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Mark Twain Kansas City Bank


RE: Mark Twain Kansas City Bank Kansas City, Missouri

Application Pursuant to Section 24(d) of the Federal Deposit Insurance Act to Indirectly Continue Activity That May Not Be Permissible for a National Bank


Pursuant to the provisions of section 24 of the Federal Deposit Insurance Act, an application has been filed with the Federal Deposit Insurance Corporation by Mark Twain Kansas City Bank, Kansas City, Missouri ("the Bank"). The Bank requests the FDIC's consent to continue to hold, sell and develop, through its wholly-owned subsidiary Mark Twain Real Estate Development Corporation I, ("MTREDCI"), a residential subdivision ("Normandy Place") located in Leawood, Kansas which was acquired by the Bank for debts previously contracted.

In general, real estate investment may not be a permissible activity for a national bank or a subsidiary of a national bank. Subsidiaries of state chartered, FDIC-insured banks may not engage as principal in an activity prohibited to subsidiaries of nationally chartered banks unless they obtain consent from the FDIC. Consent may not be granted unless the bank is in compliance with applicable capital standards and the FDIC determines that the activity poses no significant risk to the deposit insurance fund. The Missouri Division of Finance does not object to the Bank's continued engagement in the activity and the investment is authorized by state law.

The Bank, through its wholly-owned subsidiary, MTREDCI, has been engaged in this activity since 1989, when the Bank acquired the property in satisfaction of debts previously contracted. The Bank has subsequently extended credit to MTREDCI for completion of the project. MTREDCI's sole activity has been to develop and sell Normandy Place.

In 1991, the Bank engaged the services of an outside developer to build out and market Normandy Place through MTREDCI. Through these means, the Bank, in conjunction with MTREDCI, has been successful in reducing the number of residential lots/units originally acquired.

The Bank, which meets the definition of "well capitalized" within the meaning of Part 325 of the FDIC's Rules and Regulations, is in compliance with applicable capital standards. Including the construction credits, the Bank's interest in MTREDCI could rise to 5.9% of Tier 1 capital, but the Bank would continue to be "well capitalized" in the event its entire interest in the venture were deducted. The percentage of the investment to Tier 1 capital is likely to be well below 5.9% at any given time, in view of the fact that the loan balance constantly fluctuates due to construction advances and home sales.

For purposes of this application, the FDIC has considered the funds lent by the Bank to MTREDCI in determining the Bank's total exposure to this activity which must be considered when assessing whether there is a significant risk to the deposit insurance fund. In connection with this application, the FDIC has also taken into consideration the favorable financial and managerial resources and future earnings prospects of the Bank.

Having found that the activity in question involves the retention of an investment that did not require FDIC review or consent at inception, but does now because of statutory revision; that the real estate investment is now and is expected in the future to represent a nominal portion of the Bank's capital; that the Bank's financial condition and management are adequate; that the State authority does not object to the activity; and that the Bank is in compliance with applicable capital standards -- the FDIC concludes that the continued development of the Normandy Place project through MTREDCI does not pose a significant risk to the Bank Insurance Fund, and therefore may be and hereby is approved subject to the following restrictions.

The Bank's real estate development activities related to MTREDCI shall be limited to the planned completion of the Normandy Place project; the Bank shall continue to meet all applicable capital standards; the Bank shall divest itself of its interests in MTREDCI within five years of the date of the approval letter. If such divestiture has not been accomplished within three years from the date of the approval letter, the Bank shall submit a plan describing the means by which the Bank will accomplish the divestiture within the prescribed five year period. The Bank shall not allow involvement in the project which will benefit insiders, unless the prior written approval of the FDIC is obtained; transactions between the Bank and the subsidiary will be subject to the same restrictions under Sections 23A and 23B of the Federal Reserve Act that would otherwise apply if the subsidiary was considered an affiliate of the Bank (the collateral margin requirements will not apply unless the total of the Bank's construction loan advances to MTREDCI exceeds in any period of time $2,544,800); and the FDIC shall have the right to alter, suspend or withdraw its approval if circumstances change significantly

Finally, the FDIC notes that the foregoing approval is unique to this application, that it was significantly influenced by the subsidiary's acquisition of the real estate investment prior to the effective date of Section 24(d), and that its view of de novo. acquisition of such interest might well be different.