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| ## Comptroller of the Currency                                        |
|                                                                       |
| > Administrator of National Banks                                     |
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Washington, DC 20219

June 25, 2003 **Corporate Decision 2003-9**

#####  July 2003

David W. Barton, Esq.

Bodman, Longley & Dahling, L.L.P.

P. O. Box 405

Cheboygan, Michigan 49721

> Re: First National Bank of Norway, Norway, Michigan ---
>
> Establishment of an Operating Subsidiary, Application Control No.
> 2003-CE-08-006
>
> Establishment of a Branch, Application Control No. 2003-CE-05-0072

Dear Mr. Barton:

This is in response to the applications by your client, First National
Bank of Norway, Norway, Michigan ("Bank"), to establish a messenger
service[^1] as both a wholly-owned operating subsidiary and a branch of
the Bank. In addition to traditional messenger service activities, the
subsidiary would provide similar services for other financial
institutions not affiliated with the Bank, as well as for non-financial
institutions having no deposit relationship with the Bank. As discussed
below, we conclude that all of the proposed activities are legally
permissible and the applications may be approved.

#### FACTS

The Bank is a community bank whose main office is located in Norway,
Dickinson County, in the Upper Peninsula of Michigan. It has one branch
in nearby Iron Mountain, Michigan, as well as five ATMs. The Bank
regularly transports cash, checks, and other financial items between its
offices, and its ATMs need to be resupplied with cash at least weekly.
The Bank has concluded that it is appropriate to have an armored car
service perform these duties.

However, there is currently no company providing armored car service in
the Bank's market area on a regular basis. The nearest commercial
service is located in Green Bay, Wisconsin, approximately 100 miles
away. Although this firm provides occasional service to the Bank's area,
because of the distance, it is prohibitively expensive for most
financial institutions and other businesses in the Bank's area to use
this service regularly. In addition, this company has indicated to the
Bank that it is not interested in providing regular service to the
Bank's area. Therefore, the Bank has concluded that it must provide
armored car service itself.

To do this, it proposes to establish an operating subsidiary entitled
U.P. Couriers ("UPC"). For its principal office, UPC will lease space in
the Bank's main office in Norway. It will have its own employees but
certain executive officers of the Bank will also serve as executive
officers of UPC. Current plans are to acquire one armored van and
provide armored car service in the Bank's home county of Dickinson as
well as the nearby counties of Menominee and Delta in Michigan's Upper
Peninsula. In the future, it might expand to other Upper Peninsula
counties, as well.

Although the principal purpose of UPC will be to serve the Bank and its
deposit customers, the Bank believes that in order to be financially
viable, it will be necessary for UPC to serve other customers, as well.
Other financial institutions in the area have transportation needs
similar to those of the Bank. In addition, various businesses,
especially retailers, have a need for the transport of cash and checks
to and from their depository institutions. You stated that the Bank has
received unsolicited expressions of interest from several large
retailers, smaller local merchants, and others, in using the Bank's
proposed armored car service. Some of these businesses are deposit
customers of the Bank, while others are customers of other institutions.

Accordingly, it is proposed that UPC's activities will fall into four
categories:

1.  Transportation of cash, checks, and other financial items between
    the Bank's main office, branch, and ATMs.

2.  Pick up and delivery of cash, checks, and other financial items for
    retailers and other business customers of the Bank in connection
    with deposits, withdrawals, and other financial transactions between
    the Bank and such customers.

3.  Pick up and delivery of cash, checks, and other financial items for
    other financial institutions not affiliated with the Bank.

4.  Pick up and delivery of cash, checks, and other financial items for
    non-financial institution businesses having no deposit relationship
    with the Bank.

The Bank expects that the first two categories, consisting of services
for the Bank and its deposit customers, will make up about 50 percent of
UPC's business. The other two categories will account for approximately
25 percent each. The Bank represents that, in all cases, UPC will charge
a reasonable fee for its services. It will assume responsibility for
items during transit and will maintain adequate insurance covering
thefts, employee infidelity, and other losses. At all times, UPC will
act pursuant to a written agreement with customers establishing the
parties' respective rights and responsibilities in connection with the
transit of the items.

#### 

#### LEGAL ANALYSIS

A national bank may conduct in an operating subsidiary activities that
are permissible for a national bank to engage in directly either as part
of, or incidental to, the business of banking, as determined by the OCC,
or otherwise under other statutory authority. 12 C.F.R. § 5.34(e)(1). As
discussed below, UPC's proposed activities are part of, or incidental
to, the business of banking within the meaning of 12 U.S.C.
§ 24(Seventh), and therefore they are legally permissible to conduct in
an operating subsidiary. In addition, the establishment of a messenger
service branch is legally permissible.

1.  [Transportation of cash, checks, and other financial items between
    facilities of the Bank]{.underline}.

The first category of activities consists of services for the Bank's
internal needs. This includes transporting cash, checks, and other
financial items between the Bank's main office and its branch, as well
as restocking its ATMs with cash and retrieving any deposited items from
them.

It has long been recognized that a national bank may establish and
operate a messenger service (which includes an armored car service) to
transport items that are relevant to the bank's transactions with its
customers. 12 C.F.R. § 7.1012(b). The items that will be carried here
will be "relevant to the bank's transactions with its customers" because
they will either facilitate the processing of past customer transactions
or facilitate future transactions. It is also well-established that an
operating subsidiary may provide services to or for its parent bank.[^2]
The first activity category fits within this authority, since it
consists of services that facilitate the internal operations of the
Bank. Accordingly, the first category of activities is legally
permissible.

2.  [Pick up and delivery of cash, checks, and other financial items for
    retailers and other deposit customers of the Bank]{.underline}.

This category of activities includes the pickup of deposits at a Bank
customer's location for delivery to the Bank, as well as the delivery of
withdrawals from the Bank to a Bank customer's location. The receipt of
deposits and payment of withdrawals are core banking activities that, if
not performed at the main office of a national bank, must be carried on
at a branch. 12 U.S.C. § 36. A national bank may establish a messenger
service to transport items relevant to branching transactions with its
customers, provided the bank obtains approval to establish a branch to
provide such service. 12 C.F.R. § 7.1012(d). Even though these services
will be provided by an operating subsidiary, the messenger service will
still be considered a branch of the Bank when serving these customers.
*See* 12 C.F.R. § 5.34(e)(3). Therefore, for this category of activities
to be permissible, the OCC must be able to approve the establishment of
a branch by the Bank. The Bank has filed an appropriate application with
the OCC, pursuant to 12 C.F.R. § 5.30.

Under the McFadden Act, a national bank may establish and operate a *de
novo* branch at any point within the state in which the national bank is
situated, if a state-chartered bank would be expressly authorized by
state statutory law to establish and operate a branch at the same
location. 12 U.S.C. § 36(c).[^3] Michigan law imposes no geographic
limitations on intrastate branching and specifically authorizes mobile
branches for state banks. Mich. Stat. Ann. § 23.710(13711) (Lexis Cum.
Supp. 2000). Michigan law also provides that the receipt of deposits by
a messenger service or the delivery by a messenger service of items
representing deposit account withdrawals or loan proceeds is not the
establishment of a branch, whether or not it is owned or operated by the
bank. Mich. Stat. Ann. § 23.602(112) (Lexis 1999). Since a state bank
could lawfully conduct a messenger service offering the pickup and
delivery of deposits and withdrawals for customers in the same area in
which UPC will operate, the Bank may legally establish the proposed
branch.[^4]

3.  [Pick up and delivery of cash, checks, and other financial items for
    other financial institutions not affiliated with the
    Bank]{.underline}.

This category will involve essentially the same types of activities that
will be performed for the Bank under the first category above, except
that the customers will be other financial institutions. In other words,
this group of activities will constitute correspondent services.

There is a long tradition in banking for banks to provide services for
other depository institutions under the rubric of "correspondent
services." The Supreme Court has recognized the existence of this
tradition, although noting that a fixed, clear definition of
"correspondent services" has not developed in either law or banking
custom. However, in general, the Court determined that correspondent
services are services provided by one financial institution to another
that reflect and incorporate the unique nature of the banking business.
*United States v. Citizens & Southern National Bank*, 422 U.S. 86,
114-15 (1975).

It cannot be doubted that activities such as the transportation of cash,
checks, and other financial documents between offices of a financial
institution, delivery of cash to supply a financial institution's ATMs,
the retrieval of deposited items from such ATMs, and other similar
functions that would be performed by UPC for other financial
institutions satisfy that definition. In fact, providing courier
services between financial institutions is so well-recognized as a
correspondent service that it qualifies for after-the-fact notice under
the OCC's operating subsidiary regulation. 12 C.F.R. § 5.34(e)(5)(v)(E).
Moreover, OCC regulations expressly recognize that it is part of the
business of banking for a national bank to offer as a correspondent
service for another financial institution any service that the bank can
perform for itself. 12 C.F.R. § 7.5007. As noted above, the Bank will be
performing these same services for itself, through UPC. Therefore, this
category of activities is legally permissible.

4.  [Pick up and delivery of cash, checks, and other financial items for
    non-financial institution businesses having no deposit relationship
    with the Bank]{.underline}.

The last category of activities would entail providing the same types of
services that we have been discussing to non-financial businesses, such
as retailers, local merchants, or other entities that are not currently
deposit customers of the Bank. This could include such things as
transportation of cash, checks, and other financial items between
facilities of the business, such as from one store to another, as well
as between the business and its depository institution. Some large
retailers have their own ATMs in their stores, so this category also
could include the transportation of cash from the merchant's depository
institution to a store location for restocking of a merchant-owned ATM.
The Bank does not propose to transport any non-financially-related
material, or to engage in a general delivery business. In each case,
UPC's customer would be the relevant commercial business. The OCC has
not previously approved providing such services for businesses that are
not depositors of the bank.

Under the National Bank Act, national banks have the power to exercise
"all such incidental powers as shall be necessary to carry on the
business of banking; by discounting and negotiating promissory notes,
drafts, bills of exchange, and other evidences of debt; by receiving
deposits; by buying and selling exchange, coin, and bullion; \[and\] by
loaning money on personal security . . . ." 12 U.S.C. § 24(Seventh). The
Supreme Court has held that this authority is a broad grant of power to
engage in the business of banking including, but not limited to, the
enumerated powers and the business of banking as a whole. *NationsBank
v. Variable Annuity Life Insurance Co.*, 513 U.S. 251 (1995).

Judicial cases affirming OCC interpretations of this authority over the
years have established that an activity is within the scope of the
"business of banking" if the activity: 1) is functionally equivalent to
or a logical outgrowth of a traditional banking activity;[^5] 2) would
respond to customer needs or otherwise benefit the bank or its
customers; and 3) involves risks similar to those already assumed by
banks. *See, e.g., Merchant Bank v. State Bank*, 77 U.S. 604 (1871);
*American Insurance Association v. Clarke*, 865 F.2d 278, 282 (2d Cir.
1988); *M&M Leasing Corporation v. Seattle First National Bank*, 563
F.2d 1377, 1382 (9th Cir. 1977), *cert. denied*, 436 U.S. 956 (1978). In
our opinion, providing the services described above to customers who are
not depositors of the Bank satisfies these tests.

First, this category of activities is functionally equivalent to or a
logical outgrowth of a traditional banking activity because it consists
of the same activities as those in the first three categories, which
have long been permissible for national banks. Instead of picking up
cash and checks from Bank depositors and bringing them to the Bank, the
messenger service will pick up cash and checks from nondepositors and
take them to another financial institution. Instead of transporting cash
and checks from the main office of a financial institution to a branch
of the financial institution, it will transport such items between two
retail stores. Instead of transporting cash to restock the Bank's ATMs,
it will transport cash to restock ATMs owned by merchants. In short, the
activities are the same, only the customers will be different. Since
this category of activities is functionally equivalent, indeed,
identical, to the first three categories, and those categories are part
of the business of banking, the first component of the test is
satisfied.

The Bank represents that it has received many unsolicited expressions of
interest from local businesses that would like to take advantage of the
proposed armored car service. As previously noted, there is a lack of
viable commercial alternatives in the area. Moreover, the Bank believes
that it must be able to serve these types of customers in order for the
messenger service to be financially viable. Thus, both the Bank and the
customers will benefit if this category of services can be offered, and
so the second component of the test is satisfied.

Finally, serving non-depositor customers will involve risks similar to
those already being assumed by the Bank in connection with the other
categories of activities. The same safety, loss-in-transit, employee
fidelity, insurance, and other risk management issues are present in all
four categories, and they do not change from one group of customers to
another. The Bank has provided evidence that it will manage those risks
through insurance and other appropriate measures. Accordingly, the third
component of the test is satisfied, and providing financially-related
armored car service to businesses that are not depositors of the Bank is
part of the business of banking within the meaning of 12 U.S.C.
§ 24(Seventh).

Even if it is not deemed to be part of the business of banking, this
category of activities is incidental to the business of banking.
National banks are authorized to engage in an activity if it is
incidental to one of the activities enumerated in section 24(7) or if it
is incidental to the performance of an activity that is part of the
business of banking. *NationsBank v. Variable Annuity Life Insurance
Co.*, 513 U.S. at 253. Incidental activities are activities that are
permissible for national banks, not because they are part of the powers
expressly authorized for banks or part of the "business of banking," but
because they are "convenient" or "useful" to those activities. *Arnold
Tours, Inc. v. Camp*, 472 F.2d 427, 431-32 (1972). To state it another
way, the incidental powers of national banks are not limited to
activities deemed essential to the exercise of enumerated powers but are
activities closely related to banking and useful in carrying out the
business of banking. *Bank of America v. City of San Francisco*, 309
F.3d 551, 562 (9th Cir. 2002).

Judicial decisions have identified several categories of activities that
may be considered incidental to banking. The one that is of most
interest here is activities that optimize the use and value of a bank's
facilities and competencies, or enable the bank to avoid economic waste
in its banking franchise. This includes what has come to be called the
"excess capacity doctrine," which permits national banks to engage in
nonbanking activities or serve nonbanking customers when necessary to
obtain full utilization of equipment, facilities, or competencies that
have been legitimately acquired for banking purposes. Although this
concept originally developed in the context of leasing out excess space
in bank premises, it has since been applied in many other areas. *See,
e.g.*, 12 C.F.R. § 7.5004 (electronic excess capacity); Interpretive
Letter No. 888, *reprinted in* \[2000-2001 Transfer Binder\] Fed.
Banking L. Rep. (CCH) ¶ 81-407 (March 14, 2000) (excess capacity in
electronic imaging system); Interpretive Letter No. 811, *reprinted in*
\[1997-1998 Transfer Binder\] Fed. Banking L. Rep. (CCH) ¶ 81-259
(December 12, 1997) (printing equipment); Interpretive Letter No. 677,
*reprinted in* \[1994-1995 Transfer Binder\] Fed. Banking L. Rep. (CCH)
¶ 83,625 (June 28, 1995) (software production and distribution). The
excess capacity doctrine has even been applied to a messenger service
serving other banks. No-Objection Letter No. 89-4, *reprinted in*
\[1989-1990 Transfer Binder\] Fed. Banking L. Rep. (CCH) ¶ 83,061 (July
11, 1989).

As we have seen, the Bank is acquiring equipment, *i.e.*, the armored
van, for legitimate banking activities. Such activities will make up the
great majority of UPC's business, as the Bank expects that only about 25
percent of such business will be derived from serving non-depositors.
The Bank also represents that it must be able to serve non-depositors in
order for the armored car service to be financially viable. The Bank
will make a significant investment in the armored van and the necessary
employees, as well as in UPC's capitalization. If the Bank is not
permitted to optimize the use of these facilities by serving
non-depositor customers, these assets will be underutilized, resulting
in significant economic waste. Moreover, the Bank will acquire only one
van, the irreducible minimum needed to provide any messenger service at
all. To the extent that excess capacity will be acquired, it is
unavoidable. Under these circumstances, providing armored car service to
non-depositors of the Bank to utilize available excess capacity is an
activity that is incidental to banking under 12 U.S.C. § 24(Seventh).

#### CONCLUSION

For the reasons discussed above, all of the proposed activities of UPC
are legally permissible. In addition, it is legally permissible for the
Bank to establish UPC as a branch. Accordingly, based upon a thorough
review of all information available, including the representations and
commitments made in the applications and by the Bank\'s representatives,
the OCC has approved your applications. This letter also serves as
authorization for the Bank to establish a messenger service branch
(branch No. 124885A) at 501 West U. S. 2 (P. O. Box 218), Norway,
Michigan 49870 to serve the area described herein.

If the messenger service branch is not opened within 18 months from this
approval date, the approval automatically terminates unless the OCC
grants an extension. Within 10 days after opening, the Bank should
notify Senior Licensing Analyst Carolina Ledesma in our Central District
Office of the branch\'s opening date, so that we may complete our
records. Please reference the application control number in your letter.
If, at some time in the future, the Bank intends to close the branch
(*i.e.*, cease operating the messenger service), it must submit a 90-day
advance notice of proposed branch closing to the OCC pursuant to 12
U.S.C. § 1831r-1. Following the closing of the branch, a final closing
notice should be submitted to this Office.

This approval, and the activities and communications by OCC employees in
connection with this filing, do not constitute a contract, express or
implied, or any other obligation binding upon the OCC, the U. S., any
agency or entity of the U. S., or any officer or employee of the U. S.,
and do not affect the ability of the OCC to exercise its supervisory,
regulatory, and examination authorities under applicable law and
regulations. The foregoing may not be waived or modified by any employee
or agent of the OCC or the U. S.

If you have any questions, please contact Carolina Ledesma at (312)
360-8850. A separate letter is enclosed requesting your feedback on how
we handled your application. We would appreciate your response so we may
improve our service.

Sincerely,

/s/ Julie L. Williams

Julie L. Williams

First Senior Deputy Comptroller and Chief Counsel

[^1]: OCC regulations define a "messenger service" as "any service, such
    as a courier service or armored car service, used by a national bank
    and its customers to pick up from, and deliver to, specific
    customers at locations such as their homes or offices, items
    relating to transactions between the bank and those customers." 12
    C.F.R. § 7.1012(a). The Bank plans to use an armored car to provide
    the messenger services described herein. Accordingly, this letter
    will use the terms "messenger service" and "armored car service"
    interchangeably.

[^2]: This qualifies for after-the-fact notice if other requirements are
    satisfied. 12 C.F.R. § 5.34(e)(5)(v)(B).

[^3]: This statute also provides that a national bank establishing a
    branch outside of its main office location must have the amount of
    capital and surplus that state-chartered banks would be required to
    have under state law in order to establish such a branch. The Bank
    has represented in its branch application that it satisfies this
    requirement.

[^4]: UPC will be a branch of the Bank when performing these services
    despite the fact that a messenger service is not a branch under
    state law, for the definition of "branch" in the McFadden Act is a
    federal one. *First Nat'l Bank in Plant City v. Dickinson*, 396 U.S.
    122, 133 (1969).

[^5]: In *Independent Ins. Agents of America, Inc. v. Hawke*, 211 F.3d
    638 (D.C. Cir. 2000), the court expressed the view that the "logical
    outgrowth" rationale needed to be kept within reasonable bounds but
    endorsed the "functional equivalent" component of the test.