## Facts

- The McFadden Act (1927) limited national-bank branching to the extent permitted for state banks under state law, but 12 U.S.C. § 36(a) allowed certain long-existing branches to continue under a “grandfather” clause.
- Keene National Bank of Keene, New Hampshire (“Keene Bank”) was chartered in 1865 and continuously conducted banking business in Keene.
- On January 16, 1872, Keene Bank’s board authorized Josiah G. Bellows in Walpole, New Hampshire, to hold $500 and provide banking services for Keene Bank, including cashing checks, making loans, discounting notes, and accepting payments on loans.
- Keene Bank maintained an agent in Walpole from 1872 until May 1975, with evidence suggesting (at most) a short break around 1927.
- From 1898 to May 1975, Keene Bank’s Walpole activities were conducted inside the Savings Bank of Walpole’s office, using an employee paid partly by each institution.
- In 1974, changes in banking law allowed the Savings Bank of Walpole to offer checking services, increasing competition with Keene Bank.
- In May 1975, the Savings Bank of Walpole required Keene Bank to leave its premises, forcing Keene Bank to find another Walpole location to continue serving its Walpole customers.
- Keene Bank notified James E. Smith, the Comptroller of the Currency, about the eviction; the Comptroller temporarily allowed Keene Bank to relocate its Walpole operation while the agency reviewed whether the Walpole operation was a lawful branch and whether it could continue under § 36(a).
- After administrative review, the Comptroller concluded that Keene Bank’s Walpole operation was a “branch” under federal law, qualified for § 36(a) grandfather treatment (including the “only one qualifying branch” limitation), and could be relocated within Walpole.
- Plaintiffs Cheshire National Bank of Keene and Connecticut River National Bank of Charlestown (competing national banks) sued the Comptroller in federal court, seeking to invalidate the Comptroller’s approval of Keene Bank’s Walpole relocation and alleging the Comptroller improperly allowed an expansion of services.

## Issues

1. Whether Keene Bank’s long-running Walpole operation constituted a “branch” under the National Bank Act’s branch-banking definition.
2. Whether the Walpole branch satisfied the § 36(a) grandfather clause, including (a) continuous operation for more than 25 years immediately preceding February 25, 1927, and (b) the requirement that the bank invoking § 36(a) have only one branch qualifying under that clause.
3. Whether the Comptroller’s approval of the Walpole relocation (and any related service changes) was unlawful because it lacked a rational basis, was arbitrary or capricious, or suffered from material procedural error on administrative review.

## Decision

- The court entered judgment for the Comptroller and refused to set aside the agency decision.
- The court upheld the Comptroller’s determination that Keene Bank’s Walpole operation performed core banking functions sufficient to be treated as a “branch” under federal law.
- The court concluded the Comptroller had a rational basis to find that the Walpole operation was “continuously” maintained for the period required by § 36(a), despite plaintiffs’ reliance on evidence suggesting a brief interruption around 1927.
- The court accepted the Comptroller’s conclusion that the Walpole office was Keene Bank’s only branch qualifying under § 36(a).
- The court treated the move within Walpole as a relocation of an existing, grandfathered branch rather than establishment of a new branch prohibited by § 36.
- The court rejected plaintiffs’ effort to overturn the Comptroller’s decision based on an alleged expansion of services, finding no basis to disturb the agency action under the governing standard of review.

## Legal Principles

- Under federal banking law, a facility is a “branch” if it is a place—other than the main office—where the bank conducts branch-type banking functions such as paying checks, lending money, or receiving deposits; labels like “agency” do not control.
- The § 36(a) grandfather clause permits a national bank to maintain a nonconforming branch if the branch was continuously operated for more than 25 years immediately preceding February 25, 1927, and if the bank has only one branch that qualifies under that clause.
- On review of Comptroller branch determinations, courts decide legal questions independently but sustain the Comptroller’s fact findings if supported by a rational basis in the administrative record; absent material procedural error, agency action is set aside only if arbitrary or capricious.
- A relocation within the same community of an already-lawful (including grandfathered) branch may be approved by the Comptroller and does not automatically constitute creation of a new branch requiring separate authorization under state branching limits.

## Conclusion

The district court upheld the Comptroller’s approval allowing Keene National Bank to move its long-standing Walpole operation to a new site in Walpole, holding that the operation qualified as a “branch” and met § 36(a)’s grandfather requirements, and that the Comptroller’s approval was supported by a rational basis on the administrative record and was not arbitrary, capricious, or procedurally defective.


Cheshire National Bank v. Smith, 427 F. Supp. 277 (1977)