Savings Bank and Savings and Loan Association: Information and Procedure
Please refer to the Department's Application Fee Schedule to determine the proper fee for the application being filed.
The purpose of this outline is to give prospective incorporators an idea of the scope of subjects to be considered in evaluating the merits of a proposal to charter a new ("de novo") stock-form savings bank or a stock-form savings and loan association.
The organization of such an institution is a task which involves a variety of aspects--legal, economic and practical. Because of the many factors to be considered by the incorporators before the application process begins, the incorporators should arrange a meeting to discuss the proposal with appropriate Department of Financial Services staff well in advance of filing any formal documents. Among the areas which must be addressed by the organizing group are the following:
1. Name of Institution: A suitable name should be selected.
2. Incorporators/Directors Number, names, occupations, business interests, approximate financial worth, standing in the community, character and fitness to serve on the board of directors and its various committees. Incorporators should be aware that they:
a) will be subject to an investigation;
b) will be asked to submit a questionnaire, a financial report, a litigation affidavit, an investigative report, and fingerprints;
c) may be asked to attend a conference with Department representatives; and
d) will be required to assume legal and other responsibilities upon becoming directors.
a) Description of the community or trading territory to be served by the proposed institution, some idea of its size and characteristics, estimated residential population, traffic conditions, shopping districts; and
b) Reasons for the failure of existing facilities to serve the market.
4. Public Convenience and Advantage: The manner in which the establishment of the bank or association would enhance public convenience and advantage.
5. Competitive Impact: The likely impact of the proposed bank or association on the financial institutions located in the target market area.
6. Proposed Site:
a) Where the institution will be located to serve the public most conveniently and the reason for such choice;
b) Availability of a suitable site;
c) Advantages of purchasing or leasing the site;
d) Cost of developing the site as a banking office; cost of improvements, furniture, fixtures and equipment; the relation of these costs to the proposed capital funds; and
e) Whether any incorporator, director, or major shareholder has any interest in the proposed site.
7. Capital Funds:
a. Adequacy – To determine the amount of capital initially needed to support the operation of a new institution, it will be necessary to consider the above information as well as develop projections on the volume of business that may be expected. The ability of the incorporators to raise additional capital as needed should also be considered. The investment in fixed assets should represent only a small percentage of total capital funds. In general, Department experience indicates that the minimum capital needs of new institution in the New York Metropolitan Area can range up to $10 million. New thrift institutions in upstate New York may require less capital. The actual amount required will be determined after the Department reviews the business plan submitted. The required capital may be or higher than the amount indicated above or may be significantly lower. As a general guideline, $7 million should be considered the minimum capital required within the New York City metropolitan area; $6 million in other parts of the State.
b. Shares and Distribution – The number of shares, their par value and subscription price, the adequacy of surplus to absorb pre-opening costs and operating losses in the initial years, and the amount of stock to be purchased by the incorporators and directors and any known large investors.
8. Management Team:
The application should contain a discussion of the proposed management team and should include resumes of the individuals comprising the proposed team.
The candidate for the chief executive officer of the institution must submit a resume of his/her education and banking experience. Additionally, he/she should be available for an interview with the Department.
9. Insurance of Deposits:
The organizers should understand that the approval of an application, if forthcoming, will be conditioned upon receipt of assurances from the Federal Deposit Insurance Corporation that it will insure the deposits of the proposed institution.
10. Name of Representative:
The organizers must select an individual who will be responsible for submitting all material to the Department, and will have authority to discuss all aspects of the submission in detail (including, but not limited to, personal questionnaires, litigation affidavits, financial statements, and investigative reports) and respond to requests for additional information.
Before the formal application process begins, a meeting with the appropriate Department staff will be held to discuss the proposal.
If the organizers decide to proceed with the formation of the institution, it is recommended that the group’s representative gather and develop all economic and financial data outlined in the form a Certificate of Merit.
Forms to comply with certain of the legal steps in chartering are available upon request. For New York State Law information, some of the applicable sections of the Banking Law are Sections 23, 24, 25, 236, 1003, 4001, 4003, 4004, 4005, 7001 and 7015.
The steps involved in organizing a stock-form Savings Bank or a stock-form Savings and Loan Association are as follows:
A. Execution by the incorporators of an Organization Certificate, in duplicate. (Section 4001)
B. Submission to the Superintendent of the Organization Certificate, executed in duplicate (Section 4003), accompanied by the following documents:
a) Certificate of Merit (in quadruplicate) including personal data on each incorporator, director and major shareholder (owner of 5% or more of the proposed bank's capital stock);
b) Investigation fee of [please refer to the Department's Application Fee Schedule] by check made payable to the Superintendent (Section 14-e);
c) Certificate of Compliance with Section 296-a of the Executive Law of the State of New York;
d) Copy of lease or option on the proposed site.
C. Filing of Organization Certificate for examination by the Superintendent. (Section 23)
D. Investigation of incorporators/directors and major shareholders by the Superintendent; refusal of Organization Certificate, or presentation of Organization Certificate for approval (Section 23).
E. Conditional approval by the Superintendent.
F. Commencement of solicitation of subscriptions for shares of stock of the proposed bank, via an Offering Circular or Private Placement Memorandum.
G. Filing by the Superintendent of the Organization Certificate in the Office of the Superintendent when relevant conditions have been satisfied. (Section 24)
H. Beginning of corporate existence, although entity is not yet authorized to conduct a banking business. (Section 4004)
I. Meeting of the incorporators and adoption of by-laws (Section 4005); first meeting of the board of directors; submission of certified copies of the minutes of these meetings.
J. Designation of banking depositaries by the Superintendent (Section 106) upon receipt and processing of proper application. (Supervisory Procedure CB 109)
K. Filing of Affidavit of Payment of Capital Stock in the office of the Superintendent. (Section 4004)
L. Filing of Verified List of Stockholders in the office of the Superintendent.(Section 4004)
M. Filing of Oaths of Directors in the office of the Superintendent (Section 7015).
Upon receipt and clearance of the above and other required items, issuance of an Authorization Certificate by the Superintendent and the filing of duplicate originals thereof. (Section 25)
Department policy does not allow incentives for incorporators. Incorporators may not receive stock cost-free or at a reduced cost, and may not be granted options or warrants for purchase of stock as part of the organization process.
Department policy provides that extensions of credit, direct or indirect, to the same or related interests may not exceed ten percent of the institution’s total capital funds for a period of three years from the date on which it commences business. Other restrictions are generally imposed during the initial three-year period regarding changes in the composition of the board of directors or senior management, maintenance of minimum capital ratios and changes in beneficial control, etc.
Branch expansion by a newly chartered institution is generally not permitted during the first few years of its existence. A sufficient period of time is required for the Department to evaluate a de novo institution’s performance, determine whether it is operating in a safe and sound manner and develop a level of comfort with respect to the expertise of its management.
CERTIFICATE OF MERIT
Brochure of Economic and Financial Data
In Support of an Application to Establish a Stock-form Savings Bank or Savings and Loan Association
Listed below is the information required for the Superintendent to assess the merits of an application to establish a stock-form Institution.
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, 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.
I. Rationale for Establishment of the Proposed Institution
Discuss the events leading to the preliminary talks with the Department staff. Include the incorporators" motives and aspirations for organizing the proposed institution.
II. Name of Proposed Institution
Give reasons for selection of name.
III. Market Analysis
1. Define the community or market from which the majority of the business of the proposed institution is expected to be derived.
2. Describe the economic characteristics of the community or market specified above. Include information covering, but not limited to:
a) Background and history of development of the community or market; and
b) Present and possible future economic trends, and the likely effect they will have on the proposed institution.
3. Explain the strategies to be followed to capture an adequate share of the target market.
IV. Public Convenience and Advantage
- Discuss the products and services to be offered, and the anticipated hours of operation.
- Describe the clientele to be served.
- Describe how the establishment of the institution will enhance public convenience and advantage in a demonstrable and significant way.
V. Competitive Impact of Proposed Institution
- 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 institution. Plot locations on a large-scale map, on which the proposed market area is delineated.
- Explain why, in your opinion, establishment of the proposed institution will not adversely affect financial institutions now serving the target market.
- 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 customers.
- 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 depository institution.
- 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.
- 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.
- List all development costs (i.e., improvements, alterations, furniture, fixtures, equipment, etc.) that will be incurred in preparing the site as a banking office.
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 institutions.)
- 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.
- 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 institution’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 institution's application for deposit insurance has been formally accepted by the Federal Deposit Insurance Corporation.)
VIII. Incorporators, Directors and Major Shareholders
- Discuss the diversity and quality of experience which each prospective incorporator/director has in banking and/or business. If the incorporators/ directors have been involved in any business which will be undertaken, or taken over, by the proposed institution, annual reports of such businesses for the past three years should be included.
- 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 institution may be a member of the Examining Committee. Discuss any plans to pay fees to the directors.
- Each incorporator, director and major shareholder (owner of 5% or more of the proposed institution’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, 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 institution’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.
In addition, a personal investigative report on each of the above-mentioned persons must be developed by an independent investigative agency and sent directly to the Department by such agency. It is incumbent upon those individuals or their representative to advise the agency 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. It is also expected that the personal background information contained in each individual's questionnaire will be verified, and that references will be interviewed.
4. 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.
IX. 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, age, 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.
Plans to recruit the remaining members of the staff should be set forth in detail, including the number, salary, fringe benefits, etc.
XI. Organization Chart
Show how the institution 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).
XII. Fidelity Insurance
Type, amount and annual costs of insurance. The statement should be supported by a letter from a qualified insurance agent on federally insured depository institution 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).
XIII. 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.
XIV. Compliance with Bank Secrecy Act Anti-Money Laundering Programs
The prospective institution must establish policies and procedures designed 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. 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.
XV. 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 institution 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.
XVI. Counsel for the Proposed Institution
Give name and address. Will counsel receive a retainer?
XVII. Organizational Fees and Expenses
List all anticipated fees and expenses which will be incurred in connection with the organization of the institution. 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 institution 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.)
XVIII. 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.
XIX. Community Reinvestment Act and Fair Lending Requirements
Describe how the institution intends to comply with the requirements of the Community Reinvestment Act. Also a fair lending plan must be included. (Guidelines — General Industry Letter dated February 18, 2000.)
XX. Federal Application(s)
Provide a copy of the application(s) and all follow-up material submitted to the appropriate federal regulatory authority(ies).