................................. 33
Specific Requirements ........................................................................................... 33
Agreements and Board of Directors’ Approval............................................... 33
Branch Authorization and Closing ................................................................. 34
Branch Authorizations ..................................................................... 34
Branch Closings ............................................................................... 34
Nonconforming Assets and Activities ............................................................ 35
Subsidiary and Investment Authorization....................................................... 35
Post Approval Process............................................................................................ 36
Extension of Time.......................................................................................... 36
Consummation .............................................................................................. 36
Lending Limit Calculation.............................................................................. 36
Oath of New Directors .................................................................................. 36
OCC Semiannual Assessment........................................................................ 37
Dissenting Shareholder Rights and the Appraisal Process .............................. 37
Perfecting Dissenters’ Rights ............................................................ 37
OCC’s Valuation Methodology ........................................................ 38
Procedures............................................................................................................. 41
Appendix A: Expedited Review and Streamlined Eligibility (Diagram) .................. 53
Appendix B: Bank Merger Competitive Review .................................................... 55
Glossary ................................................................................................................ 59
References ............................................................................................................. 63

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Business Combinations
Introduction
This booklet deals with business combinations as defined in the Glossary, which
include mergers, consolidations, and certain purchase and assumption transactions.
This booklet also covers reorganizations under 12 USC 215a-2 in which a national
bank becomes a subsidiary of a bank holding company. A national bank must
apply to, and obtain approval from, the Comptroller of the Currency (OCC) before
consummating any business combination (combination), in which the resulting
entity is a national bank. A combination may occur between a national bank and
an affiliated or nonaffiliated bank or depository institution, such as a federal savings
association. A combination also may involve a merger between a national bank
and one or more of its nonbank subsidiaries or affiliates.
In its decisions on combinations, the OCC strives to preserve the soundness of the
national banking system and to promote market structures conducive to competition
and responsive to community needs. Normally, the OCC will approve
combinations that will not have substantially adverse effects on competition and
will be beneficial to the combining institutions and the public.
This booklet provides banks applying for a combination with detailed guidance,
instructions, and policies and procedures. It discusses types of combination
structures; the statutory factors that the OCC considers in making a decision on a
proposed combination; the application process, including the prefiling process,
filing the application, and processing time frames; application issues; specific
requirements; and the post-approval process. There also is a step-by-step
procedures section for the applicant and the OCC to follow and a glossary of terms
at the end of this booklet. Throughout the electronic version of this booklet, there
are hyperlinks to forms, such as the Interagency Bank Merger Act Application and
the OCC’s Streamlined Business Combination Application, and other information
that an applicant may use to file a combination application.
This booklet is to be used together with other booklets of the Comptroller’s
Licensing Manual. You should review the “General Policies and Procedures”
booklet prior to completing the application for additional filing instructions.
Applications for a combination must include accurate and fully developed facts, and
a determination that the transaction complies with all applicable statutes and
regulations. The relevant federal statutes and regulations that govern combinations
include 12 USC 24(Seventh), 215, 215a, 215a-1, 215a-2, 215a-3, and 215c; the
Bank Merger Act (BMA -12 USC 1828(c)); the Riegle Neal Act (12 USC 1831u), and
the OCC’s implementing regulation for business combinations (12 CFR 5.33).
These statutes and regulations are identified in the reference section of this booklet.
The reference section also includes cites to relevant OCC decisions and interpretive
letters and other source documents.

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Types of Combinations
A national bank may decide how to structure a combination based on a variety of
factors, such as charter type (federal or state; or bank, savings association, or other
type of thrift) of the target institution, location of the target institution, branching
restrictions in the states in which the target is located, whether the target is Federal
Deposit Insurance Corporation (FDIC) insured, whether the target is affiliated with
the acquiring bank, and tax considerations. Various types of combination structures
are discussed. In some cases, a national bank may elect to use a multi-step process
that involves more than one type of combination.

Same State Combinations with Banks and Thrifts
A national bank may combine with other depository institutions located within the
same state. These same state combinations generally involve transactions in which
the main offices of both the acquiring national bank and the target are located in the
same state. Same state combinations, however, also may include those in which the
main office of the target is located in a state in which the acquiring national bank
has a branch (or a trust office, in the case of a national bank limited to the activities
of a trust company), but not its main office.
As outlined below, the sources of authority for the various types of combination
transactions, as well as authority to retain branches, may differ depending on the
type of institution being acquired. In addition, these transactions may be subject to
other statutory requirements, such as the BMA, which are discussed elsewhere in
this booklet. The following lists different ways that a national bank may combine
with other depository institutions located in the same state:
•

Under 12 USC 215 or 215a, a national bank may acquire another national
or a state bank with its main office in the same state as the acquiring bank.
For purposes of sections 215 and 215a, “state bank” includes a state
commercial bank, state trust company, state stock savings bank, or other
state-chartered thrift. Authority to consolidate or merge under sections 215
or 215a does not depend on the insured status of the participating
institutions. The resulting bank may retain the branches of the banks
involved, including the branches that are not located in the same state as the
main offices of the combining banks, if branch retention meets the
requirements of the law governing branch retention in section 215 or 215a
transactions (12 USC 36(b)(2)).

•

In certain circumstances under 12 USC 215 or 215a, a national bank with its
main office in one state may acquire another national or state bank,
including a state thrift, with its main office in a different state. The most
common situation is when the national bank is acquiring another national or
state bank in a state in which the acquiring bank already operates a branch,
and when the target institution operates branches only in that state or in
other states in which the acquiring national bank already operates branches.
The resulting national bank may retain the branches of the banks involved, if

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permitted under the law governing branch retention in section 215 or 215a
transactions (12 USC 36(b)(2)).1
•

Under 12 USC 215c, a national bank may acquire a federal savings
association through merger or consolidation. The resulting bank may retain
the branches of the target thrift if the bank could establish branches at the
sites of the federal thrift branches under 12 USC 36(c). Generally, this
permits the retention of the thrift’s branches in states where the national
bank already has its main office or branches, or in states where the national
bank may, and does, establish a de novo interstate branch, and state
intrastate branching law, as applied to national banks by 12 USC 36(c),
permits establishment of a branch at a site or sites of the various branches of
the acquired federal savings association.

•

A national bank may acquire all or part of a depository institution through a
purchase and assumption transaction under 12 USC 24 (Seventh). The
resulting bank may retain the branches of the target if it could establish
branches at the sites of the target’s branches under 12 USC 36(c).
Generally, the resulting bank may retain the target’s branches in states
where the national bank already has its main office or branches, or in states
where the national bank may, and does, establish a de novo interstate
branch, and state intrastate branching law, as applied to national banks by
12 USC 36(c), permits establishment of a branch at a site or sites of the
various branches of the target depository institution.

Interstate Combinations under the Riegle-Neal Act
The Riegle-Neal Act (12 USC 1831u) authorizes interstate combinations between
insured banks with different home states.2 The “home state” of a bank under the
Riegle-Neal Act is, for national banks, the state in which the bank’s main office is
located or, for state banks, the state that chartered the bank. Thus, under the RiegleNeal Act, an insured national bank may combine with another insured bank with a
different home state. As discussed in footnote 2 and the accompanying text under
Same State Combinations, some combinations that are within the scope of the
Riegle-Neal Act are also within the scope of sections 215 or 215a, and the applicant
bank may select which authority to use.
Interstate combinations under the Riegle-Neal Act include mergers, consolidations,
and purchase and assumption transactions. The Riegle-Neal Act provides its own
branch retention authority (12 USC 36(d), 1831u(d)), and the resulting bank may
1
When these transactions, as described, involve insured banks, but not thrifts, they also may be accomplished under the
Riegle-Neal Act, as discussed below in Interstate Combinations under the Riegle-Neal Act. In the circumstances
described previously, an applicant may select whether to rely on Riegle-Neal or sections 215 or 215a for authority to
undertake the transaction. When the acquiring and target banks have main offices in different states – such as when
the target bank operates branches in states where the acquiring bank does not have its main office or any branches –
the OCC generally strongly encourages applications under the Riegle-Neal Act.
2
The Riegle-Neal Act covers only insured banks (as “bank” is defined in the Federal Deposit Insurance Act), and so it
does not apply to combinations between national banks and state or federal thrifts or to combinations in which one of
the banks is uninsured. As discussed below, a national bank may accomplish a Riegle-Neal combination with a state or
federal thrift that has first converted to a national bank under, as applicable, 12 USC 35 and 12 CFR 5.24 or, if eligible,
under 12 USC 1464(i)(5)(A), provided that the combination is consistent with other Riegle-Neal requirements. Also, as
discussed later under the Interim Bank subheading, a national bank may accomplish a Riegle-Neal combination with an
uninsured bank by first combining the uninsured bank into an interim national bank.

3

retain, as branches, the main offices and branches of all banks involved in the
combination. The resulting bank may designate its main office from among the
main offices and branches of the banks involved in the combination. For purchase
and assumption transactions in which a national bank seeks to enter a new state by
acquiring an existing branch of an insured bank, but without acquiring the bank, the
state in which the target branch is located must permit branch acquisitions by an
out-of-state bank.3
The Riegle-Neal Act imposes the following additional requirements:
•

Age requirements — The bank being acquired must have existed for at least the
minimum period of time, if any, specified in the host state’s statutes (states
cannot set a minimum time period in excess of five years). Banks chartered
solely to acquire a bank or branch (that is, interim banks) are deemed to have
existed for the same period of time as the target bank or branch in the case of the
acquisition of a branch without the acquisition of the bank.

•

Filing requirements — An acquiring bank must comply with the filing
requirements of any state that will become a host state as a result of the
transaction, if the requirements do not discriminate against out-of-state banks
and bank holding companies or their subsidiaries and are similar in effect to
those imposed on out-of-state nonbanking corporations (that is, ”doing business”
filing requirements). An acquiring bank also must submit a copy of its OCC
application to the state bank supervisor of each host state. These filing
requirements, however, do not mean that the national bank must apply to the
state for approval to undertake the transaction.

•

Concentration limits — The Riegle-Neal Act imposes nationwide and statewide
deposit concentration limits on certain interstate merger transactions. Those
limits, however, pertain only to interstate merger transactions involving
nonaffiliated banks, and the statewide limitations apply only when both
institutions, or their affiliates, have branches in the same state.4 In addition, the
acquiring bank in an affiliated combination should assess the applicability of
separate state-imposed concentration limits.

•

CRA considerations — All interstate combinations, including affiliate
combinations, are subject to OCC review for compliance with the Community
Reinvestment Act (CRA). The Riegle-Neal Act imposes additional CRA-related
criteria on all nonaffiliated Riegle-Neal interstate mergers.
To approve a nonaffiliated combination that results in a bank having a branch in
a state in which it had neither a branch nor an affiliated bank immediately prior
to the transaction, the OCC will consider: compliance with the CRA (as it

3

For branch acquisitions under the Riegle-Neal Act, the state in which the target branch is located, rather than the
selling bank’s main office state or chartering state, is considered to be the home state of the selling bank.
4
The nationwide limit prohibits the OCC from approving an interstate merger transaction if the resulting national bank
and all of its insured affiliated depository institutions would control, upon consummation, more than 10 percent of the
total amount of deposits of insured depository institutions in the United States. The statewide limitation prohibits the
OCC from approving an interstate merger transaction if the resulting bank (and all of its insured depository institution
affiliates) would control 30 percent or more of the total deposits of insured depository institutions in any state involved
in the transaction. This 30 percent limit may be increased by state statute, regulation, or order or, by approval of the
state bank supervisor if the standard of approval does not discriminate against out-of-state banks or holding companies
or their subsidiaries.

4

currently must do for any business combination), the most recent written CRA
evaluation of any bank that would become an affiliate of the resulting bank, and
compliance by applicants with applicable state community reinvestment laws.
•

Adequate capital and management — Each bank involved in the combination
must be adequately capitalized as of the date the application is filed. In
addition, the resulting bank must continue to be adequately capitalized and
managed upon consummation of the combination.

Interstate Combinations Between National Banks and Insured State
and Federal Thrifts
The Riegle-Neal Act does not apply to interstate combinations between national
banks and federal and state thrifts. However, an insured national bank may
combine with an insured federal or state thrift that itself first converts to a national
bank. A federal thrift that converts under 12 USC 1464(i)(5) and 12 CFR 5.24 may
retain branches following the conversion if the standards set forth in 12 USC
1464(i)(5) are satisfied. These standards apply to federal thrifts that were in
existence before November 12, 1999, and when, following the conversion, the
thrift will meet all financial, management, and capital requirements applicable to
the resulting national bank. Branches that are not eligible for retention under this
provision could be retained if they could be established as new branches of the
converted bank under 12 USC 36(c). A state thrift that converts under 12 USC 35
and 12 CFR 5.24 may retain branches following conversion if the standards set forth
in 12 USC 36(b)(1) are satisfied.
The national bank resulting from the conversion then engages in a Riegle-Neal
transaction with the acquiring national bank, provided the Riegle-Neal requirements
set forth above are satisfied. Generally, the age of the newly converted bank prior
to its conversion may be taken into account in determining compliance with RiegleNeal age requirements. As with branch retention following Riegle-Neal
combinations between insured banks, the resulting bank in the Riegle-Neal
combination may retain the branches of all participating institutions.

Transactions Involving Bank Holding Companies
Many combinations involve bank holding companies. Generally, shareholders
controlling at least two-thirds of the common stock of a national bank can
restructure their ownership so that the bank becomes a subsidiary of a new or
nonaffiliated bank holding company. Shareholders also may choose to use a bank
holding company in a combination transaction for tax purposes.
Reorganizations to Become a Holding Company Subsidiary
National bank shareholders seeking to reorganize to form a holding company or be
acquired by a nonaffiliated holding company typically used an interim national
bank merger. Now 12 USC 215a-2 provides shareholders with a simplified
alternative for effecting such reorganizations (see 12 CFR 5.32).
5

When reorganizing a national bank to become a subsidiary of a holding company
under 215a-2, the national bank must file an application including certain
certifications, documentation, and information including a statement of publication.
(Refer to Public Notice and Comment Period section for specific details.) For
purposes of section 215a-2, a holding company is any company that controls a
national bank or will control a national bank as a result of the reorganization. A
company that is or will become a BHC under the BHCA also must file any
application required under the BHCA with the appropriate Federal Reserve Bank.
When evaluating applications under section 215a-2, the OCC will consider the
impact of the proposed affiliation on the financial and managerial resources and
future prospects of the national bank. As in other applications, the OCC also will
consider whether a significant deviation condition requiring OCC’s prior written
approval before making changes is appropriate. The OCC has limited opportunity
to control changes in a national bank’s business plan that may result under a BHC
structure. The condition should be imposed in any 215a-2 decision where the OCC
considers that the supervisory risk warrants such a condition. Examples where the
condition may be appropriate include a relatively new national bank that is
experiencing growth that significantly exceeds that which was projected or a bank
that is considering new services, products, or business lines.
Reverse Triangular Mergers
Generally, most business combinations are “forward” combinations in which the
target institution is merged into the acquiring bank, which becomes the resulting
institution. Applicants may seek to effect a combination using a reverse triangular
merger, which often confers tax benefits. Under a reverse triangular merger, the
“acquiring bank” is merged into the “target bank,” which typically becomes a
subsidiary of the acquiring bank’s holding company.
With certain exceptions, the OCC will not approve a reverse triangular merger
under 12 USC 215a because the “target bank’s” shareholders are not granted
dissenters’ rights under that statute. Based on Internal Revenue Service
interpretations, often the combining institutions can achieve the same tax benefits
offered by a reverse triangular merger if the applicant structures the transaction as a
consolidation under 12 USC 215, which provides dissenters’ rights to shareholders
of all parties to the combination. The OCC has made exceptions to allow reverse
triangular mergers using 12 USC 215a if the transaction cannot be accommodated
through a forward merger or a consolidation, if the “target bank” is wholly owned
by a BHC, if the “target bank’s” shareholders have unanimously approved the
combination, or if the “target bank” is a state bank and state law protects the
dissenting shareholders.
Acquiring a Bank Subsidiary of a Bank Holding Company
A national bank may, through a multi-step process, use an operating subsidiary to
facilitate a combination with a bank that is a wholly owned subsidiary of an
unaffiliated BHC. In the first step, the operating subsidiary of the national bank
acquires all of the shares of the target bank’s holding company. The target bank’s
holding company is then liquidated or combined with its subsidiary bank. Finally,
the national bank merges or consolidates with the target bank. Alternatively, in the
6

first step, the target holding company is merged with the target bank, and then the
national bank merges or consolidates with the target bank.
This structure is permissible provided that the acquiring bank obtains confirmation
that the Federal Reserve System (Fed) will not consider the acquiring national bank
to be a BHC. Also, the BHC generally must make a representation when filing that
it has no outstanding liabilities, including present and contingent liabilities. The
BHC must assume the merger cost prior to its dissolution, including all necessary
payments to dissenting shareholders. In the application, the acquiring bank must
identify any nonconforming assets or activities, including nonconforming
subsidiaries, of the BHC and target bank involved in the combination that will not
be disposed of or discontinued prior to consummation of the transaction, and set
out its plans for such nonconforming assets or activities. (See Nonconforming
Assets and Activities section for additional discussion.) In addition, the acquisition
of the target bank’s holding company stock and the subsequent merger or
liquidation of the target bank must occur over a short time period, no longer than a
few hours, in sequential steps, within a single transaction.
While a combination of the two banks would be subject to section 23A of the
Federal Reserve Act and Regulation W because the banks would be affiliates at that
stage, it likely would qualify for the BMA exemption (See Affiliate Transaction
Restrictions). If the BMA exemption is not available, certain other exemptions may
be available.

Interim Bank Combinations
A national bank, BHC, or a group of individuals may charter and organize an
interim national bank with OCC approval to facilitate a combination. An interim
national bank does not operate independently, but exists, usually for a short time
period, solely as a vehicle to effect a combination, such as acquiring a nonaffiliated
bank, cashing out minority shareholders, or forming a BHC. Using an interim
national bank to effect a merger may raise issues regarding dissenters’ rights unless
the interim bank is the acquiring bank, and the existing bank is the target bank.
National banks and BHCs should contact the Fed to confirm whether they would be
considered a BHC and, if so, file any applications required or request waiver of
applications under the BHCA and its implementing regulation.
Common Uses
Acquiring a nonaffiliated bank – An interim national bank may be used as a means
of acquiring a nonaffiliated bank. The acquirer is assured of 100 percent ownership
of the resulting bank, since all shareholders of the target bank must surrender their
shares in exchange for consideration in the merger or consolidation between the
interim bank and the target bank.
Eliminating minority shareholders – A shareholder or shareholders who control a
majority of the voting shares of a national bank, including a BHC, may use an
interim national bank to eliminate or “freeze out” minority shareholders of the
national bank. The majority shareholders form an interim national bank that

7

acquires the existing national bank through a merger or consolidation.5 Minority
shareholders of the existing bank normally receive either cash or shares of the BHC
in exchange for their shares of the existing bank.
Forming a BHC – Shareholders may use an interim national bank to form a BHC to
own a national bank. Directors of the existing bank form a new company that
applies to the Fed to become a BHC under the BHCA. The new company organizes
the interim bank, which combines with the existing bank. Shareholders of the
existing bank normally receive shares of the new BHC in exchange for their shares.
As previously stated, section 215a-2 provides a simplified process for reorganizing
under a BHC. Unlike applications for interim bank mergers to form a BHC,
applications filed with the OCC under section 215a-2 are not subject to the BMA
factors or requirements, including public notice newspaper publication, or the CRA.
Chartering and Organization Requirements
Applicants for interim bank combinations must apply for and receive approval to
organize an interim national bank. The OCC has developed streamlined
organization documents to establish the interim charter. The interim bank charter
and the combination applications are processed simultaneously. Although an
interim bank does not operate as a bank, it must comply with various chartering and
organizational requirements.
Capitalization and Directors
The OCC has broad discretion to set capital requirements for interim banks,
including the ability to set capital requirements on a case-by-case basis. An interim
bank generally will meet its capital requirements by having at least the amount of
capital raised by the sale of directors’ qualifying shares. Interim bank directors’
residency, citizenship, and stock ownership requirements are the same as those for
operating banks under 12 USC 72. (See “Director Waivers” booklet.)
The OCC grants preliminary approval to form an interim bank when it
acknowledges receipt of the application to engage in a combination that involves
the creation of the interim bank. The interim bank becomes a legal entity at that
time and may enter into legally valid agreements or contracts after it files, and the
OCC accepts, its executed Articles of Association, Organization Certificate, and
Oaths of Directors. Before consummating the combination, the interim bank must
complete the organization process by completing the Stock Payment Certificate and
Oaths of Directors and Officers.

5
Interim bank transactions are eligible for expedited review only in a corporate reorganization resulting in the formation
of a new BHC (see 12 CFR 5.33(d)(2)(ii)). A statutory merger involving an interim bank to eliminate minority
shareholders (”freeze out” transaction) does not qualify for expedited review. However, if the transaction is structured
as a consolidation and the resulting national bank’s charter number is that of the existing bank, the transaction can
qualify for expedited review if it satisfies the streamlined application criteria under 12 CFR 5.33(j)(1).

8

Structure Issues
For an interim bank combination structured as a merger under 12 USC 215a, the
acquiring bank must be the interim bank and the target must be the existing bank to
preserve dissenters’ rights for the shareholders of the existing bank, unless the
shareholders of the existing bank unanimously approve the transaction. The OCC
generally will not approve purchase and assumption transactions that transfer all, or
substantially all, of a target’s assets and liabilities to an interim bank because the
purchase and assumption structure does not provide dissenters’ rights for the target’s
shareholders.
Timing Issues
Although an interim national bank must be party to the combination agreement, it
does not have to be organized at the time the primary parties execute the initial
agreement. The interim bank may become a party to the transaction through an
addendum provided in the initial agreement. (See “Agreements and Board of
Directors’ Approval” under the “Specific Requirements” heading of this booklet.)

Purchase and Assumption Transactions
A bank may effect a business combination through a purchase and assumption
transaction, as well as a merger or consolidation. With OCC approval under the
BMA, an insured national bank may acquire the assets of another insured depository
institution or assume any deposit liabilities of another insured depository institution.
With FDIC approval under the BMA, a bank may assume deposits or similar
liabilities from, or transfer deposits to, an uninsured bank or institution. The OCC
interprets “acquire the assets” for BMA filing purposes to include the acquisition of
assets such that the target is no longer a viable competitor, regardless of whether the
target plans to liquidate immediately after consummation of the transaction.
If, after a purchase and assumption transaction, the target institution plans to
liquidate or otherwise will no longer be a viable business, the OCC’s policy requires
that the application include information showing that possible creditors of the target
institution, including potential contingent liability claimants, will be protected. This
information is required regardless of the charter of the target institution. This
information is not required if the acquiring national bank will assume all liabilities
of the target institution, including contingent liabilities.
In addition, if the target institution is a national bank and plans to liquidate after the
purchase and assumption transaction, the target bank must demonstrate that it will
be able to liquidate in an orderly manner under 12 USC 181, unless the acquiring
bank has assumed all liabilities and obligations, including contingent liabilities. If
the target national bank plans to liquidate or otherwise will no longer be a viable
business after the purchase and assumption transaction, the OCC expects the
owners to begin the process of liquidating the bank under 12 USC 181 promptly
after consummating the transaction and to return the bank’s charter to the OCC,
unless the bank and the OCC have agreed to other arrangements. If the target is a
national bank that plans to liquidate, the target bank’s shareholders must approve
the liquidation and the purchase and assumption transaction under 12 USC 181.
9

Expansion and Contraction of Assets or Activities
The OCC has a long-standing practice of discouraging a national bank from
removing substantially all of the assets and liabilities of the bank, creating a dormant
bank or shell operation (see Glossary). The OCC has serious supervisory concerns
including how the management or the board may use such a dormant charter; the
nature of the services and products that might later be initiated; and increased
operations and concentration risk. The OCC will consider the appropriateness of
permitting a substantive sale that creates a dormant bank and the plan for final
disposition and winding up of the bank’s existence. For a detailed discussion, refer
to the General Policies and Procedures booklet.
The OCC may permit, on a case-by-case basis, a dormant bank that will be in
existence for a short-time period as part of a related group of transactions that
includes a transaction to eliminate the national charter. An application may receive
favorable consideration if it outlines the transaction from beginning to end.
Examples include a proposal to sell assets to another institution followed by the
merger of the dormant bank into another bank or a nonbank affiliate or the
liquidation of the dormant bank--with all steps in the transaction occurring within a
short time frame. The OCC may also allow the sale of assets in other contexts
where the eventual use of the charter is identified.

Combinations Involving Uninsured Entities
There are three categories of combinations involving uninsured entities: those that
involve FDIC-insured banks acquiring uninsured depository institutions; those that
involve uninsured national banks acquiring uninsured depository institutions; and
national banks merging with one or more of their nonbank subsidiaries or affiliates.
National banks seeking to acquire an uninsured entity must file an application and
obtain OCC approval under the OCC’s combination regulation (12 CFR 5.33) and,
if applicable, under national banking laws for consolidations or mergers, before
consummating the combination. Applicants also must provide the OCC with
assurances that the combination complies with legal requirements covering the
proxy or information statement, and shareholders’ approval of the proposed
combination. (Refer to “Shareholder Considerations” under the “Application
Process” heading for additional discussion.)
Insured National Bank Combining with an Uninsured Depository Institution
In addition to filing an application with the OCC under relevant laws and
regulations, an insured bank seeking to combine with an uninsured depository
institution must apply to and receive prior approval from the FDIC under the BMA.
Applications filed with the OCC should include a letter and a copy of the
application filed with the FDIC.
Uninsured National Bank Combining with an Uninsured Depository Institution
As noted previously, uninsured national banks may combine with other uninsured
depository institutions, such as national trust banks or state trust companies, under
10

the OCC’s combination regulation. Applications to effect mergers and
consolidations between uninsured depository institutions also must comply with
relevant national banking laws. For purposes of those statutes, uninsured national
trust banks seeking to combine with other uninsured depository institutions whose
business is limited to providing trust services are considered to be located in states
in which they have a trust office as defined in 12 CFR 9.2(j).
Combinations that only involve uninsured depository institutions are not subject to
the BMA or the CRA. Accordingly, applicants for these transactions should
complete and submit an Interagency Bank Merger Application, but may omit
questions relating to competition and CRA. Applicants should consult with the
Department of Justice (DOJ), because these transactions are subject to federal
antitrust statutes and may require filing under the Hart-Scott-Rodino Act.
National Banks Merging with Nonbank Subsidiary or Affiliate
National banks may merge with one or more of their nonbank subsidiaries or
affiliates with OCC approval (12 USC 215a-3). For purposes of this authority, a
nonbank affiliate is any company, other than a bank or federal savings association
that controls, is controlled by, or is under common control with the national bank.
Control generally means having the ability to vote 25 percent or more of any class
of voting securities. (Refer to the Glossary for definitions of “company,” “nonbank
affiliate,” and “control.”)
Both insured and uninsured national banks may participate in mergers under
12 USC 215a-3 when the resulting entity will be the national bank. However, the
OCC permits only uninsured national banks to merge with a nonbank affiliate when
the nonbank subsidiary or affiliate will be the resulting entity. An insured bank
planning to merge into a nonbank subsidiary or affiliate first must repay its deposits
or transfer them to another insured institution and become uninsured. In either
case, the nonbank subsidiary or affiliate does not have to be located in the same
state as the bank.
Applications Involved -- Both insured and uninsured national banks proposing to
merge with a nonbank subsidiary or affiliate must seek approval from the OCC
under section 215a-3. Insured banks also must seek approval from the FDIC under
the BMA.
Applications to the OCC from both insured and uninsured banks for approval under
section 215a-3 to merge a nonbank subsidiary or affiliate into the bank should
contain information requested in the Interagency Bank Merger Act Application.
When an insured bank is also applying to the FDIC for approval under the BMA, the
bank may submit a copy of its Interagency BMA application and request OCC
approval under section 215a-3. The letter also should address compliance with
other requirements, such as those below, not covered in the Interagency Bank
Merger Act Application (see sample letter).
An uninsured bank seeking to merge into a nonbank subsidiary or affiliate should
submit a letter addressing compliance with the following requirements, as well as
other matters the OCC requests. Uninsured banks seeking to use this structure
should contact the OCC before filing an application.
11

Procedures and Requirements -- The regulation that implements section 215a-3
(12 CFR 5.33) sets out requirements and procedures for these mergers. The
nonbank subsidiary or affiliate must have the authority to enter the merger under the
law of the state or other jurisdiction under which the nonbank subsidiary or affiliate
is organized. The law need not specifically address national banks. This
requirement typically is met when a state’s law permits its domestic corporations to
merge with entities organized under the law of another jurisdiction.
When the national bank will be the resulting entity, then the national bank must
follow the procedures and requirements for matters such as notice of shareholder
meeting, shareholder and director approval, and content of the merger agreement
contained in 12 USC 215a (which addresses the merger of state banks into national
banks). When the nonbank subsidiary or affiliate will be the resulting entity, then
the national bank must follow the procedures and requirements for matters, such as
notice of shareholder meeting, shareholder and director approval, the rights of
dissenting shareholders, and appraisal of dissenters’ shares contained in
12 USC 214a (which addresses the merger of national banks into state banks).
In both types of transactions, the nonbank subsidiary or affiliate follows the
procedures and requirements set out in the law of the state or other jurisdiction
under which the nonbank affiliate is organized. The rights of dissenting
shareholders and the appraisal of dissenters’ shares also are determined in the
manner prescribed by the law of the state or other jurisdiction under which the
nonbank subsidiary or affiliate is organized. (See “Definitions,” 12 USC 214(a), for
additional information on the term “state bank.”)
While mergers under section 215a-3 are not eligible for the BMA exemption to
sections 23A and 23B of the Federal Reserve Act, a merger between a bank and its
operating subsidiary generally is exempt from sections 23A and 23B as
implemented by Regulation W. Also, under certain circumstances Regulation W
may provide section 215a-3 mergers with an exemption from the collateral
requirements and quantitative limits of section 23A. (See discussion of Sections
23A and 23 B – Exemptions in the Affiliated Transaction Restrictions section of the
booklet.)
Decision Criteria -- When evaluating applications under section 215a-3, the OCC
will consider the purpose of the transaction, the impact on safety and soundness of
the national bank, and any effect on the bank’s customers. The OCC may deny the
merger if it would have a negative effect on any of these factors.

Decision Criteria
The OCC decides combination applications in which the resulting bank will be a
national bank based on requirements under relevant laws and regulations. In its
decision on combination applications, the OCC considers relevant statutory factors:
competition, financial and managerial resources, convenience and needs and the
CRA, and anti-money laundering efforts.

12

Competition
Under the BMA, the OCC will not approve a combination that would result in
substantially adverse competitive effects, unless these effects are clearly outweighed
by the probable effect of the transaction in meeting the convenience and needs of
the community to be served. The DOJ and the responsible federal banking agency
review the competitive effect of all BMA applications under federal banking and
antitrust laws. Combinations solely involving uninsured depository institutions are
not subject to the BMA, but are subject to general federal antitrust statutes such as
the prohibitions against monopoly and substantial lessening of competition under
the Sherman and Clayton Acts and notification under the Hart-Scott-Rodino Act as
administered by the DOJ and Federal Trade Commission.
Affiliated and Nonaffiliated Combinations
Combinations between national banks and their affiliates are considered
competitively neutral, and, therefore, will not result in adverse competitive effects.
The OCC generally deems a bank to be affiliated with another depository institution
if one or more common individuals or companies control each depository
institution. (Refer to the Glossary for a complete definition of “control.”) The OCC
deems a bank and another depository institution involved in a combination to be
under common control when a BHC has filed a related application with the Fed
under the BHCA and the BHC acquisition consummates before the bank
combination. The OCC deems a combination between a bank and another
depository institution in which a BHC has requested that the Fed not require a
related application under the BHCA as a nonaffiliated combination.
Merger Screens
To speed the competitive review process and reduce regulatory burden on the
banking industry, federal banking agencies and the DOJ have developed Merger
Screens to identify proposed nonaffiliated combinations that clearly do not have
significant adverse effects on competition. The OCC primarily relies on “Merger
Screen A” for measuring competitive effects of a combination.6 A proposed
combination exceeds the threshold of Merger Screen A when it would cause the
Herfindahl-Hirschman Index (HHI), a statistical measure of market concentration
(see Glossary), to increase by more than 200 points to a level above 1800 based on
increased concentration levels of deposits in any geographic banking market.
Applicants may elect to submit an independent competitive analysis for
combinations that do not pass Merger Screen A.
Banks planning a combination that may raise a significant anticompetitive issue may
consult with the OCC or the DOJ before submitting an application. Banks may wish
to resolve anticompetitive issues by agreeing to make an appropriate divestiture.
Review Process
6

In addition, the OCC has concluded that geographic markets with populations of less than 10,000 are not
economically significant for the purpose of this analysis, and therefore any anticompetitive effects in these markets are
considered negligible. Generally, the OCC will not object to a proposed combination in such a market on anticompetitive grounds.

13

In some instances, the DOJ may further review transactions that do not exceed the
thresholds in Merger Screen A. If the OCC determines that no competitive concerns
exist and the application satisfies the other evaluative factors for combinations, the
OCC may approve the transaction, even if the DOJ has concerns over possible
anticompetitive effects of the combination. In these cases, the OCC approval may
include a condition that the applicant will comply with any agreement reached with
the DOJ (for example, regarding divestitures). For a detailed discussion of the
competitive review screening process and the DOJ process, refer to the Bank
Merger Competitive Review in Appendix B of this booklet.
Combinations Involving Uninsured Depository Institutions
Under the BMA, the FDIC and DOJ evaluate competitive effects of combinations
that involve an insured national bank combining with an uninsured depository
institution. Combinations in which each depository institution involved is
uninsured are not subject to the BMA, but are subject to federal antitrust statutes
and may require filing with the DOJ and Federal Trade Commission under the HartScott-Rodino Act.

Financial and Managerial Resources
The OCC considers the financial and managerial resources and future prospects of
the combining and resulting institutions. The OCC weighs safety and soundness
factors and normally will not approve a combination that will result in a bank with
inadequate capital, unsatisfactory management, or poor earnings prospects.
In evaluating financial and managerial resources, the OCC relies upon the views of
the appropriate supervisory office, and information from a variety of sources, such
as reports of examination of the depository institutions involved in the combination
and the applicant’s plans to operate the resulting bank. The OCC will closely
scrutinize substantive combinations that raise issues about management’s ability to
address increased risk to bank earnings and capital that can arise from any of the
nine categories of risk that the OCC has defined for supervision purposes: credit,
interest rate, liquidity, price, foreign exchange, transaction, compliance, strategic,
and reputation. Generally, substantive combinations do not include corporate
reorganizations solely to effect a structural change in a banking organization that is
in satisfactory financial condition or combinations involving noncomplex target
institutions that are small relative to the size of the acquirer.
The OCC also considers the applicant’s plans to identify and manage systems
integration issues, such as software compatibility, hardware requirements, and
network integration problems. The OCC’s assessment and degree of scrutiny will
consider the applicant’s track record of integrating acquisitions. Any combination
in which systems integration concerns are identified will be subject to additional
review, which could warrant removal from expedited processing status, if otherwise
eligible. If, after careful evaluation, the OCC determines that systems integration
problems represent a significant concern, the OCC may impose conditions,
enforceable pursuant to 12 USC 1818, to address the concern. These could include
requirements and time frames for specific remedial actions and specific measures for
assessing and evaluating the bank’s systems integration progress. If the problem
14

cannot be resolved through conditions, or otherwise, the OCC may deny the
application.

Convenience and Needs and Community Reinvestment Act (CRA)
The OCC considers the likely impact of the applicant’s plans on the community to
be served in connection with a combination application under the BMA. The OCC
will review significant anticipated changes in services or products and fees that will
result from consummation of the transaction.
The OCC also considers the CRA records of performance for all participating
insured depository institutions when rendering a decision on combination
applications. In assessing the CRA records, the OCC considers the most recent
Public Evaluations for each of the participating institutions and any comments
received during the public comment period. The OCC also will consider comments
received after the close of the comment period, provided that doing so would not
inappropriately delay action on that filing. In addition, the OCC will consider
comment letters relating to the participating institutions’ CRA performance that were
received from the public prior to the filing of an application. The OCC also will
consider the applicant’s responses to any comment letters. If the OCC determines
that the CRA record of performance of any of the participating institutions is less
than satisfactory, the OCC may deny or conditionally approve a business
combination application.
See the “Public Notice and Comments” booklet for a detailed discussion of how
convenience and needs and CRA factors affect the application process, including an
application’s removal from the expedited review process because of significant CRA
issues.

Anti-Money Laundering Efforts
When transactions are subject to the BMA, the OCC considers the anti-money
laundering efforts of each insured depository institution involved, as required by the
USA PATRIOT Act. The OCC reviews existing supervisory records, comments, if
any, received during the public notice period, and comments from other regulators
and public officials (refer to the sample document, Anti-money Laundering Efforts
Request). The OCC anticipates that, in most cases, required information will be
available from the supervisory record.
Refer to the “BSA/AML Examination” Manual for an expanded discussion on the
supervisory expectations.

Application Process
A bank seeking to effect a combination that will result in a national bank must apply
to the OCC and receive approval before consummating the transaction. The OCC
encourages applicants to discuss possible significant policy, compliance, legal, or
supervisory issues before submitting a filing. The OCC begins its review by
determining whether the application is accurate and complete. During the review
15

process, the OCC may ask the applicant to provide additional detailed information
about any aspect of the proposal to reach an informed decision.
A number of factors will affect the processing time frame for a combination
application. These factors include whether the filing is complete and qualifies for
expedited review, or whether there are any reasons for removing the filing from
expedited review. Other factors that may affect time frames include the public
notice and comment period, comment periods provided for other federal bank
supervisory agencies and the DOJ to review competitive factors, shareholder notice,
timing of state law changes, and, if the OCC deems necessary, meetings or hearings.
Combinations that involve the acquisition of an insured depository institution that
is in imminent or immediate danger of failing may be subject to significantly shorter
processing time frames.

Prefiling Discussions
The OCC strongly encourages banks to contact appropriate Licensing staff before
filing a combination application. Such contact enables the filer and the OCC to
prepare effectively and process the filing efficiently. Applicants who are new to the
application process or who have questions about the process are encouraged to
request a prefiling conference or meeting to discuss the proposed transaction and
processing steps applicable to the proposal. Applicants requesting OCC approval of
an activity or transaction that involves novel, precedential, or highly complex or
sensitive issues also should contact the appropriate district office before actually
submitting the application, to discuss the issues raised. Such applications are
expected to contain supporting written analysis, including a legal opinion that the
proposal is not in contravention of the law. In addition, a prospective applicant
should contact the OCC before filing a combination application to acquire an
insured depository institution that the applicant believes is in imminent or
immediate danger of failing. Parties also should consult with the OCC and DOJ
before filing applications for combinations that raise anticompetitive concerns.
To request a prefiling conference or meeting, the bank’s representative or contact
person should contact the Licensing staff in the appropriate district office, which will
coordinate participation by other OCC staff, as necessary.

Filing the Application
An application that qualifies as a “business reorganization,” and any application
involving a “qualifying business combination,” as those terms are defined in the
Glossary, will be granted expedited review. The OCC and the other banking
agencies have adopted an Interagency Bank Merger Act Application that a national
bank applicant should use to apply to the OCC for any combination that does not
qualify for expedited review. An applicant involved in a transaction that qualifies
for expedited review may file a Streamlined Business Combination Application.
(See Expedited Review discussion under the Time Frames heading.) Applicants
should attach the appropriate checklist when using the interagency or streamlined
forms. Applicants also should refer to the “General Policies and Procedures” (GPP)
booklet of the Comptroller’s Licensing Manual (Manual) for guidance on how to file
the application.
16

When acknowledging receipt of an application, the Licensing staff will indicate
whether or not it qualifies for expedited review and will provide a target time frame
for processing the filing. OCC staff will notify the applicant promptly if the situation
changes (for example, the OCC removes the application from expedited review), or
if the OCC needs additional information to complete its review of the application.
Although the OCC will strive to request additional information at the earliest
possible date, it may request information or opinions from an applicant at any time
during the processing of a corporate filing.

Expedited Review
Applications processed under expedited review are deemed approved as of the 45th
day after receipt by the OCC, or the 15th day after the close of the public comment
period (refer to the following discussion), whichever is later. Exceptions to the
automatic approval process occur when the OCC acts on the application before the
end of the expedited review period (but in no event prior to the conclusion of the
public comment period) or the OCC removes the application from expedited
review.
Under 12 CFR 5.13(a)(2), the OCC will remove a business combination from
expedited review if the OCC concludes that the filing, or an adverse comment
regarding the filing, presents a significant supervisory, CRA, or compliance concern,
or raises a significant legal or policy issue. The OCC will notify applicants promptly
if policy issues cause the OCC to remove an application from expedited review.
(See the “Public Notice and Comments” and “GPP” booklets for additional
discussion.)
Competitive Issues
A combination between nonaffiliated institutions will be removed from expedited
review for additional competitive analysis if it would increase the HHI, a statistical
measure of market concentration (see Glossary), by more than 200 points in any
relevant banking market that has a post-acquisition HHI of at least 1800. (Refer to
Competition under the Decision Criteria heading for additional discussion.)
Rapid Growth
Combination applications involving nonaffiliated depository institutions in which
one of the institutions has experienced rapid asset growth, may be removed from
expedited review to ensure adequate time for supervisory review.
Examinations and Investigations
The OCC will remove a combination from expedited processing if it determines
that, prior to reaching a decision, it must conduct an examination or field
investigation to address or evaluate the supervisory implications of the proposal.
The OCC will notify applicants whether it will charge for the examination or
investigation (see sample notice).

17

Streamlined Application
Under 12 CFR 5.33(j), any transaction that qualifies for expedited review also is
eligible to use the Streamlined Business Combination Application. Therefore, if the
proposed business combination meets the definition of either a business
reorganization or a qualifying business combination, it will qualify for expedited
review and use of a streamlined application. Information requirements are not
reduced for CRA performance, branch closings, convenience and needs, and related
matters.
Appendix A to this booklet contains a diagram to assist the applicant in determining
whether the proposed combination meets the criteria for expedited review and use
of a streamlined application.

Standard Processing
For applications that do not qualify for, or are removed from, expedited review, the
OCC will set a target decision date on a case-by-case basis. The OCC expects that
most applications that do not qualify for expedited review will be decided within 60
calendar days from their receipt or publication of public notice, whichever is later.
However, an activity or transaction involving novel, precedent setting, or highly
complex or sensitive issues could take longer to decide.

Other Agencies’ Competitive Review Process
The BMA generally requires that the OCC send copies of the application to the
DOJ, FDIC, Fed, and Office of Thrift Supervision (OTS) for their views of the
competitive effects of the combination. By statute, those agencies generally have 30
calendar days to review and comment on the competitive aspects of the transaction.
Also refer to the Competition section and Appendix B: Bank Merger Competitive
Review of this booklet for additional details on the competitive review process.
DOJ Post-Approval Waiting Period
National banks applying under the BMA generally must wait 30 days following
receipt of OCC approval to consummate combinations involving the acquisition of
a nonaffiliated depository institution. During this 30-day time period, which the
OCC may shorten to 15-calendar days with DOJ’s concurrence, the DOJ may
initiate legal action to prevent consummation of a combination that it determines
may have a significantly adverse effect on competition. Combinations not subject to
the BMA may consummate immediately upon the OCC granting approval, subject
to the bank satisfying all requirements the OCC imposed.
Prospective Competitive Factors Report
Through an agreement with the DOJ, known as the Prospective Competitive Factors
Report (PCFR), a national bank may consummate an affiliated combination
immediately after the OCC grants approval and the applicant satisfies any

18

requirements contained in the approval.7 The PCFR process eliminates the postdecision waiting period applicable to nonaffiliated combinations. The PCFR
process is not available, however, for a transaction in which a merger application of
two bank holding companies is pending decision at the Fed when their subsidiary
banks file a combination application with the OCC. In these circumstances, once
the Fed decides the BHC application, the applicant may request that the OCC
consider the bank combination under the PCFR process, but the OCC must obtain
DOJ’s concurrence.

Public Notice and Comment Period
Notice of a combination application subject to the BMA generally must be
published three times in a newspaper of general circulation in the community in
which the main office of each depository institution involved in the transaction is
located. The notice described in this section is separate from the notice that must
be published for the conduct of any shareholder meeting that is discussed under the
“Shareholder Considerations” heading.
The public comment period for a combination is generally 30 days, commencing on
the date of first publication. The first notice should be published on or about the
date the application is filed with the OCC, but in no event more than three days
before or after the date the application is filed. The second notice should be
published one week after the first publication or, if the newspaper does not publish
on that day, on the newspaper’s publication date that is closest to that day. The last
notice should be published on the 25th day after the first publication or, if the
newspaper does not publish on the 25th day, on the newspaper’s publication date
that most closely precedes the 25th day.
The applicant should submit to the OCC confirmation of the public notice as part of
the combination application. This confirmation should include a statement
containing the name and address of the newspaper in which the notice was or will
be published, and dates of publication. Refer to Instructions and Sample Public
Notice.
Prior to filing, applicants with operations in more than one state or in more than one
major metropolitan market should consider publishing, at the same time, additional
notices in major markets in which they operate to ensure adequate public
awareness. In addition, the OCC may require additional public notice or may
provide public notice itself if it believes it necessary to ensure adequate notice and
opportunity to comment. Material differences between initial and subsequent
notices may result in extended comment periods and delays in processing
applications.

7
The following affiliated transactions are covered under the PCFR: (1) combinations between two or more banks under
common control; (2) combinations between an interim bank and an existing bank to facilitate the creation of a onebank holding company; (3) combinations involving an interim bank established by an existing bank holding company
to facilitate the acquisition of a nonaffiliated depository institution by the holding company, provided that an
application has been filed with the Fed for approval of the holding company acquisition and the merger is to be
consummated only in conjunction with the acquisition; and (4) a purchase and assumption of branch offices, if a single
bank holding company owns or controls the outstanding voting stock of each of the depository institutions involved in
the transaction.

19

All notices should be published in the joint names of all depository institutions
involved in the transaction. If a bank operates under more than one name or under
a name not substantially similar to its legal name, the public notices should contain
both the legal name of the bank and the name(s) the bank uses in the community in
which the publication circulates.
The notice must state whether the application involves an interim bank charter
application and whether the application is a merger, consolidation, or purchase and
assumption. It also must state whether any branches of the combining institutions
will cease to operate as a result of the transaction. The bank still must follow the
procedures found in the “Branch Closings” booklet. If the applicant knows that
branches will close or consolidate because of the combination, but the identity and
number of branches to be closed have not yet been finalized when the application
is filed with the OCC, the notice should disclose that an as-yet-undetermined
number of offices would cease to operate. Finally, if during the comment period an
applicant identifies branches that it plans to close, it should amend subsequent
publications to disclose this new information.

Meetings and Hearings
In general, the OCC relies on written information submitted during the comment
period to reach a decision on an application. However, the OCC will consider
obtaining information through other means if useful in reaching a decision. (Refer
to “Public Notice and Comments” booklet for additional discussion about OCC
policies and procedures concerning meetings and public hearings.)

Emergency Combinations
The OCC may shorten or eliminate the notice and comment periods, and postapproval waiting period under the BMA, if certain conditions are met. The OCC
also may weigh the convenience and needs of the communities served by troubled
institutions against possible anticompetitive effects of an emergency combination
under the BMA.
In addition, when an interstate combination is filed under the Riegle-Neal Act, the
filing is exempt from many of the requirements of the Riegle-Neal Act, if the
combination involves an insured bank in default or in danger of default, or with
respect to which the FDIC provides assistance. These requirements include the age
limits, branch acquisition limits, filing, concentration limits, CRA, and adequacy of
capital and management requirements of the Riegle-Neal Act.
Expeditious (10-day, 5-day) Combinations
The BMA allows the OCC to shorten the public, DOJ, and bank regulatory notice
and comment periods before approval of a combination to 10 days and shorten the
post-decision DOJ waiting period to five days when the OCC determines that an
emergency exists requiring expeditious action. These transactions are commonly
referred to as 10-day, 5-day emergency combinations.

20

•

Filing a 10-day, 5-day Combination Application. A national bank interested in
acquiring a target institution under 10-day, 5-day processing must submit a
written request to the OCC (see 10-day, 5-day Processing Request). The
request should contain information to assist the OCC in determining that the
target is affected by a combination of circumstances sufficiently serious to
require swift action and shorten the public, DOJ, and bank regulatory notice
and comment periods. The OCC will solicit written comments from the target
institution’s primary supervisory agency to attest to its condition. The OCC
subsequently will review and evaluate this information and decide whether to
approve or deny the acquiring bank’s request for 10-day, 5-day processing. If
the OCC disapproves the request for 10-day, 5-day processing, the
combination is handled according to normal licensing procedures.
The applicant generally submits the Streamlined Bank Merger Application with
the request for 10-day, 5-day processing. The OCC will review the application
for accuracy and completeness while it considers the request for 10-day, 5-day
processing. The OCC will provide copies of the combination application for
10-day, 5-day processing to the DOJ, Fed, FDIC, and OTS for their views on
the competitive effects of the proposal. By statute, those agencies have
10 days to review and comment on the application.

•

Processing Time Frames for 10-day, 5-day. An institution that is party to a
combination under 10-day, 5-day processing must publish notice to the public
of its intention to combine twice during a 10-day period. Applicants should
not publish notice of application under 10-day, 5-day processing until the
OCC approves the applicant’s request to process the application under
emergency procedures. The first publication using 10-day, 5-day processing
should appear on the day after the OCC approves the request, or as soon as
possible thereafter. The second and final publication should occur
approximately one week after the date of the first publication.
If the OCC approves a combination under 10-day, 5-day processing, the
acquiring bank may consummate the transaction following a 5-day postdecision waiting period during which the DOJ may comment on whether the
combination is anticompetitive. The OCC will issue a letter certifying
consummation, if the bank has met all pre-merger requirements specified in its
approval letter.

•

Other Considerations. The BMA allows the OCC to approve a merger if
anticompetitive effects of the transaction are clearly outweighed in the public
interest by the probable effect of the transaction on meeting the convenience
and needs of the community to be served. This situation may arise when a
bank is the only party to express interest in acquiring an insured depository
institution that is in imminent or immediate danger of failing.

Immediate Combinations
The BMA allows the OCC to eliminate the public notice and comment requirements
and permit consummation immediately upon approval if the OCC finds that it must
act immediately to prevent the probable failure of an FDIC-insured depository
institution involved in the transaction.
21

Shareholder Considerations
In general, before consummating a merger or consolidation that will result in a
national bank, shareholders that own or control at least two-thirds of the capital
stock of each depository institution or nonbank subsidiary or affiliate involved must
approve at a shareholders’ meeting the terms and conditions that govern the
transaction. The following is guidance for notifying shareholders of the terms and
conditions of the transaction, and the time and place of shareholder meetings.
Proxy Disclosures
National banks, seeking to merge or consolidate with other depository institutions
or with one or more of their nonbank subsidiaries or affiliates, must adequately
inform all shareholders eligible to vote on all aspects of the transaction and notify
shareholders of the Shareholders’ Meeting to Vote on the Combination. Only banks
with securities registered under the Securities Exchange Act of 1934, subject to
12 CFR 11, must submit preliminary proxy materials or information statements to
the OCC’s Securities and Corporate Practices (SCP) Division before distribution to
shareholders. All other banks must submit a copy of final proxy materials or
information statements used for the combination to the appropriate district office no
later than the time they are sent to shareholders.
All proxy materials and information statements should point out that OCC approval
or possible approval of the combination:
•

Reflects only its view that the transaction does not contravene applicable
competitive standards imposed by law and is consistent with regulatory policies
relating to safety and soundness.

•

Is not an OCC opinion that the proposed combination is financially favorable to
the stockholders or that the OCC has considered the adequacy of the terms of
the transaction.

•

Is not an endorsement of, or recommendation for, the combination.

The last statement, because of its significance, should be emphasized, for example
through use of boldface or capital letters.
Timing of OCC Approval and Proxy Release
If a bank has not printed its proxy materials when it receives OCC approval of the
combination, the proxy materials or information statement should disclose the facts
and circumstances surrounding the approval, usually in those portions dealing with
regulatory matters. If the bank has printed its proxy materials or information
statement, but has not mailed them at the time it receives approval, it generally must
include a supplementary letter or “sticker” containing the appropriate disclosures.
Proxy material or information statements that are mailed before the bank receives
OCC approval should indicate that the application has been filed and that OCC
approval is necessary to consummate the transaction. The statement also should
22

state that, as of the date of the mailing, OCC approval has not been granted.
If the OCC’s approval is granted after the proxy material or information statement is
mailed, but before the shareholders’ meeting or vote, supplemental disclosures
about the combination’s approval, and a new proxy card, if appropriate, should be
sent to the shareholders. However, if the OCC’s approval is granted shortly before
the shareholders’ meeting, the bank should consult with counsel on disclosure
obligations concerning the combination approval.
Shareholders' Notice and Meeting
Applicants generally must publish notice of the shareholders’ meetings to ratify
merger or consolidation agreements on the same day each week for four
consecutive weeks in a newspaper of general circulation in the communities in
which each institution’s main office is located. Publication of shareholder notice to
the national bank shareholders may be waived when the OCC determines that an
emergency exists that justifies such waiver or by unanimous action of the national
bank shareholders. In addition, a BHC that is the sole shareholder of a bank may
approve a merger or consolidation agreement without holding a shareholders’
meeting.8 (See Shareholders’ Waiver of Notice of Shareholders’ Meeting and
Written Consent of Business Combination document.)
In addition to the newspaper notice, at least 10 days prior to the meeting, a bank
soliciting shareholder votes must send to each shareholder, by certified or registered
mail, a notice accompanied by a proxy or information statement. If one or more of
the entities involved in a combination is not a national bank, then the applicants
should consider the relevant laws and regulations governing notice and publication
requirements for the non-national bank entities.
The notice for the conduct of any shareholder meeting is separate from the public
notice that must be published. (Refer to the Public Notice and Comment discussion
in the Application Process section for additional public notice details.)
Shareholder Approval
Before consummating a merger or consolidation that will result in a national bank,
shareholders that own or control at least two-thirds of the capital stock of each
depository institution or nonbank subsidiary or affiliate involved must approve the
terms and conditions that govern the transaction at a shareholders’ meeting. If one
or more of the institutions is a state institution, and the laws of that state require
more than a two-thirds affirmative vote for ratification of the agreement, that higher
affirmative vote must be obtained before consummating the transaction. The
shareholder approval requirement cannot be waived, even in an emergency
involving the imminent or immediate failure of an FDIC-insured depository
institution. The OCC will not certify consummation of a combination until it
receives the required secretary’s certificate for shareholders’ approval or certified
declaration(s) of unanimous shareholder consent from the holding company.

8
If a bank has more than one shareholder, shareholders with actual notice of the shareholder meeting may waive
defects in the shareholder notice, but not the shareholders’ meeting.

23

In purchase and assumption transactions, usually no shareholder vote is required for
the acquiring or purchasing bank. The target bank’s shareholders may be required
to vote, however, when the target is a national bank that will go into liquidation
after or concurrent with the purchase and assumption, or if state law requires it for a
target state-chartered bank.

Application Issues
This section provides an overview of the accounting treatment, transactions with
affiliates, capital, certain legal issues, and other requirements related to the
combination application.

Accounting
A national bank should account for a combination in accordance with Generally
Accepted Accounting Principles (GAAP). As discussed below, affiliated
combinations should be accounted for at historical cost in a manner similar to
pooling of interest. Nonaffiliated combinations should be accounted for under the
purchase method of accounting. An applicant in a combination must use
pushdown accounting when it acquires 95 percent or more of the voting stock of
the target institution. With OCC approval, the applicant may use pushdown
accounting when it acquires more than 80 percent, but less than 95 percent, of the
voting stock of a target institution.
Affiliated Combinations
A combination between two or more affiliated banks is accounted for in accordance
with Appendix D to Statement of Financial Accounting Standards Number 141.
This standard requires that such combinations be accounted for at historical cost in
a manner similar to pooling of interest accounting. This accounting is appropriate
when all, substantially all (90 percent or more) of the assets, or assets that constitute
a “business” (as defined in GAAP) of the target entity are transferred to an affiliated
bank.
The call report requires that the transfer of individual or groups of assets between
affiliated parties be accounted for at fair value, and that banks recognize gains and
losses on the transfer in the same manner as if they had sold the assets to a third
party. This call report provision is applied to all transfers of assets that do not
involve “substantially all” of the assets or assets that constitute a “business” of an
affiliate and, therefore, do not qualify under Appendix D to Statement of Financial
Accounting Standards Number 141.
Nonaffiliated Combinations
Statement of Financial Accounting Standards Number 141 requires that all
nonaffiliated combinations be accounted for under the purchase method of
accounting. The pooling-of-interest method is no longer allowed for combinations
involving nonaffiliated entities.

24

Purchase accounting records an acquisition on the books of the acquirer by
allocating the purchase price to the assets acquired and liabilities assumed, based
on their fair values. The capital section of the acquired bank is eliminated and
entries are made to record the cash, debt, or stock issued. The stock and debt
issued should be recorded at their fair value. Any excess of the cost of the
acquisition over the net fair value of the assets acquired (both tangible and
intangible) and liabilities assumed is recorded as goodwill, which is not part of
regulatory capital.
Fair value of the loan portfolio generally is determined on a loan-by-loan basis and
should consider both interest rate and credit risk.9 The premium or discount
resulting from this analysis is accounted for on an individual loan basis. If a loan is
on accrual status, the premium or discount should be accreted to income to earn a
level yield over the remaining life of the loan.10 Subsequent impairment of value to
a loan should be recognized through a charge to the allowance for loan and lease
losses.11
An exception to the requirement for an individual loan analysis is made for groups
of similar consumer loans. The fair value of those loans may be determined on an
aggregate basis. The premium or discount resulting from this analysis, however,
should be applied to all the loans in the pool on a pro rata basis, so that each can be
accounted for separately.
An appropriate allowance for loan losses of the acquired bank generally may be
included as a purchase adjustment.12 The allowance, however, should not exceed
the amount on the acquired bank’s books immediately prior to the acquisition.
Marketable securities generally are recorded based on quoted market values.
Certain other assets, such as purchased bank premises and other real estate owned
(OREO), are accounted for at fair value, based either on evaluations or independent
appraisals. Deposits are recorded generally at historical cost. However, a core
deposit intangible may be recorded as a separate asset.
An intangible asset should be recognized as an asset separate from goodwill if it
arises from contractual or legal rights, or if it is capable of being separated or
divided from the acquired entity and sold, transferred, licensed, rented, or
exchanged.
Each intangible asset should be recorded at estimated fair value and amortized over
its useful life, unless the life is determined to be indefinite. The method of
amortization should reflect the pattern in which the economic benefits of the
intangible asset are consumed. This will often result in the use of an accelerated
method of amortization that allocates larger amounts of amortization to the earlier
years of the asset’s estimated life.
9

See Statement of Financial Accounting Standards Number 141, “Business Combinations.”
See Statement of Financial Accounting Standards Number 91, “Accounting for Nonrefundable Fees and Costs
Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases” and Statement of Position Number
03-3 (SOP 03-3), “Accounting for Certain Loans or Debt Securities Acquired in a Transfer.”
11
Statement of Financial Accounting Standards Number 5, “Accounting for Contingencies.”
12 For loans accounted for under SOP 03-3, the allowance for loan losses may not be included as a purchase
adjustment. In addition, the FASB has a proposal to amend FAS 141, which will prohibit the entire allowance for loan
losses of the acquired bank to be included as a purchase adjustment.
10

25

If an intangible asset is determined to have an indefinite life, it will not be
amortized. However, it should be tested for impairment at least annually. If it is
subsequently determined to have a definite useful life, it should be tested for
impairment and then amortized over its estimated remaining useful life.
Push-down Accounting
When a holding company acquires a bank, the new basis of accounting is recorded
on the holding company’s books. Push-down accounting also establishes this new
basis of accounting on the books of the acquired bank. Push-down accounting is
required when 95 percent or more of the voting stock of the bank is acquired. With
the OCC’s approval, push-down accounting may be used when more than 80
percent, but less than 95 percent is acquired.

Affiliate Transaction Restrictions
National banks are subject to quantitative and qualitative restrictions on certain
“covered transactions” with “affiliates” under sections 23A and 23B of the
Federal Reserve Act (FRA), codified as 12 USC 371c, 371c-1, and their
implementing regulation, Regulation W (12 CFR 223). Regulation W became
effective on April 1, 2003, and adds significantly to both the limitations and
exemptions contained in sections 23A and 23B. The restrictions contained in
sections 23A and 23B and Regulation W are designed to safeguard the interests of
the bank when it engages in transactions with affiliates. “Covered transactions,”
restricted by sections 23A and 23B, include a bank’s purchase of assets from,
investment in securities issued by, or loan or extension of credit to, an affiliate. The
acceptance of securities issued by an affiliate as collateral security for a loan and the
issuance of a guarantee, acceptance, or letter of credit on behalf of an affiliate are
also “covered transactions.” Certain other types of transactions are subject to the
restrictions of sections 23B, as well.13
For purposes of business combinations, the restrictions most likely will arise in
mergers of a nonbank company with an affiliated national bank or combinations
involving one or more affiliated, uninsured depository institutions.14 Most other
affiliated business combinations, such as combinations involving only affiliated
insured depository institutions that are reviewed under the BMA, are exempt from
most of the restrictions in sections 23A and 23B and Regulation W.
“Affiliate” for purposes of sections 23A and 23B and Regulation W generally
includes any company that controls the bank or that is controlled by the same
company or by the same shareholders that control the bank. Certain other
relationships between a bank and a company can confer “affiliate” status on the
company, as well. Depository institutions generally are included in the term
“company.”
13
Note that an affiliate’s donation of assets to a bank (where the acquiring bank neither pays cash or other
consideration nor assumes liabilities in exchange for the assets received) is not considered a “purchase” of assets by the
bank, and is therefore not subject to sections 23A and 23B. If the bank pays consideration or assumes liabilities, the
transaction is treated as a purchase of assets.
14
For purposes of Regulation W, “Depository institution” means any insured bank or savings association, as defined in
the Federal Deposit Insurance Act, 12 USC 1813, but does not include any branch of a foreign bank. The same affiliate
transaction restrictions on the bank apply to combinations with any “depository institution.”

26

“Control” under sections 23A and 23B generally occurs when shareholders have the
power to vote 25 percent or more of any class of voting securities, are able to
control in any manner the election of a majority of the directors or trustees of the
company, or the Fed determines after notice and opportunity for hearing that they
directly or indirectly exercise a controlling influence over the management and
policies of a company.
Regulation W expands the statutory definition of control significantly in two
respects. First, it provides a rebuttable presumption that a shareholder that owns or
controls 25 percent or more of a company’s nonvoting equity capital controls that
company. Second, it provides a rebuttable presumption that a shareholder that
owns or controls instruments (including warrants and options) that are convertible
or exercisable at the option of the holder into other securities (such as common
stock) controls those other securities. To rebut either of these presumptions of
control, a bank or shareholder must file rebuttal materials with the Fed. Applicants
may wish to inform the OCC if they intend to file such materials with the Fed.
Regulation W, unlike sections 23A and 23B, distinguishes between a bank’s insured
and uninsured depository institution affiliates. Regulation W provides that a bank’s
transactions with an insured depository institution affiliate may be eligible for
certain exemptions from the restrictions of section 23A and Regulation W, such as
the so-called BMA and “sister-bank” exemptions. However, a bank’s transactions
with an uninsured depository institution affiliate do not qualify for most exemptions
from section 23A and thus are generally subject to all of section 23A’s restrictions.
Similarly, Regulation W provides that for purposes of section 23B, insured
depository institutions are not considered affiliates, but uninsured depository
institutions are treated as affiliates subject to the arm’s-length standard and other
applicable restrictions. Thus, a bank’s transactions with an insured depository
institution that is an affiliate under section 23A are not subject to section 23B, but its
transactions with an uninsured depository institution affiliate are subject to section
23B. Exemptions from sections 23A and 23B are discussed in more detail below.
Applicants considering engaging in transactions in reliance on these exemptions
may wish to consult with the OCC in advance because of the complexity of these
regulatory exemptions.15 Affiliates include most financial subsidiaries of banks16;
any investment company for which the bank, its subsidiaries, or affiliates acts as
investment adviser; and certain other companies sponsored and advised by the
bank, or its subsidiaries or affiliates. Other affiliates include certain “other
investment funds” (generally private funds) advised by the bank, its subsidiaries, or
affiliates; certain companies held under the Gramm-Leach-Bliley Act’s merchant
banking or insurance authority; certain partnerships associated with a bank; and
companies that the Fed or the OCC determine should be treated as affiliates.
Sections 23A and 23B — Provisions

15

When an uninsured depository institution is a subsidiary of another depository institution, the subsidiary generally is
not treated as an affiliate of its parent bank for purposes of either sections 23A or 23B, but instead is treated as an
exempt operating subsidiary from the perspective of the parent bank. From the perspective of the uninsured subsidiary
depository institution, however, the parent bank is treated as an affiliate, and thus the restrictions of sections 23A and
23B apply to transactions with its parent bank.
16
A company that is a financial subsidiary solely because it engages in the sale of insurance as agent or broker in a
manner that is not permitted for national banks is treated as an operating subsidiary.

27

The three provisions within sections 23A and 23B that tend to present issues in
connection with corporate reorganizations are: (1) the quantitative limits, (2) the
prohibition on purchasing low-quality assets (see Glossary for definition), and (3) the
requirement that transactions with affiliates be conducted on arm’s-length terms.
Sections 23A and 23B also require that covered transactions be consistent with
principles of safety and soundness and that credit transactions with affiliates
generally be collateralized.20 Depending on the structure of the reorganization, a
full or partial exemption from these restrictions may be available.
•

Quantitative Limits. In the absence of any available exemption, a bank may not
engage in ”covered transactions” with an affiliate in an amount that exceeds
10 percent of the bank’s capital and surplus — 20 percent of capital for all
affiliates as a group. Regulation W prescribes certain valuation rules for section
23A covered transactions that must be applied in order to determine whether
such a transaction complies with these quantitative limits. For example, the
value of a purchase of assets is calculated by combining the value of liabilities
assumed plus any consideration paid for the assets. A bank must observe the
quantitative limits when engaging in a covered transaction with an affiliate
unless an exemption is available. Thus, a bank’s purchase of assets from its
holding company, or any subsidiary of that holding company that is not an
insured depository institution, usually may not exceed 10 percent of the
acquiring bank’s capital and surplus. Transactions with financial subsidiaries,
however, are treated differently from transactions with other affiliates with
respect to these quantitative limits. A bank’s transactions with its own financial
subsidiary are not subject to a 10 percent limit, though they are included in the
20 percent limit.

•

Transfers of Low-Quality Assets. A bank’s purchase of low-quality assets from an
affiliate is generally prohibited unless the purchase is made in connection with a
transaction eligible for the BMA exemption. When a corporate reorganization
contemplates a bank’s acquisition of low-quality assets from an affiliate, and the
BMA exemption is not available, a banking organization has at least the
following four options that are acceptable to both the OCC’s and the Fed’s staff:
—

The affiliate holding the low-quality assets may retain them and transfer
the rest of the assets to the bank.

—

The affiliate may transfer the low-quality assets to the bank’s shareholders
as a dividend or in some other legally permissible way. The shareholders
may in turn either keep the assets or donate, but not sell, them to the
bank. A donation of the low-quality assets may be made concurrently
with the bank’s purchase of permissible assets from the same transferor,
provided it is done in a separate transaction.

---

The bank may make a written request to the Fed for a special exemption
from section 23A. (See procedure set forth at 12 CFR 223.43.)

17

The term “credit transaction” includes not only loans or extensions of credit, but also a bank’s issuance of a
guarantee or letter of credit on behalf of an affiliate or a confirmation of a letter of credit issued by an affiliate. It also
includes a cross-netting arrangement, as that term is defined in Regulation W.

28

---

The affiliate holding the assets may sell any servicing rights associated
with the assets to the bank, while retaining title to the assets. If the assets
later recover and lose their ”low-quality” status, they may be sold outright
to the bank.

Other options may be available as well. However, in every case, the OCC will
review any low-quality assets in a portfolio and determine whether their
acquisition by a bank conforms with safe and sound banking practices. Banks
are advised to contact the OCC if a contemplated transfer of low-quality assets
may present a barrier to accomplishing a transaction.
•

Section 23B and the ”Arm’s-Length Requirement.” As previously noted, section
23B of the FRA requires that transactions between a bank and its affiliates be
conducted on an arm’s-length basis. Section 23B provides that banks may
engage in certain transactions with an affiliate on terms and under
circumstances, including credit standards, that are substantially the same as, or at
least as favorable to the bank as those prevailing at the time for comparable
transactions with or involving nonaffiliated companies. If no such comparable
transactions exist, then the bank must transact on terms and under
circumstances, including credit standards, which in good faith would be offered
to, or would apply to, nonaffiliated companies. For purposes of section 23B,
Regulation W excludes from the definition of “affiliate” all insured depository
institutions, but treats uninsured depository institutions as affiliates in the same
manner and to the same extent as nonbank affiliates (unless the uninsured
depository institution is itself a subsidiary of the bank, in which case it generally
is treated as an operating subsidiary). Thus, a transaction between a bank and an
insured depository institution need not comply with the arm’s-length
requirement and may be valued at cost or any other measure, provided that the
transaction is not unsafe or unsound. But transactions between a bank and an
uninsured sister depository institution that is not a subsidiary must be conducted
on an arm’s-length basis. Moreover, as is the case with section 23A, mergers or
purchase-and-assumption transactions between affiliated insured depository
institutions that are reviewed and approved under the BMA are exempt from
section 23B and Regulation W. If one of the transacting institutions is uninsured,
the acquiring bank should contact the OCC even when the combination will be
reviewed and approved under the BMA.

Sections 23A and 23B — Exemptions
A near-complete exemption to all affiliate-transactions restrictions, including the
prohibition against a bank’s purchase of low-quality assets from an affiliate, is
available when a reorganization involves a combination of a bank with an affiliated,
insured depository institution subject to the BMA. Only the safety and soundness
requirement of section 23A applies to such combinations. Moreover, section 23B
does not apply to a combination of a bank with an affiliated insured depository
institution because an insured depository institution is not included under the
definition of ”affiliate” in section 23B.
Transactions between affiliated depository institutions that do not qualify for the
BMA exemption also may receive favorable treatment under the ”sister-bank”
exemption, although this exemption is available only when a bank is engaging in a
covered transaction with an affiliated insured depository institution. Combinations
29

that qualify for the sister-bank exemption, but not for the BMA exemption, are
subject to the prohibitions against unsafe or unsound transactions and purchasing
low-quality assets.
As discussed above, all transactions between affiliated insured depository
institutions are exempt entirely from section 23B because the definition of “affiliate”
for purposes of section 23B excludes insured depository institutions. But uninsured
sister depository institutions are treated as affiliates. A bank’s transactions with
uninsured sister depository institutions are subject to section 23B unless an
exemption from section 23B is available.
Regulation W created two new exemptions that may be useful for banks
contemplating combinations. First, Regulation W exempts certain “internal
corporate reorganizations” from the collateral requirements and quantitative limits
of section 23A, but not from the low-quality-asset prohibition, the safety and
soundness requirement, or from section 23B. Several conditions must be satisfied
for the exemption to be available. These conditions are: (1) the transactions must be
part of an internal corporate reorganization of a holding company involving the
transfer of all or substantially all of the assets of an affiliate or of a division of an
affiliate; (2) the bank must provide advance notice to the OCC and the Fed,
including a description of the primary business of the affiliate and an indication of
the proposed date of the transfer; (3) the bank’s top-tier holding company must
commit to the OCC and the Fed (and carry through on its commitment) to make the
bank whole with respect to any assets that become low-quality during the first two
years after the transfer, either by making cash contributions to the bank or by
purchasing the low-quality assets; (4) a majority of the bank’s board of directors
must review and approve the transactions in advance; (5) the value of the covered
transaction, when aggregated with any other transactions undertaken pursuant to
this new internal corporate reorganization exemption during the previous 12
months, must represent less than an amount set by the OCC that is between 10 and
25 percent of the bank’s capital and surplus; and (6) the holding company and all of
its subsidiary depository institutions must be well-capitalized and well-managed
both before and after consummation of the transfer.
Second, Regulation W exempts from the collateral requirements, quantitative limits
and low-quality asset prohibitions of section 23A, and also exempts from section
23B, asset purchases by de novo banks, provided that the OCC has approved the
asset purchase in writing in connection with its review of the formation of the new
bank.
Regulation W also exempts “step transactions” from the provisions of section 23A
except for the safety and soundness requirement, though not from section 23B. A
step transaction occurs when a bank acquires the securities of a company within
one day (the OCC may extend this time limit) after the company first becomes an
affiliate as a result of its acquisition by an affiliate of the bank. The acquiring bank
must acquire all of the shares that were acquired by the transferring affiliate. An
example of a step transaction would be if a bank’s holding company acquires
100 percent of the shares of an unaffiliated company and then immediately transfers
all of the shares of that company to its subsidiary bank. Certain conditions, set forth
at section 223.31(d) of Regulation W, must be satisfied for the step transaction
30

exemption to be available, including notice by the bank to both the OCC and the
Fed at or before the time when the transferred company first becomes an affiliate.

Bank Name
The OCC considers the name of a bank to be primarily a business decision subject
to any applicable state law. When different names are used for marketing after
consummation, the bank should take steps to prevent customer confusion about the
institution with which they are doing business and the extent of deposit insurance
coverage for their accounts. (See “GPP” booklet.) Although the OCC does not
regulate bank names, the National Bank Act requires that every national bank’s
formal name include the word ”national.” Refer to “Changes of Corporate Address
and Title” booklet for additional information.

Directors’ Residency and Citizenship Requirements
Every national bank director must be a citizen of the United States throughout their
term of service (12 USC 72). The OCC, however, may waive those requirements for
a minority of the total number of directors of any national bank.
A majority of a national bank’s directors must reside in the state in which the bank is
located (that is, the state(s) in which the bank has its main office or branches) or
within 100 miles of its main office for at least one year immediately preceding their
election and during their continuance in office (12 USC 72). The OCC has
discretion to waive those residency requirements. Refer to the “Director Waivers”
booklet for additional information.

Dividends and Capital Reduction
National banks may include with a combination application requests to declare
dividends under 12 USC 60(b) and 12 CFR 5.64 or to reduce capital under 12 USC
59 and 12 CFR 5.46. With prior OCC approval,18 a bank may make a cash or
noncash distribution to a parent bank or parent holding company to complete a
business combination. Refer to the “Capital and Dividends” booklet for additional
information.

Fiduciary Powers
A national bank that does not have fiduciary powers under 12 USC 92a, and that
plans to acquire a state bank or federal thrift that engages in activities for which a
national bank would need fiduciary powers, must seek and obtain OCC approval
before exercising fiduciary powers. The request for fiduciary powers may be
included in the combination application. No additional approval is necessary if two
or more national banks combine through merger or consolidation, and any of the
banks has, prior to the combination, received OCC approval to exercise fiduciary
powers, and the resulting bank exercises fiduciary powers in the same manner and
to the same extent as the national bank to which approval was originally granted.
18

Distributions to the parent bank or to the holding company that fit this description will have no effect on the bank’s
future dividend paying capacity.

31

Also, no approval is required for a national bank with OCC approval to exercise
fiduciary powers to continue exercising those powers if it is the resulting bank in a
merger or consolidation with a state bank or federal thrift. (See 12 CFR 5.26(b)(1) or
(2) and the “Fiduciary Powers” booklet for additional discussion.)

Investment in Bank Premises
A bank that proposes to increase its investment in bank premises in connection with
a combination may need to seek and receive OCC approval under 12 CFR 5.37
before consummating the combination. If the bank’s investment would cause it to
exceed its capital stock or a level previously approved, it must submit a notice or an
application to the appropriate supervisory office. (For details, an applicant should
refer to the “Investment in Bank Premises” booklet.)

Legal Issues
A combination application should include cites of federal and state laws relevant to
the combination. If the applicant believes that the proposed combination raises
legal issues, it should provide an opinion from counsel that addresses these issues,
as well as why the proposal is not in contravention of state law, when the target is
state-chartered, or federal law when the target is a federally chartered thrift.
Counsel should indicate that any action required by the applicable federal or state
law has been or will be taken before consummation of the proposal. The OCC may
request an opinion if one is not provided.

Liquidation Account
When the target in a combination is a thrift that converted from a mutual to a stock
institution, the resulting national bank must establish and maintain a liquidation
account. This account represents the eligible depositors’ interest in the net worth of
the mutual institution at the time it converted to a stock institution. In the event of a
solvent liquidation of the resulting bank, eligible depositors are entitled to a priority
distribution from the institution’s net worth before any distributions are made to
stockholders. In the Consolidated Reports of Condition and Income (call report),
the account is considered a part of the bank’s undivided profits and should be
included with the Tier 1 capital line item.

Main Office Designation
Banks should consult the OCC before filing an application if the main office of the
resulting bank in a merger or consolidation under 12 USC 215a or 215 will be
located at a place other than the main office of the acquiring bank.
A national bank resulting from a Riegle-Neal Act combination may, with OCC
approval, retain and operate, as its main office or a branch, a main office or branch
that any bank involved in the transaction operated immediately before the
combination.

32

Resulting Bank Charter Number
In a transaction structured as a merger under 12 USC 215a or 215c and 12 CFR
5.33, the resulting bank generally uses the charter number of the acquiring bank. If,
however, the acquiring bank is an interim national bank and the target is a national
bank, the resulting bank may retain the charter number of the target national bank.
In a transaction structured as a consolidation under 12 USC 215 or 215c and
12 CFR 5.33, the resulting bank may use the charter number of any national bank
involved in the transaction or a new charter number.

Undercapitalized Banks
In processing a combination application from an undercapitalized bank, the OCC
must determine that:
•

The bank has filed an acceptable capital restoration plan.

•

The bank is implementing the plan.

•

The proposed combination is consistent with and will further achievement of the
plan.

Specific Requirements
This section provides detailed guidance concerning certain information
requirements in the Interagency and Streamlined BMA applications.

Agreements and Board of Directors’ Approval
A majority of the board of directors of each of the participating depository
institutions involved in a merger or a consolidation must approve an agreement to
combine. (See Sample Agreements—Merger; Consolidation; Secretary’s Certificate
of Board of Directors’ Approval of Combination). Alternatively, a bank’s board of
directors may waive their notice of a board meeting and approve a combination
agreement by consent. (See Board of Directors’ Waiver of Notice of Board Meeting
and Written Consent of Business Combination.) The shareholders of each
combining institution must ratify and confirm the agreement. (See Shareholders’
Consideration for additional discussion.) If a target depository institution in a
merger or consolidation is a state bank, and the law of the state where the target is
located is more stringent with respect to board and shareholder approval than the
national bank merger and consolidation statutes, then the target bank must abide by
the state law requirements. Management, as directed by the board of directors’
resolution, usually executes a purchase of assets and assumption of liabilities
agreement.
In combinations involving interim banks, the OCC will accept agreements executed
between the primary parties (for example, an operating depository institution and a
BHC). The agreement must provide for the interim bank to become a party to the
33

agreement upon its organization. This is done through an addendum to the initial
agreement. Combination agreements structured in this manner are permissible if:
(1) the agreement is a legal instrument satisfying all the requirements of 12 USC 215
or 215a; (2) the initial agreement clearly states the intent to include the interim bank
in the combination; and, (3) the interim bank becomes a party to the agreement
before consummation of the combination.

Branch Authorization and Closing
Branch Authorization
The resulting bank in a combination may retain, as branches, the branches of the
acquiring bank and the main offices and branches of the target institution as
permitted under 12 USC 36. The application should address the legal authority of
the resulting bank to retain branches of all institutions participating in the
combination, including branches of national banks.
The combination application must include a list of all locations for which the
resulting bank requests an OCC authorization letter. The application also must list
all branches of each institution involved in the combination, including those of a
national bank, which the resulting bank will not retain following consummation.
(See Branch Closings below.)
The OCC issues an authorization letter following consummation of the transaction
for all branches that it had not approved prior to the transaction, that is, any office
that will be a branch of the resulting bank that was not approved as a branch of a
national bank before the combination. (See Branches Requiring Authorization
form.) The authorization letters will cover the main offices of the combining
institutions (except the resulting bank’s main office) and all existing branch offices
(brick and mortar branches and other types of facilities that meet the definition of a
branch under national banking laws) of the acquired institutions that are not
national banks.
If permitted under 12 USC 36, banks may retain approved, but unopened branches,
if all required approvals for those branches were received prior to the transaction.
The application must include a list of all approved, but unopened branches, for
which authorization is requested. A bank should be aware of the 18-month
expiration period affecting approved, but unopened, branches.
Branch Closings
The applicant must identify branch sites that will cease to operate as a result of the
transaction. If the applicant is unable to determine at the time of filing the exact
number and location of the branch closings, the application must state that a yet-tobe-determined number of offices will close and provide as much specificity as
possible. When the exact locations are determined, the applicant must follow
established branch closing procedures. (See the “Branch Closing” booklet.)
The responsibility for filing the notice lies with the acquiring or resulting national
bank, but either party to a combination may give notice. Thus, for example, the
acquirer may give the notice before consummating the transaction when the
34

acquirer intends to close a branch following consummation, or the target or seller
may give the notice, because it intends to close a branch at or prior to
consummation.

Nonconforming Assets and Activities
An applicant must identify any nonconforming assets or activities, including
nonconforming subsidiaries, of any institutions involved in the combination that
will not be disposed of, or discontinued, prior to consummation of the transaction.
A nonconforming asset or activity is one that is impermissible for a national bank or,
if permissible in general, is being conducted in a manner that exceeds limits
applicable to national banks. Nonconforming assets include investments in
subsidiaries or other entities that engage in activities not permissible for a national
bank or a financial subsidiary of a national bank. If the applicant has questions
about the legal authority of the resulting bank to retain certain assets or continue
certain activities, the application should contain an analysis of the legality of the
assets or activities, including a legal opinion, if appropriate.
The OCC generally permits the resulting bank a reasonable period of time, usually
not more than two years after consummation of the combination, to divest or
conform nonconforming assets or discontinue or conform nonconforming activities
of the target without undue hardship. An applicant seeking to retain nonconforming
assets or activities must provide information describing its plan to conform, divest,
or discontinue nonconforming activities, and an explanation of the reasonableness
of the time periods involved. If an asset or activity is conforming only if it is held or
conducted in a financial subsidiary, then the resulting bank must hold the asset or
conduct the activity in a financial subsidiary, or if not, then the bank must conform
or divest the asset or activity within two years.

Subsidiary and Investment Authorization
An applicant acquiring a non-national bank with an operating subsidiary that does
business directly with consumers must submit an interim “Annual Report on
Operating Subsidiaries” as described in OCC Bulletin 2004-55 at the consummation
of the transaction. This report is required if the subsidiary does business directly
with consumers in the United States and is not functionally regulated. Refer to the
bulletin for details.
A national bank that proposes to acquire a community development project or
corporation that the OCC previously has not approved must seek and receive OCC
approval under 12 CFR 24 before consummating the combination.

35

Post Approval Process
Extension of Time
When the OCC approves or conditionally approves a filing, the applicant has up to
12 months to consummate the transaction. The approval will lapse if a combination
is not consummated within one year from the date of OCC approval.
The OCC normally does not grant extensions of time to consummate. However, an
extension of the approval time may be requested from the appropriate district office
and granted if the applicant can provide sufficient information to prove that the
reason for the delay is beyond its control (for example, environmental clean up) or
otherwise satisfy the OCC that sufficient grounds exist to extend the approval.

Consummation
Applicants should advise the OCC at least 10 days before the desired
consummation date for the combination, allowing the OCC adequate time to
determine if the bank has met all pre-merger requirements specified in the approval
letter. (See Notice of Consummation.) Generally, the OCC will issue its
certification letter immediately after consummation of the transaction.

Lending Limit Calculation
When a combination transaction results in a change in capital category under 12
USC 1831o, and 12 CFR 6 (prompt corrective action), the OCC will confirm in
writing that the bank should begin to calculate its lending limit based on the
resulting capital and will note the effective date of such change.
In addition, on a case-by-case basis, the OCC can require recalculation of a bank's
lending limit when a combination transaction causes a change to capital but does
not result in a change in capital category. Further, a bank may request permission
from the OCC to recalculate its lending limit when a combination transaction
causes a material change to capital but does not result in a change in capital
category.

Oath of New Directors
The resulting bank must furnish the OCC with an executed “Oath of Bank Director”
for all new directors added as a result of a merger. In a consolidation, the resulting
bank must furnish the OCC with an executed “Oath of Bank Director” for all
directors.

36

OCC Semiannual Assessment
The OCC assesses a bank based on the assets reported as of a June 30 or
December 31 call report date. For example, for any consummation date between
July 1 and December 31, the resulting bank’s first assessment will be based on its
December 31 assets.
If a bank leaves the national bank system on June 30 or December 31, no fee is
assessed for the upcoming period. Institutions must leave the national banking
system prior to the close of business on the call report date to avoid paying the full
semiannual assessment.
The assessment fee is due on March 31 and September 30 of each year and is
automatically deducted from the bank’s designated bank account on the payment
due date. If a bank leaves the national bank system before the payment date, the
bank should contact the Financial Management Division at 202-874-5150 to discuss
arrangements for payment.

Dissenting Shareholder Rights and the Appraisal Process
Perfecting Dissenters’ Rights
A shareholder dissenting from a conversion, consolidation, or merger involving a
national bank may be entitled to receive the value of his or her shares from the
resulting entity. The specific details of the steps a shareholder must follow to perfect
his or her dissenters’ rights are detailed in the appropriate statute under which the
transaction is authorized. See 12 USC 214a, 215, 215a, 215a-2, 215a-3, or 215c
and 12 CFR 5.33. The requirements in each of these sections vary slightly and
should be read carefully and followed precisely to ensure dissenters’ rights are not
erroneously forfeited. In addition, any proxy material distributed to the
shareholders should describe the appropriate steps for dissenting shareholders.
Generally, a shareholder must either dissent by voting against the transaction at the
shareholders’ meeting or notifying the bank in writing at or prior to such meeting
that he or she dissents from the plan to convert, consolidate, or merge. Within 30
days after the date of consummation of the transaction, the dissenting shareholder
also must confirm in writing his or her dissent to the transaction and surrender his or
her stock certificates to the resulting bank. Next, a committee of three is selected to
appraise the stock of the dissenting shareholders. The committee is comprised of
one representative that the majority of dissenting shareholders appoints, one
representative the resulting entity appoints, and one representative that those two
representatives appoint. If two members of the three-member committee agree on
the value of the shares, that value will govern. If that value is acceptable to one or
more dissenting shareholders, the process is complete for those shareholders who
find the value acceptable, and the appraised value of the shares is paid by the
resulting entity. If that value in not acceptable to one or more dissenting
shareholders, those shareholders may, within five days of being notified of the
appraised value, appeal to the OCC, who will then conduct a reappraisal that will
be final and binding upon the appellants.
37

In addition, if, within 90 days of the date of consummation of the transaction, for
any reason one or more of the appraisers are not selected, or the appraisers fail to
determine a value, any interested party may request in writing an appraisal from the
OCC. With two exceptions, the statutes indicate that the OCC’s appraisal or
reappraisal is final and binding on all parties, and the resulting entity pays the cost
of an OCC appraisal or reappraisal.
The exceptions are for transactions in which a national bank is merging or
consolidating into a federal savings association or in which an uninsured national
bank is merging into a nonbank affiliate. In both of those instances, the regulations
require the parties, including the national bank, to agree that the OCC’s appraisal
will be final and binding and on how the total expenses of the OCC will be divided
among the parties and paid to the OCC. See 12 CFR 5.33(g)(3)(iii) and
5.33(g)(5)(iv). Also, see the Licensing Fee Schedule for the OCC’s current fee for
performing a stock appraisal.
In addition, when dissenters’ rights are provided in accordance with 12 USC 215 or
215a, the dissenting shareholder may also be entitled to receive additional
compensation. The shares of stock of the receiving entity that would have been
delivered to the dissenting shareholder must be sold at public auction. If the shares
are sold at public auction at a price greater than the amount paid to the dissenting
shareholders, the excess of such sale price must also be paid to such dissenting
shareholders.
The rights and appraisal process for dissenting shareholders of a state bank or
nonbank affiliate is determined in the manner as prescribed by the law of the state
or other jurisdiction, as appropriate.

OCC’s Valuation Methodology
Because the statutes that provide for appraisals do not define “value” nor does the
legislative history illuminate congressional intent, the OCC has elected to use
valuation methods that ensure that stockholders receive full value for their shares
being appraised. The OCC normally will not apply certain minority discounts to the
fair valuation of the dissenting shares of stock. After reviewing the particular facts in
each case and the available information on a bank's shares, the OCC selects an
appropriate valuation method, or combination of methods, to determine a fair
estimate of the shares' value.
The OCC values the stock as of the date of consummation of the conversion,
consolidation, or merger, with the exception of those transactions that are subject to
the requirements of 12 USC 214a, in which case the value is determined as of the
date the shareholders meeting was held authorizing the transaction. The OCC also
may apply a market discount due to the lack of marketability for stock that is closely
held or has a limited trading history. The use of a marketability discount for stock
that is not readily marketable is a standard practice in the business valuation
industry. The OCC has determined that where the facts warrant the inclusion of this
type of discount, such a discount is helpful in reaching the best possible
determination of the value.

38

For banks that are considered going concerns, the OCC typically uses one of three
methods or a combination of those methods to determine a reasonable estimate of
the shares’ value. Each of those methods is described below – market value,
investment value, and adjusted book value. If more than one method is used,
varying weights are applied in reaching an overall valuation. The weight given to
the value by a particular valuation method is based on how accurately the given
method is believed to represent a fair price. For example, the OCC may give more
weight to a value representing infrequent trading by shareholders than to the value
derived from the investment value method when the subject bank's earnings trend
is so irregular that it is considered to be a poor predictor of future earnings
For mergers and consolidations, the OCC recognizes that purchase premiums do
exist and may, in some instances, be paid in the purchase of small blocks of shares.
However, the payment of purchase premiums depends entirely on the acquisition or
control plans of the purchasers, and such payments are not regular or predictable
elements of value. Consequently, the OCC's valuation methods do not include
consideration of purchase premiums in arriving at the value of shares.

Market Value Method
Market value is the price at which a willing buyer and seller would exchange a
share of stock in an “arm’s-length” transaction. If sufficient trading in the shares
exists and the prices are available from direct quotes from the Wall Street Journal or
a market maker, those quotes are considered in determining value. In the event the
stock is heavily traded on a major exchange, it is likely the OCC would simply
apply that value for the appropriate date. If no value is readily available, or if the
value available is not well established, the OCC likely will use other methods of
estimating value, such as the investment value and adjusted book value methods.

Investment Value Method
Investment value is a method of valuation that attempts to make a reasonable and
informed assessment of earnings capacity at the bank and then applies the market
perception of the value of banking organizations with similar earnings potential.
This two-step process requires the establishment of a peer group comprised of
banking organizations with similar earnings potential for which market data is
readily available, and an analysis of historical earnings data for the target bank. In
practice, the investment value is calculated by multiplying a selected price to
earnings ratio for the peer banks by the earnings capacity per share of the target
bank.
The peer banks are selected based on location, size, and earnings patterns. In order
to select a reasonable peer group when there are too few comparable independent
banks in a location that are comparable to that of the subject bank, the pool of
banks from which a peer group is selected may be broadened. For example, the
peer group may be broadened to include one-bank holding company banks in a
comparable location, or by selecting banks in less comparable locations that are
similar in asset size and earnings’ patterns to the subject bank. Once the peer banks
are selected, the selected price to earnings ratio of the peer banks is then applied to
the earnings per share estimated for the subject bank to reach a fair estimate of
value.
39

Adjusted Book Value Method
The third method the OCC uses for reaching a fair estimate of value is the adjusted
book value method. An adjusted book value is derived by multiplying the book
value of the target bank's assets per share times a selected market price to book
value ratio for a group of comparable banking organizations. The adjusted book
value reflects the premium or discount to a bank’s book value that is attributed to
the condition and prospects of banking organizations in similar situations. The
adjusted book value method is an asset-based method whose value is reflective of a
bank in liquidation.

40

Procedures
Prefiling
Licensing Staff
1.

Refers a bank that requests instructions to the “General Policies and
Procedures” booklet, the “Public Notice and Comments” booklet, and this
booklet of the Comptroller’s Licensing Manual. Refers the applicant to other
booklets as appropriate (for example, “Conversions,” and “Management
Interlocks”).

2.

Arranges for prefiling discussions, if necessary, and invites appropriate OCC
staff (for example, compliance, economics, legal, and supervision). If any
prefiling discussion or meetings reveal significant policy, legal, Community
Reinvestment Act (CRA), compliance, or supervisory issues, immediately
contacts Headquarters Licensing (HQ LIC) to decide if and when:

3.

•

To forward the application to HQ LIC for processing, or

•

To forward specific issues to HQ LIC for action (while continuing to process
the application in the appropriate district office).

Prepares a summary of all prefiling meetings and records pertinent information
from telephone calls. Retains the summary and other information in an official
file.

Filing and Publishing Notice of the Application
Bank
4.

Completes and forwards the appropriate application (original and four copies)
and filing fee to the director for district licensing in the appropriate district
office or to HQ LIC. The application can be filed on 3½-inch diskette or
compact disk in a commonly used, word processing software, provided that
any original pages requiring signatures also are submitted.

5.

For combinations that require approval under the Bank Merger Act (BMA),
arranges for newspaper publication of public notice on the filing date or as
soon as practicable before or after the date of filing and two times thereafter.
(See details on publishing in Public Notice and Comment Period in this
booklet and the sample notice.) If not submitted with the filing, submits a
statement containing the name and address of the newspaper in which the
notice was published and dates of publication to the director for district
licensing in the appropriate district office or HQ LIC. (See the “Public Notice
and Comments” booklet.)

41

If necessary, arranges for shareholder notice and meeting (see the Shareholder
Notice and Meeting section of this booklet).

Receipt
Licensing Staff
6.

Initiates and enters appropriate information into the Corporate Activities
Information System (CAIS).

7.

Establishes the official file to maintain all original documents.

8.

If a fee is received, forwards it and the deposit memorandum (Form 6043-01)
to the Comptroller of the Currency, Attention: Accounts Receivable, 250 E
Street, S.W., MS 4-8, Washington, DC 20219. Retains a copy of the
memorandum in the official file. Contacts the applicant if the filing fee is not
received or is incorrect.

Initial Review
Licensing Staff
Within five business days following receipt of the filing, acknowledges receipt,
reviews, and forwards the application for comments.
9.

Reviews the application for accuracy and completeness. Determines if the
filing contains all information necessary to reach a decision.
If not complete, requests necessary information in writing from the contact
person and establishes a specific due date to provide the information or returns
the application. E-mails a copy of a request for additional information to the
assistant deputy comptroller (ADC) and ADC analyst or large bank examiner-incharge (EIC).

10. If applicant requests 10-day, 5-day processing under the BMA, confirms
whether an emergency exists requiring expeditious action based on
information provided by the primary supervisor of the insured depository
institution that is experiencing financial difficulties. If Licensing authorizes 10day, 5-day processing, skips to step 12.
11. Determines if the combination qualifies for expedited review and a streamlined
application as provided by 12 CFR 5.33(i). (If the determination requires
contact with another depository institution’s primary supervisor, refer to
step 17.)
12. For combinations that qualify for expedited review between nonaffiliated
operating institutions, including situations where a bank holding company has
requested that the Federal Reserve not require a related application:
42

•

Verifies the accuracy of the Herfindahl-Hirschman Index (HHI) calculations
and validates the predefined relevant geographic banking markets by
contacting the appropriate Federal Reserve Bank (Reserve Bank) or using its
Internet site.

•

If the filing contains an independent competitive analysis or the HHI within
any relevant geographic banking market that increases by more than 200
with a post-acquisition HHI of at least 1800:
—

Seeks the director for district licensing’s approval to remove the
filing from expedited review.

—

Discusses the competitive analysis in the confidential memorandum
(CM). As necessary, seeks assistance from HQ LIC.

—

Documents the file, updates CAIS, and promptly notifies the contact
person orally and in writing if application is removed from expedited
review for competitive review.

13. Acknowledges receipt of the filing and advises the contact person of whether
the transaction is eligible for expedited review (or 10-day, 5-day processing)
and the target date for decision. If it does not qualify, identifies the specific
reason in the letter. (Refer to Acknowledgment of Receipt in this booklet’s
OCC samples).
•

If applicable, the acknowledgment letter for combinations involving
nonaffiliated depository institutions that are eligible for expedited review
should indicate that the filing has been removed from expedited review to
analyze competition or rapid growth. (Refer to step 12.)

•

If applicable, grants preliminary approval for the interim national bank in
the acknowledgment letter.

14. Notifies, by e-mail, the assistant deputy comptroller (ADC) and ADC analyst, or
large bank examiner-in-charge (EIC) of the filing, providing a brief description
including any issues identified.
If a nonsubstantive combination, offers to provide a copy of the application
and to request, if necessary, additional information from applicant. For
substantive combinations,19 forwards a copy of the application to the
supervisory office, and requests that the ADC or designee or large bank EIC
sign-off on supervisory office comments, including any pre-merger
examination or visitation memorandum of findings prepared as part of the
combination (refer to step 20). Also requests:
19

The director for district licensing determines whether a combination application is substantive and warrants review
by or concurrence from the ADC. Examples of nonsubstantive combinations include: (1) corporate reorganizations
solely to effect a structural change in an organization; (2) affiliated combinations under an existing bank holding
company, provided that the institutions involved are rated CAMELS composite “1” or “2;” (3) combinations involving
noncomplex target institutions that are small in relation to the size of the acquirer; or (4) purchase and assumption
transactions involving the acquisition of noncomplex assets or liabilities that are small relative to the size of the
purchasing bank.

43

•

Comments on the filing by the 15th calendar day after the filing date (fifth
calendar day for filings when Licensing has granted 10-day, 5-day
processing).

•

A conclusion about whether the acquiring national bank has sufficient plans
and expertise to carry out the proposed systems integration. If warranted,
consults with the IT specialist or HQ LIC.

•

Comments on the anti-money laundering efforts of any national bank
involved in the combination and a detailed explanation for any negative
information.

•

If a holding company reorganization is involved, provides the information
concerning changes to the bank’s strategic or operating plan.

•

Comments on the related request, if made, to decrease capital under
12 USC 59 and 12 CFR 5.46 (see “Capital and Dividends” booklet for
additional information).

•

Decision on any related investment in bank premises if the bank’s
investment would exceed its capital stock or a level previously approved by
the OCC, or if it has submitted an application under 12 CFR 5.37.

•

Decision on related request to declare a dividend that requires OCC prior
approval under 12 USC 60(b) and 12 CFR 5.64 (see “Capital and
Dividends” booklet for additional information).

•

For undercapitalized banks involved in the combination, information about
the relationship of the combination to the bank’s capital plan.

15. If the application includes community development investments which must
be reviewed for compliance with 12 CFR 24 or approved by the Community
Development Division (CDD), forwards relevant materials (for example, a
description of the investment and covered activities, how the investment is
consistent with Part 24’s public welfare requirements, the dollar amount of the
investment, the dollar amount of the applicant’s aggregate investments under
Part 24, including the subject investment, and other information, if known,
such as public or private resources contributed to the investment and the
investment’s target area) to the CDD and requests a preliminary response by
the 30th day after the filing date (fifth day for filings when Licensing has granted
10-day, 5-day processing.) The applicant may use the 12 CFR 24 form, CD-1 –
National Bank Community Development (Part 24) Investments, to provide the
information about such investments.
16. Notifies other OCC divisions of the filing, as appropriate, and requests
preliminary response within 15 calendar days after the filing date (fifth calendar
day for filings when Licensing has granted 10-day, 5-day processing.)
17. Requests by e-mail or letter a response within 15 calendar days after the filing
(five days for combinations in which Licensing has authorized 10-day, 5-day
processing) the following information from the appropriate state and federal
44

supervisor of each depository institution involved in the combination that is not
a national bank:
•

Copies of the most recent examinations and reports, as well as
administrative agreement or enforcement orders to which the depository
institution is subject.

•

Comments on the anti-money laundering efforts of the depository
institution.

Requests for information about state banks should be sent to the state
chartering authority and the Reserve Bank for state member banks or the
Federal Deposit Insurance Corporation (FDIC) for state non-member banks.
Requests for information about federal thrifts should be sent to the Office of
Thrift Supervision (OTS) (see text of Anti-money Laundering Efforts Request
letter or e-mail samples).
18. Sends a copy of the application to the Department of Justice (DOJ), the
appropriate Reserve Bank, FDIC, and OTS, and prepares a request for their
comments (see sample request) on the competitive effects of the proposed
combination within 30 days (10 days if the OCC has authorized 10-day, 5-day
processing under the BMA).
19. If Licensing staff determines at any time that the filing presents significant
policy, legal, compliance, or supervisory issues, including Bank Secrecy Act,
CRA, or systems integration concerns, contacts HQ LIC to decide if and when:
•

To forward the application to HQ LIC for processing, or

•

To forward specific issues to HQ LIC for action (while continuing to process
the application in the appropriate district office).

20. After consultation with the supervisory office regarding the institution’s
condition, determines if an OCC examination or visit is needed. If not
needed, documents the decision in the file. If it is needed:
•

Requests the appropriate supervisory office to assign a national bank
examiner (NBE) to the examination. Provides the NBE with relevant
materials not already sent to the supervisory office (that is, charter number,
contact person’s name and phone number, any application amendments).

•

Coordinates with the supervisory office to set the scope of the exam and
estimates the number of on-site hours it will require.

•

Notifies the contact person that an examination will be conducted and that
the NBE will call to schedule the date. Advises the contact person of the
approximate cost and that a letter will be forthcoming to that effect. Sends
Letter Advising of Examination Fee with Agreement to Pay for Examination
enclosure.

45

• Receives the Agreement to Pay for Examination from the bank and
notifies the ADC and NBE that we may proceed with the
examination.
• Obtains the number of hours spent on-site from the NBE, reduces it
by 20 hours, and fills the hours in at the bottom of the Agreement to
Pay for Examination. There is no charge for the first 20 hours of the
exam. If the total on-site hours are less than 20, there is no charge
and no information should be sent to Financial Management.
•

Forwards a copy of the completed Agreement to Pay for Examination with
the Cover Memo to Financial Management to the Team Leader-Revenue in
OCC Financial Management. Financial Management will prepare the
invoice and return it.

•

Sends the Letter Forwarding the Examination Fee Invoice, along with the
invoice received from Financial Management, to the applicant.

Steps 21-23 only apply to combinations involving the formation of an interim
national bank.

Organizing the Interim Bank
Sponsor
21. Submits the Organization Certificate, Articles of Association, and Oath of Bank
Directors for the interim national bank (see Application: Interim National
Bank Charter).

Licensing Staff
22. Reviews the Organization Certificate, Articles of Association, and Oath of Bank
Directors for the interim national bank for accuracy and completeness. If
complete, sends acknowledgment to the sponsor, accepting the Articles and
declaring the interim bank a body corporate, and instructs bank to proceed
with the interim bank’s organization.

Sponsor
23. Proceeds with the steps required to organize the interim national bank, filing
the Stock Payment Certificate and Oaths of Directors and Officers.
Steps 24-25 only apply to combinations in which the OCC has received public
comments or a request for hearings.

46

Public Comments and Hearings
Licensing Staff
24. If copies of applications are requested, public comments filed, or hearings
requested, refers to the “Public Notice and Comments” booklet.
25. Forwards comments to other units, as appropriate, for evaluation and advice
(for example, legal issues to appropriate legal division or office). If a CRA
comment is received, promptly notifies HQ LIC.

Analysis and Recommendation
Licensing Staff
26. Gathers and reviews comments received from the supervisory office,
compliance, community affairs officer, CDD, and others.
27. Consults with the supervisory office if a significant deviation condition is being
considered.
28. If the Licensing staff, at any time, determines that issues exist that might require
removing the application from expedited review, contacts HQ LIC for
guidance. If the application is removed from expedited review, the Licensing
staff promptly notifies the contact person orally and in writing, identifying the
specific reason. Updates CAIS and the official file.
29. Prepares the CM or, if applicable, the Expedited Business Reorganization
Decision form. For combinations under the Riegle-Neal Act, completes the
Riegle-Neal Supplement to the Expedited Business Reorganization Decision
form.
30. Prepares a decision letter or, for significant decisions as defined in PPM 100015, prepares a decision statement or document (decision document). The
decision document or transmittal letter should reference related decisions
made, such as those concerning branches, investments in operating
subsidiaries and financial subsidiaries, noncontrolling investments, community
development investments, investment in bank premises, fiduciary powers,
request to issue dividend, decrease or increase capital, or the effect of the
transaction on any undercapitalized bank involved in the combination.
31. For substantive combinations:
•

Forwards CM, draft decision letter, and, if applicable, decision document to
the appropriate ADC and ADC analyst or large bank EIC, and requests that
the ADC or large bank EIC provide final comments within five business
days.

47

•

For transactions that the district deputy comptroller (DDC) or deputy
comptroller for Midsize Banks (MDC) decides to review, forwards the CM,
draft decision letter, and decision document, if applicable; and the
supervisory office and ADC comments to the DDC or MDC, requesting that
the DDC or MDC provide comments within five business days.

If there is a difference of opinion between the DDC or MDC comment and the
director for district licensing’s recommendation, Licensing staff notifies HQ
LIC. HQ LIC notifies the Senior Deputy Comptroller for Midsize and
Community Bank Supervision, works to resolve the difference, and documents
the final resolution in the official file.

Issues Directed to HQ LIC
HQ LIC
32. Receives and reviews files sent by Licensing staff, and solicits comments from
other OCC divisions or supervisory agencies as appropriate. Makes
appropriate CAIS entries.
33. Prepares and forwards a memorandum concerning the issues and, if
appropriate, language to insert into the decision letter or, if applicable,
decision document, to the district Licensing staff.

Decision
Licensing Staff
34. Deciding official decides the application under delegated authority, including,
as appropriate, language received from HQ LIC in the decision document or
approval letter (for example, language about the competitive effects of the
combination).
35. Notifies the following of the decision:
•

The contact person by telephone. If the contact person requests, sends a
facsimile copy of the decision letter and, if applicable, the decision
document.

•

The appropriate ADC or large bank EIC by sending e-mail comments
and a copy of the decision letter and, if applicable, the decision
document.

•

The Securities and Corporate Practices Division (SCP) by e-mail if the
bank is subject to 12 CFR 11.

36. Mails the decision letter and, if applicable, the decision document, to the
contact person, along with a satisfaction survey.
48

37. For nonaffiliated combinations, notifies the DOJ by letter of the decision.
38. Notifies by letter other interested parties of the decision, enclosing a copy of
the decision document, if applicable.
39. If a decision document or decision letter includes conditions imposed in
writing under 12 USC 1818 or as HQ LIC directs, forwards a copy of the
decision document or decision letter to the secretary to the director, Licensing
Activities.
40. Makes appropriate CAIS entries.

HQ LIC
41. Receives the official file, including CM, from the district Licensing staff. Makes
appropriate CAIS entries.
42. Reviews the file and all relevant information, and:
•

Solicits comments from other OCC divisions or supervisory agencies as
appropriate.

•

Makes a recommendation. If denial recommended, contacts and seeks
concurrence of the Litigation Division.

•

Routes the official file to the deciding official.

43. Deciding official decides the application and returns the file to the HQ LIC
staff.
44. Notifies the contact person of the decision by telephone. If the contact person
requests, sends a facsimile copy of the decision letter and, if applicable, the
decision document.
45. Notifies Licensing staff and the appropriate ADC and ADC analyst or large
bank EIC of the decision by sending e-mail comments and attaching a copy of
the decision letter and, if applicable, the decision document. Also notifies SCP
of the decision by e-mail if the bank is subject to 12 CFR 11.
46. Mails the decision letter and, if applicable, the decision document, to the
contact person, along with a satisfaction survey.
47. For nonaffiliated combinations, notifies the DOJ by letter of the decision.
48. Notifies by letter other interested parties of the decision, enclosing a copy of
the decision document, if applicable.
49. If the decision document or decision letter includes conditions imposed in
writing under 12 USC 1818 or as HQ LIC directs, forwards a copy of the
decision document or decision letter to the secretary to the director, Licensing
Activities.
49

50. Makes appropriate CAIS entries.

Disclosure
Bank
SCP

51. If the bank is subject to 12 CFR 11, files preliminary proxy materials or
information statements with SCP in Washington.
52. Reviews proxy materials or information statements and, if warranted, does not
object to distribution to the shareholders. Notifies the bank.

Shareholder Approval
Bank
53. Publishes notice of shareholders’ meeting on the same day of the week for four
consecutive weeks (see Shareholder Considerations section for discussion).
54. Mails notice of shareholders’ meeting, with accompanying proxy materials or
information statements, to all shareholders by certified or registered mail at
least 10 days prior to the meeting, or earlier, if required. Also sends definitive
copies of the shareholders’ materials to the director for district licensing.
55. Mails proxy materials or information statements to the appropriate district
office.
56. Obtains shareholders’ approval of the combination.

Consummation
Bank
57.

Notifies the appropriate director for district licensing by e-mail or letter of the
date that the bank plans to consummate the combination at least 10 days in
advance (five days in advance for a combination processed under 10-day, 5day procedures).

58.

If not previously done, submits the Secretary’s Certificates of the board of
directors approval; the executed combination agreement; the Articles of
Association for consolidations and mergers in which the Articles of
Association changes are made, for the resulting bank; and, if applicable, the
Secretary’s Certificates of shareholders’ ratification.

59.

Prepares and submits an updated Annual Report on Operating Subsidiaries.
Also refer to the Annual Report Guidelines for preparation instructions.
50

Licensing Staff
60. Reviews the bank’s consummation notice and verifies that all required actions
have been completed. Verifies that SCP has reviewed the final proxy materials
to make sure no significant inconsistencies exist between the proxy materials
and the application. Notifies the applicant by telephone of any problems.
61. Prepares and mails the certification letter and, if applicable, the interim
national bank charter certificate to the resulting bank. Includes appropriate
authorization or certification for branches, investment in operating or financial
subsidiaries, community development investments, investment in bank
premises, dividend declaration, fiduciary powers, and increase or decrease in
capital, if applicable, in the certification letter. Mails the certification letter
following consummation of the combination. Forwards the updated “Annual
Report on Operating Subsidiaries” to HQ LIC.
62. Makes appropriate CAIS entries.

Close Out
HQ LIC
63. Reviews the file for completeness, separates documents, and sends the official
file and documents to Central Records.
64. Makes appropriate CAIS entries.
65. Notifies the appropriate ADC and ADC analyst or large bank EIC of the
opening date by sending an e-mail and, if warranted, other materials.

Post Consummation
Bank
66. Files a list of directors and directors’ oaths for all new directors who have not
previously taken the oath.
67. Surrenders any national bank charter certificates that are no longer valid.
68. Surrenders any branch certificates or authorizations for national bank branches
to be closed as a result of the transaction.

51

Dissenters’ Rights
Bank or Dissenters
69. Submits a request for a stock appraisal directly to HQ LIC in accordance with
12 USC 214, 215, 215a, 215a-2, 215a-3, 215c, or 12 CFR 5.33.

HQ LIC
70. Initiates a stock appraisal in CAIS and enters the appropriate information.
71. Establishes the official file to maintain all original documents.
72. Sends acknowledgment letter and requests the dissenting shareholder(s) to
provide any additional information that the OCC should consider.
73. Sends letter to resulting bank requesting information to confirm that dissenters’
rights were perfected and to obtain relevant information.
74. Upon receipt of the information from the bank, completes checklist for
determining whether dissenting shareholders’ rights were perfected. (See
“Perfection of Dissenting Shareholder Rights for OCC Appraisal” - Checklist.
Seeks Bank Activities and Structure’s (BAS) advice, as necessary, in
determining whether dissenters’ rights were perfected.)
75. If dissenting shareholder rights were not perfected, confirms such
determination with BAS. Advises dissenting shareholder and bank in writing
that dissenters’ rights were not perfected and that the OCC will not conduct an
appraisal. Goes to step 80.
76. Prepares appraisal of the shares and forwards to deciding official.
77. Deciding official approves appraisal by signing the last page.
78. Prepares transmittal letters to dissenting shareholder(s) and resulting bank with
a copy of appraisal enclosed in each. Also, prepares invoice for cost of
appraisal and sends with transmittal letter(s), as appropriate. Provides copies
of invoice(s) to Policy and Treasury, Financial Management.
79. Provides Communications with copy of appraisal.
80. Makes appropriate CAIS entries.
81. Sends official file to Central Records.

52

53

54

Appendix B: Bank Merger Competitive Review (1995)
Introduction and Overview
The banking agencies and the Department of Justice (DOJ) review the competitive
impact of bank and bank holding company mergers under the banking and antitrust
laws to proscribe mergers that would tend to substantially lessen competition. To
speed this competitive review and reduce regulatory burden on the banking
industry, the banking agencies and the Department have developed screens
(attached as Screens A and B) to identify proposed mergers that clearly do not have
significant adverse effects on competition. In addition to the screens, the banking
agencies and the DOJ have identified information, described in Section 2, which
has proven to be useful in analyzing the competitive effects of proposed mergers
highlighted by Screen A or Screen B.
Parties planning a merger transaction may wish to consult with the relevant banking
agency or the DOJ before submitting an application. When a proposed merger
causes a significant anticompetitive problem, it is often possible to resolve the
problem by agreeing to make an appropriate divestiture. In such cases, it may be
useful to discuss the matter with the DOJ and the relevant regulatory agency. The
DOJ seeks divestitures that will resolve the loss of competition in the market. A
divestiture will resolve the problem if it ensures the presence of a strong and
vigorous competitor that replaces the competition lost because of the merger.
Section 1 – Screening
Banking Agencies
The banking agencies rely primarily on Screen A, which looks at competition in
predefined markets developed by the Federal Reserve. If the calculation specified in
Screen A does not result in a post merger HHI over 1800 and an increase of more
than 200, the banking agencies are unlikely to further review the competitive effects
of the merger. If the result of the calculation specified in Screen A exceeds the
1800/200 threshold, applicants may consider providing additional information. See
Section 2 for a description of the types of information that may be relevant.
Providing such information with a merger application can eliminate delays in the
review process and may avoid special requests for additional information.
DOJ
The DOJ initially reviews transactions using data from the banking agencies' screen,
Screen A. If a proposed merger exceeds the 1800/200 threshold in Screen A,
applicants should consider submitting the calculations set forth in Screen B.
In some cases, the DOJ may further review transactions that do not exceed the
1800/200 threshold in Screen A. This is most likely when Screen A does not reflect
fully the competitive effects of the transaction in all relevant markets, in particular
lending to small and medium-sized businesses. For example, the DOJ is more likely
to review a transaction involving two commercial banks if the post merger
Herfindahl-Hirschman Index (HHI) approaches 1800 and the HHI increase
approaches 200, and Screen A includes thrifts which are not actively engaged in
commercial lending. In addition, the DOJ is more likely to review a transaction if
55

the predefined market in which the applicants compete is significantly larger than
the area in which small business lending competition may exist (for example, the
predefined market includes multiple counties, or is significantly larger than an RMA
in which the applicants are located). In such a case, applicants should consider
submitting the calculations set forth in Screen B. Often, the DOJ will review the
information in Screen B and find no need for further review of the proposed merger.
If the calculation specified in Screen B results in an HHI over 1800 and an increase
of over 200, applicants may consider providing additional information. (See Section
2 for a description of the types of information that may be relevant. Providing such
information with a merger application can eliminate delays in the review process
and may avoid special requests for additional information.)
In some limited instances, the DOJ may examine a transaction in further detail, even
though Screen A and Screen B do not identify anticompetitive problems. This is
most likely to occur when it appears that:
The screens' market area does not fit the transaction. Sometimes the
geographic market used in the screens may not be an appropriate
choice for analyzing the particular merger involved. For example, the
screens' market area is a county, and one merging institution is at the
east end of one county and the other merging institution is at the west
end of the adjacent county. The institutions may in reality be each
other's most important competitors, but the screens would not reflect
that fact. Or the screens' market area may be quite large, but the
merger involves two institutions at the center of the market.
Institutions at the periphery of the market area may be improbable
substitutes for the competition that would be lost in the transaction
and thus the transaction should be scrutinized in a narrower area to
ensure that the relevant geographic market is considered.
Specialized products are involved. Sometimes the merging institutions
are competitors for a specialized product and few of the institutions
included in the screens compete in offering that product. For
example, the screens likely would not identify a concentrated market
for working capital loans to medium-sized commercial customers, if
the market area has many institutions but the merging institutions are
two of only a few institutions able to compete for such business.
In such cases, applicants may wish to submit additional information. (See Section 2
for a description of the types of information that may be relevant. Providing such
information with a merger application can eliminate delays in the review process
and may avoid special requests for additional information.)
Section 2 -- Additional Analysis
The DOJ and the banking agencies are likely to examine a transaction in more detail
if it exceeds the 1800/200 threshold in Screen A. The DOJ is also likely to examine
the effect of a proposed merger on competition for commercial loans if the
transaction exceeds the 1800/200 threshold in Screen B. In instances when a
screen highlights a transaction for further review, the applicant may present
additional information not considered in the screen.
56

In cases when either Screen A or Screen B highlights a transaction for further
scrutiny, additional information may establish a clearer picture of competitive
realities in the market. Such information may include:
Evidence that the merging parties do not significantly compete with
one another;
Evidence that rapid economic change has resulted in an outdated
geographic market definition, and that an alternate market is more
appropriate;
Evidence that market shares are not an adequate indicator of the
extent of competition in the market, such as:
Evidence that institutions in the market would be likely
to expand current levels of commercial lending. Such
evidence might include current loan-to-deposit ratios,
recent hiring of new commercial loan officers, pending
branch applications or significant out-of-market
resources that would be shifted into the market in
response to new loan opportunities;
Evidence that a particular institution's market share
overstates or understates its competitive significance
(such as evidence that an institution is rapidly gaining or
losing market share or that the institution is not
competitively viable or is operating under regulatory
restrictions on its activities);
Evidence concerning entry conditions, including evidence of entry by
institutions within the last two years and the growth of those
institutions that have entered; evidence of likely entry within the next
two years, such as pending branch applications; and expectations
about potential entry by institutions not now in the market area and
the reasons for such expectations, including legal requirements for
entry.
In cases where Screen B highlights a transaction for further scrutiny, applicants may
consider preparing an HHI worksheet for the market area using, instead of deposits,
data from the relevant Reports of Condition on commercial and industrial loans: a)
below $250,000 and b) between $250,000 and $1,000,000. Such information can
be a useful assessment of actual competition for small business lending.
Additional information that may be relevant includes evidence of competition from
sources not included in Screen B, such as:
Evidence that a thrift institution is actively engaged in providing
services to commercial customers, particularly loans for business
startup or working capital purposes and cash management services;

57

Evidence that a credit union has such membership restrictions, or lack
of restrictions, and offers such services to commercial customers that
it should be considered to be in the market;
Evidence of actual competition by out-of-market institutions for
commercial customers, particularly competition for loans for business
startup or working capital purposes;
Evidence of actual competition by nonbank institutions for
commercial customers, particularly competition for loans for business
startup or working capital purposes.
If the applicants believe that Screen B does not accurately reflect market
concentration and competitive realities in a particular area, they are encouraged to
submit additional information explaining the reasons for their belief. This
information should include an HHI worksheet that indicates the geographical area
that should be covered, the institutions that should be included, the method of
calculating the market share of each institution (for example, deposits, branches,
loans), and the reasons why this information is preferable to the information
supplied in Screen B. Inclusion of institutions outside the areas identified in Screen
B should be supported, wherever possible, by evidence of actual competition by
these institutions. Such alternative worksheets should be submitted in addition to,
rather than in lieu of, the HHI worksheets from Parts A and B.

58

Glossary
An affiliate generally means any company, including a bank or other depository
institution, which controls or is under common control with a national bank.
Certain other entities also are affiliates for purpose of sections 23A and 23B of the
Federal Reserve Act (12 USC 371c and 371c-1) and Regulation W (12 CFR 223).
The applicant refers to either the acquiring or target depository institutions.
The appropriate district office means: (1) headquarter’s Licensing (HQ LIC) for all
national bank subsidiaries of certain holding companies assigned to the
Washington, DC, licensing unit; (2) the appropriate OCC district office for all
national bank subsidiaries of certain holding companies assigned to a district office
licensing unit; or (3) the OCC’s district office where the national bank’s supervisory
office is located for all other banks.
Business combination (combination) means any merger or consolidation between a
national bank and one or more depository institutions in which the resulting
institution is a national bank, the acquisition by a national bank of all, or
substantially all, of the assets of another depository institution; the assumption by a
national bank of deposit liabilities of another depository institution; or a merger
between a national bank and one or more of its nonbank affiliates.
A business reorganization means either:
(i) a business combination between eligible banks, or between an eligible
bank and an eligible depository institution, that are controlled by the same
holding company, or that will be controlled by the same holding company
prior to the date of the combination, or
(ii) a business combination between an eligible bank and an interim bank
chartered in a transaction in which a person or group of persons exchanges its
shares of the eligible bank for those of a newly formed holding company and
receives, after the transaction, substantially the same proportional share
interest in the holding company as it held in the eligible bank (except for
changes in interest resulting from the exercise of dissenters’ rights), and the
reorganization involves no other transactions involving the bank.20
Company means a corporation, limited liability company, partnership, business
trust, association, or similar organization.
Consolidation, under 12 USC 215 and 1828(c), refers to the combination of existing
depository institutions into a new entity under a national bank charter, or under the
charter of an existing national bank, when at least one institution is a national bank.
Shareholders of the consolidating institutions surrender their equity in return for
either equity in the consolidated bank or another form of consideration.
Shareholders of the consolidating depository institutions must approve the
20
A business combination involving a merger with an interim bank to eliminate minority shareholders (that is, ”freeze
out” transaction) does not meet the definition of a business reorganization.

59

transaction under 12 USC 215, which provides dissenters’ rights to shareholders of
all consolidating institutions.
Control refers to when a company or shareholder (i) directly or indirectly, or acting
through one or more other persons owns, controls, or has the power to vote
25 percent or more of any class of voting securities of the other company, or
(ii) controls in any manner the election of a majority of the directors or trustees of
the other company. No company shall be deemed to own or control another
company by virtue of its ownership or control of shares in a fiduciary capacity.
Regulation W expands the statutory definition of control significantly in two
respects. First, it provides a rebuttable presumption that a shareholder that owns or
controls 25 percent or more of a company’s nonvoting equity capital controls that
company. Second, it provides a rebuttable presumption that a shareholder that
owns or controls instruments (including warrants and options) that are convertible
or exercisable at the option of the holder into other securities (such as common
stock), controls those other securities.
A depository institution is any bank or savings association.
A dormant bank is a bank that is no longer engaged in core banking activities other
than on a de minimis basis. This definition includes, for example, a bank that has
significantly reduced its activities and services or that has contracted out significant
portions of its operations to third party service providers, other than in the ordinary
course of the bank’s ongoing business.
An eligible bank is a national bank that:
•

Has a composite CAMELS rating of 1 or 2.

•

Has an “outstanding” or “satisfactory” CRA rating. (This factor does not
apply to an uninsured bank or branch or a special purpose bank covered
by 12 CFR 25.11(c)(3)).

•

Is well capitalized as defined at 12 CFR 6.4(b)(1).

•

Is not subject to a cease and desist order, consent order, formal written
agreement, or Prompt Corrective Action directive or, if subject to any such
order, agreement or directive, is informed in writing by the OCC that the
bank may be treated as an “eligible bank.”

An eligible depository institution means a state bank or a federal or state savings
association that is FDIC-insured and that meets the eligible bank criteria.
Fair value is the amount at which an asset (or liability) could be bought (or incurred)
or sold (or settled) in a current transaction between willing parties, other than in a
forced or liquidation sale.
The Herfindahl-Hirschman Index (HHI) is a statistical measure of market
concentration. It is used as the principal measure of market concentration in the
Merger Screen. The HHI for a given market is calculated by squaring each
individual competitor’s share of total deposits within the market and summing the
60

squared market share products. The more concentrated a specific market becomes
the higher the HHI. For example, for a market with four competitors with equal
market shares, the HHI would be: 25²+25²+25²+25²=2,500; however, for a
market with two banks having 40 percent of the deposits and two banks having 10
percent of the deposits, the HHI would be: 40²+40²+10²+10²=3,400. For a
more concentrated market with one bank having 60 percent of the deposits and two
banks having 20 percent of the deposits, the HHI would be: 60²+20²+20²=4,400.
Home state, as applied to a national bank under the Riegle-Neal Act, is the state in
which the main office of the bank is located. For a state bank, it is the state by
which the bank is chartered.
Host state, as applied to both a national and a state bank under the Riegle-Neal Act,
is any state other than its home state, in which the bank maintains, or seeks to
establish and maintain, a branch (or branches).
An interim bank is a national bank that does not operate independently, but exists
solely as a vehicle to accomplish a business combination.
Lending limit means the legal limit on the aggregate amount of credit that a bank
can extend to a single borrower. In certain circumstances loans to separate
borrowers are combined for purposes of applying the limit. The limit is calculated
as a percentage of the bank’s capital and surplus.
Low-quality assets, as defined under Regulation W, includes: (1) an asset (including
a security), classified as “substandard,” “doubtful,” or “loss,” or treated as “special
mention;” or “other transfer risk problems,” either in the most recent report of
examination or in any internal classification system used by the member bank or the
affiliate (including an asset that receives a rating that is substantially equivalent to
“classified” or “special mention” in the internal system of the member bank or
affiliate); (2) an asset in nonaccrual status; (3) an asset on which principal or interest
payments are more than 30 days past due;(4) an asset whose terms have been
renegotiated or compromised due to the deteriorating financial condition of the
obligor; and (5) assets acquired DPC that have not yet been reviewed in an
examination or inspection.
Merger, under 12 USC 215a, 215c, 1828(c), and 12 CFR 5.33, generally refers to
the acquisition of one or more depository institutions by an existing national bank
or interim national bank. The shareholders of the target institution surrender their
equity in return for either equity in the acquiring bank or another form of
consideration.
The Merger Screen is a screening device based on the HHI used primarily by the
OCC and the Department of Justice (DOJ) to identify quickly proposed business
combinations that do not present anticompetitive concerns. The screen also
includes a description of the DOJ’s antitrust review process. The applicant for a
nonaffiliated business combination should submit the Merger Screen.
National bank means any national banking association operating under the OCC’s
supervision.
61

Nonbank affiliate of a national bank, for purposes of 12 USC 215a-3, means any
company, other than a bank or federal savings association that controls, is
controlled by, or is under common control with the national bank.
A qualifying business combination is a transaction that satisfies one of the following
standards:
(i) At least one party to the transaction is an eligible bank, and all other parties
to the transaction are eligible banks or eligible depository institutions; the
resulting national bank will be well capitalized immediately following
consummation of the transaction; and the total assets of the target institution[s]
are no more than 50 percent of the total assets of the acquiring bank, as
reported in each institution’s Consolidated Report of Condition and Income
filed for the quarter immediately preceding the filing of the application;
(ii) The acquiring bank is an eligible bank; the target bank is not an eligible
bank or an eligible depository institution; the resulting national bank will be
well capitalized immediately following consummation of the transaction; and
the applicants in a pre-filing communication request and obtain approval from
the appropriate district office to use the streamlined application;21 or
(iii) The acquiring bank is an eligible bank; the target bank is not an eligible
bank or an eligible depository institution; the resulting bank will be well
capitalized immediately following consummation of the transaction; and the
total assets acquired do not exceed 10 percent of the total assets of the
acquiring national bank, as reported in each institution’s Consolidated Report
of Condition and Income filed for the quarter immediately preceding the filing
of the application.
A significant deviation or change means a material variance from the bank’s
business plan or operations that occurs after the proposed transaction has
consummated.
An undercapitalized bank is an FDIC-insured depository institution that meets the
criteria established in 12 CFR 6.4(b)(3), (4), or (5), for an undercapitalized,
significantly undercapitalized, or critically undercapitalized bank, respectively.

21
Expedited review and use of the streamlined business combination application under this standard are not available
for a transaction that fails the size test in standard (i). Expedited processing also is not available under this standard or
standard (iii) for a transaction in which the target institution has a CRA rating of less than satisfactory institution-wide, or
in a state or multistate Metropolitan Statistical Area (MSA)(12 CFR 25.12), or the performance of either the acquirer or
the target is less than satisfactory in any MSA or in the non-MSA portion of a state, in which the acquiring bank seeks to
expand through the business combination.

62

References
Accounting
Accounting Issuances

Issuances
Assessment Schedule
Issuance
Asset Composition
Regulation

Accounting Principles Board Opinion
Numbers 16 and 17
AICPA Accounting Interpretation Number 39;
Statement of Financial Accounting Standards
Number 72
OCC Banking Circular 240 and OCC Bulletin
94-23
OCC Bulletin 2005-40 (or see annual update)
12 CFR 5.53

Authorization to Commence Banking Business
Laws
12 USC 26 and 27
Bank Holding Company Act
Law
Regulation

12 USC 1841
12 CFR 225

Bank Merger Act
Law
Regulation

12 USC 1828(c)
12 CFR 5.33

Bank and Thrift Combinations
Laws
Regulation
Bank Secrecy Act
Laws
Regulations

12 USC 215, 215a, 215a-1, 215c, 1467(a)(5),
1815(d)(3), 1828(c), 1831u, 1842(d)
12 CFR 5.33
31 USC 5311-5328
12 CFR 21.21, 31 CFR 103

Branch and Subsidiary Authorization
Laws
12 USC 24(7), 36
Regulations
12 CFR 5.30, 5.33, 5.34
Branch Closings
Law
Issuance
Business Combinations
Laws
Regulation

12 USC 1831r-1
Joint Policy Statement on Branch Closing
Notices and Policies, June 3, 1999
12 USC 24(7), 215, 215a, 215a-1, 215a-2,
215a-3, 215c, 1828(c)
12 CFR 5.33
63

Business Valuation
Publications

“PPC’s Guide to Business Valuations,” Fishman,
Pratt, Griffith, Wilson; 13th Edition (Jan.2003)
“Valuing a Business,” Pratt, Reilly, Schweihs

Capital Requirements
Laws
Regulations

12 USC 92a, 36(c), 3907
12 CFR 5.20, 5.33

Capital Stock
Laws

12 USC 51c, 52, 53, 55

Capital Structure Change
Laws
Regulations

12 USC 57, 59
12 CFR 5.46, 5.47, 7.2020, 7.2023

Certificate Authorizing Transaction of Banking Business
Laws
12 USC 27, 1814
Community Reinvestment Act of 1977
Laws
12 USC 2901 to 2908
Regulation
12 CFR 25
Competitive Analysis
Law
Regulation

12 USC 1828(c)(4)
12 CFR 5.33(e)(1)(i)

Consolidation
Laws
Regulation

12 USC 215, 1828(c)
12 CFR 5.33

Depository Institution Management Interlocks Act
Law
12 USC 3201
Regulation
12 CFR 26
De Minimis Market Test
Issuance

Directors
Laws
Number of
Law
Oath of
Law
President as
Law
Purchases from and Sales to
Law

OCC Decision, April 8, 1983, Application to
merge The National Bank and Trust Company
of Norwich, Norwich, NY, with National Bank
of Oxford, Oxford, NY
12 USC 71 - 76
12 USC 71a
12 USC 73
12 USC 76
12 USC 375
64

Qualification of
Law
Regulation

12 USC 72
12 CFR 7.2005

Examination of National Banks
Law

12 USC 481

Filing Fees
Regulation

12 CFR 5.5

Fiduciary Powers
Law
Regulation
Issuance

12 USC 92a
12 CFR 5.26
Interpretive Letter 695, December 8, 1995

Interstate Combinations
Laws
Regulation
Intrastate Combinations
Laws
Regulation

12 USC 24(Seventh), 30, 36, 215, 215a, 215a1, 215c,1815(d)(3), 1823(c), 1828(c),
1831o(b)(1)(B), 1831u, 1835a, 1842(d)
12 CFR 5.33
12 USC 24 (Seventh), 215, 215a, 215c,
1828(c)
12 CFR 5.33

Investment in Bank Premises
Law
Regulations

12 USC 371d
12 CFR 5.37, 7.1000

Lending Limit Calculation
Law
Regulations

12 USC 84
12 CFR 3, 6, 32

Liquidation
Laws
Regulation

12 USC 181, 182
12 CFR 5.48

Merger
Laws
Regulation
Meetings and Hearings
Regulation

12 USC 215, 215a, 215c, 215a-1, 215a-3,
1828(c)
12 CFR 5.33
12 CFR 5.11

Operating Subsidiary Annual Report
Regulation
12 CFR 5.34(e)(6)
Issuance
OCC Bulletin 2004-55

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Place of Business
Laws

12 USC 22, 81

Proxy or Information Statement
Law
Regulations

15 USC 78
12 CFR 5.33, 11

Public Comments
Regulation
Issuance

12 CFR 5.10
Comptroller’s Licensing Manual, Public
Notice and Comments booklet

Publication of Application (Public Notice)
Law
12 USC 1828(c)
Regulations
12 CFR 5.33, 5.8
Publication of Significant Corporate Decisions
Issuance
PPM 1000-15, September 5, 2001
Purchase and Assumption
Laws
Regulation

12 USC 24(7), 1828(c)
12 CFR 5.33

Regulation W
Regulation

12 CFR 223

Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994
Laws
12 USC 36(d), (e), (f); 215a-1: 1823(c),
1828(d); 1831u; 1835a; 2906(b)(1)(B), (d), (e)
Regulation
12 CFR 5.33
Issuance
OCC Bulletin 2003-6
Savings Associations
Laws

12 USC 215c, 1828(c), 1815(d)(3)

Shareholders’ List
Law

12 USC 62

Shareholders’ Meeting
Laws

12 USC 214a(a), 215a(a)(2)

Systems Integration
Issuance

OCC AL 98-1

Transactions with Affiliates, Restrictions
Laws
12 USC 371c (Section 23A), 371c-1
(Section 23B)
Regulation
12 CFR 223 (Regulation W)
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