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Commercial Bank: Certificate of Merit

Listed below is the information required for the Superintendent of Financial Services to assess the merits of an application to establish a bank.

It is incumbent upon the applicant to provide complete and reliable information and to supplement the information requested with any additional data deemed relevant or material to the application. It may also be necessary to require additional information from the applicant during the application analysis process.

In accordance with Supervisory Procedure G-106 (Public Access to Department Records), the entire application and all supporting material are available for public inspection except for confidential material. If the applicant believes that the public availability or disclosure of certain information requested in the brochure would be clearly harmful, such information should be segregated from the public portion and labeled "Confidential." The applicant should also state the reasons for any request for confidentiality.

  1. Rationale for Establishment of the Proposed Bank

Discuss the events leading to the preliminary talks with the Department staff. Include the incorporators' motives and aspirations for desiring to organize a bank.

  1. Name of Proposed Bank

Give reasons for selection of name.

  1. Market Analysis
  1. Define the community or market from which the majority of the business of the proposed bank is expected to be derived.
  2. Describe the economic characteristics of the community or market specified above. Include information covering, but not limited to:
  1. Background and history of development of the community or market; and
  2. Present and possible future economic trends, and the likely effect they will have on the proposed bank.
  1. Explain the strategies to be followed to capture an adequate share of the target market.
  1. Public Convenience and Advantage
  1. Discuss the products and services to be offered, and the anticipated hours of operation.
  2. Describe the clientele to be served.
  3. Describe how the establishment of the bank will enhance public convenience and advantage in a demonstrable and significant way.
  1. Competitive Impact of Proposed Institution
  1. List the names and addresses of all banking facilities now serving the target market (include all offices of banks and trust companies, savings banks, savings and loan associations and credit unions). Give distances and directions of each office from the proposed bank. Plot locations on a large-scale map, on which the proposed market area is delineated.
  2. Explain why, in your opinion, establishment of the proposed bank will not adversely affect financial institutions now serving the target market.
  1. Bank Premises
  1. Describe in detail the proposed or altered building and plot plan. To illustrate further, furnish copy of plot plan, interior layout and artist's or architect's sketch of exterior. If parking is involved, give details: area, size, location and number of parking spaces available for bank customers.
  2. Furnish a copy of the conditional lease or option to lease or purchase the property. The option or conditional lease should contain a renewable clause. No lease for the proposed premises may contain a clause prohibiting the landlord from renting space to another banking institution.
  3. Give a summary of rental terms by years, together with renewal options, if property is to be leased. In the case of an option to purchase, give a summary of its terms.
  4. State whether any incorporator, director or major shareholder has any interest, direct or indirect, in the proposed site or in the construction of the premises, and describe fully the nature of such interest. Submit documentation demonstrating that any agreement involving such individual is at fair market value.
  5. List all development costs (i.e., improvements, alterations, furniture, fixtures, equipment, etc.) that will be incurred in preparing the site as a banking office.
  6. Establishment does not conflict with any of the provisions of the New York State Historic Preservation Act.
  1.  Capitalization

Give number of shares, par value, subscription price, and allocation of capital funds to capital stock and surplus.  Per Department policy, at least one-third of total capital must be allocated to capital stock.  Also, the par value of the capital stock must be at least $1.00.

(NOTE: Department policy does not permit authorized but unissued shares, options, or warrants for new banks.)

  1. Capital Adequacy

Give reasons for believing that: (a) total capital funds will be adequate to protect the depositors; (b) surplus will be ample to absorb all start-up costs and operating losses in the initial years; and (c) additional capital funds can and will be raised if needed.

  1. Distribution of Capital Stock

List all known subscribers to the capital stock of the bank, giving name, place of residence, and number of shares to be subscribed.

(IMPORTANT: If the proposed bank's stock is to be sold through a public or private offering, solicitation for stock subscriptions may not be made until (1) the Organization Certificate has been conditionally approved by the Superintendent, (2) the Offering Circular/Private Placement Memorandum, Subscription Agreement, and Escrow Agreement have been reviewed and found acceptable by the Department, and (3) the proposed bank's application for deposit insurance has been formally accepted by the Federal Deposit Insurance Corporation.)

  1.   Incorporators, Directors and Major Shareholders

1. Discuss the diversity and quality of experience which each prospective incorporator and director has in banking and/or business. If any incorporator or director has been involved in any business which will be undertaken, or taken over, by the proposed bank, annual reports of such businesses for the past three years should be included.

2. The members of the Board of Directors should be allocated to the respective committees to show that their experience is well fitted to the respective duties of the committees. Where possible, we would not expect to see a director, except the President, on more than one committee. However, no director who is an operating officer of the bank may be a member of the Examining Committee.Discuss any plans to pay fees to the directors.

3. Each incorporator, each director, and each major shareholder owning or controlling 10% or more of the proposed bank’s capital stock must submit: (a)a questionnaire (on Department form); (b)a litigation affidavit (on Department form); (c) a financial report (on Department form); (d) fingerprints (see Fingerprinting Procedures) ; and (e) an explanation of the source of funds for his/her intended stock purchase. NOTE: If an individual's ownership interest constitutes statutory control (10% or more of the proposed bank’s capital stock), C.P.A. prepared and reviewed financial statements, in accordance with Section 117.5(k) of Supervisory Procedure CB 117, will be required in lieu of the financial report mentioned in (c) above

4. In addition, a personal investigative report on each of the above-mentioned persons must be developed by a licensed private investigator and sent directly to the Department by the private investigator. It is incumbent upon those individuals or their representative to advise the licensed private investigator selected that they must be subject to the broadest possible background investigation. In this regard, the portion of the investigation involving the access of public records should include, but not be limited to, contact with the following sources: (a) U.S. District Court, (b) U.S. Bankruptcy Court, (c) State Supreme Court, (d) local Criminal Court, (e) local Civil Court, (f) County Clerk's office, (g) Federal tax lien files, (h) Uniform Commercial Code files, (i) Department of Motor Vehicles, (j) a credit reporting agency, (k) a national news database network, and, where applicable (l) regulatory/administrative agencies and (m) professional licensing agencies. These sources should be contacted in and around all jurisdictions in which the subject of the investigation has resided and been employed for at least the past ten years. A copy of a credit report from a major credit reporting agency should be included with the personal investigative report. It is also expected that the personal background information contained in each individual's questionnaire will be verified, and that references will be interviewed.

5. Each major shareholder who owns or controls at least 5% but less than 10% of the proposed bank’s capital stock is required to submit fingerprints (see Fingerprinting Procedures).

6. In addition to the above individuals, the Superintendent reserves the right to require fingerprints and/or any additional background information from any person involved in the proposal.

7. Counsel should submit a letter stating that the proposed directors are eligible locally to serve on the Board under the provisions of the Laws of New York and the United States, including Canon 4D(3) of the Code of Judicial Conduct, Appending to New York Judiciary Law, and 12 U.S. Code §§3201-3208, the Depository Institution Management Interlocks Act, as amended, and regulations thereunder.

  1. Chief Executive Officer and Official Staff

In addition to the questionnaire and litigation affidavit, a resume for the prospective CEO, giving his/her education, experience, community and social interests, other qualifications, availability and present salary, is required. Give the views of the incorporators on their choice for the CEO and outline any arrangements made to secure his/her services. Provide a copy of his/her proposed employment contract, if any.

Resumes, questionnaires, litigation affidavits and employment contracts, if any, for the remainder of the proposed management team should be submitted.

  1. Staff

Plans to recruit the remaining members of the staff should be set forth in detail, including the number, salary, fringe benefits, etc.

  1. Organization Chart

Show how the bank will be organized and operated. Also, provide an organization chart showing all direct and indirect reporting lines to all board committees including audit, compliance and BSA (Bank Secrecy Act).

  1. Fidelity Insurance

Type, amount and annual costs of insurance. The statement should be supported by a letter from a qualified insurance agent on bank protection. A Financial Institutions Bond, Type 24, would be acceptable. Minimum primary coverage of $1,000,000 is required (a deductible of $25,000 or $50,000 is advisable).

  1.   Internal Audit and Control

Give plans for safeguarding assets and operations, i.e., development of adequate internal controls, full time auditor, periodic C.P.A. audits, etc.

  1. Compliance with Bank Secrecy Act Anti-Money Laundering Programs

The prospective bank must establish policies and procedures designed to ensure and monitor compliance with the Bank Secrecy Act (BSA)  as amended by the USA PATRIOT Act and the anti-money laundering programs of Part 115 of the General Regulations of the Banking Board. A compliance program must include, at a minimum, a system of internal controls to assure ongoing compliance, independent testing for compliance to be conducted by bank personnel or by an outside party, the designation of an individual or individuals responsible for coordinating and monitoring day-to-day compliance, and training for appropriate personnel.

  1. Electronic Data Processing Service

If off-premises electronic data processing services are to be used, provide copies of any electronic data processing agreements that have been executed. The contract must include provision for examination of the facility by the Department. If the proposed bank intends to purchase or lease the equipment, include cost of purchase and/or maintenance and the qualifications of personnel who will be responsible for its operation.

  1. Counsel for the Proposed Bank

Give name and address. Will counsel receive a retainer?

  1. Organizational Fees and Expenses

List all anticipated fees and expenses which will be incurred in connection with the organization of the bank. State separately the expenses of raising capital.

The funds for such fees and expenses must be provided by the incorporators and may not be deducted from subscriptions for the authorized shares of capital stock. If an Authorization Certificate is issued, the incorporators may be reimbursed by the bank for organization fees and expenses determined to be reasonable and proper. Such reimbursement may only occur after submission to the Department of an audit of such expenses by an independent C.P.A., and the receipt of specific written permission from the Superintendent.
(IMPORTANT: In no event shall the amount or payment of any fee in connection with the proposal be contingent upon any action, decision, or forbearance on the part of the Department.)

  1. Estimated Assets and Liabilities, Income and Expenses

Furnish pro forma income and expense statements, balance sheets, and cash flow statements. The data should reflect the volume and type of business to be conducted during the first three years of operations.   

  1. Community Reinvestment Act and Fair Lending Requirements, Executive Law Section 296-a
  1. Federal Application(s)
Provide a copy of the application(s) and all follow-up material submitted to the appropriate federal regulatory authority(ies).

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