Alert March 04, 2008

OCC Issues Interpretive Letter Stating National Bank Shareholders are Authorized to Retain Non-Controlling Interest in Holding Company of National Bank

The OCC issued an interpretive letter (“Letter  #1092”) in which it concluded that national banks that are existing shareholders (the “NB Shareholders”) of a holding company (“HC”) that owns a bank (the “Bank”) organized under a limited purpose Georgia commercial bank charter may retain their non-controlling interests in the Bank after it converts (the “Conversion”) from its Georgia charter to a national bank charter because the non-controlling investment in the national bank meets the standards for non-controlling investments by national banks set forth in 12 C.F.R. § 5.36.  None of the NB Shareholders owns 5% or more of the HC stock.  The Bank has limited its activities under its Articles of Incorporation to providing banking services to depository financial institutions.  The Bank also makes certain direct commercial loans (through a subsidiary) to nonbank borrowers, and the making of such direct loans is permissible under the Bank’s Georgia charter.  After the Conversion, under its national bank charter, the Bank intends to engage in the same activities that it engaged in under its Georgia charter, including making some direct commercial loans to certain large borrowers whose needs cannot be met by community banks.  The Bank will not accept deposits.  Letter #1092 states that, after the Conversion, these direct commercial loans will not constitute a significant percentage of the Bank’s loan portfolio.  The OCC concludes in Letter #1092 that the NB Shareholders, in accordance with 12 C.F.R. § 5.36, may retain their non-controlling investments in the HC after the Conversion of the Bank from its limited purpose Georgia charter to a national bank charter.