Wild Card Approvals

Procedures For Repurchase Of Stock By Commercial Banks And Trust Companies

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Background:

On February 7, 2008, pursuant to Banking Law section 12-a (wild card statute),the Banking Board adopted a resolution authorizing New York state commercial banks and trust companies (‘banks”) to repurchase their own stock subject to the same terms and conditions then in effect for national banks.

Letter Application:  

A bank must submit a letter application to the Superintendent detailing its proposal for the bank’s repurchase of stock. The application must contain a legitimate corporate purpose for the proposed stock repurchase.

Conditions: 

New York state banks must comply with the conditions applicable to national banks. 

The Office of the Comptroller of the Currency (“OCC”) permits national banks to reduce their capital by repurchasing and retiring their outstanding shares (See 12 U.S.C. 59).

National banks also may repurchase their outstanding shares and hold them as treasury stock, if the acquisition and retention of the shares is, and continues to be, for a legitimate corporate purpose. (See 12 C.F.R. 7.2020).  Examples of a legitimate corporate purpose in 12 C.F.R. 7.2020 include:

  • Having shares available for use in connection with employee stock option, bonus, purchase or similar plans.

  • Having shares available to sell to a director for the purpose of acquiring qualifying shares.

  • Purchasing a director’s qualifying shares upon the cessation of the director’s service in that capacity if there is no ready market for the shares.

  • Reducing the number of shareholders in order to qualify as a subchapter S corporation.

  • Reducing costs associated with shareholder communications and meetings.

It is not a legitimate corporate purpose to acquire or hold treasury stock on speculation about changes in its value.

In all cases in which a national bank repurchases its shares, the following conditions apply:

  • Prior approval of the OCC must be obtained.

  • Approval of two-thirds of the bank’s shareholders must be obtained.

  • The bank must remain well capitalized following the repurchase.

  • The acquisition must be for a legitimate corporate purpose.

  • The bank must provide full and adequate disclosure to shareholders under the federal securities laws, and must consider the interests of remaining shareholders under applicable fiduciary principles.

  • The Bank’s directors must carry out their fiduciary duties – including ensuring (1) that legitimate business reasons exist for the transaction; (2) that any conflict of interest has been minimized appropriately; and (3) that the actions taken are in the best interest of the bank.

  • A bank whose securities are not actively traded must disclose in its application the method used to establish a price or valuation of the treasury stock.

  • If a bank’s board determines that the treasury stock should be repurchased for a consideration that exceeds fair value, it must provide an opinion as to why the proposed consideration is fair to the bank and minority shareholders.

(See Comptroller’s Licensing Manual, “Capital and Dividends”, pp. 10-11).

Superintendent’s Approval:

In acting on an application for a bank to repurchase its shares, the Superintendent will consider the above conditions, among others, such as the adequacy of the information provided by the bank, and the overall safety and soundness of the proposal.  The Superintendent may place conditions he or she deems appropriate on any stock repurchase.

Please note that, to effect an amendment to a bank’s organization certificate, separate approval of the Superintendent must be obtained pursuant to Supervisory Procedure CB 102.