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Mitchell Savings Bank


RE: Mitchell Savings Bank Greenfield, Wisconsin

Application Pursuant to Section 24(d) of the Federal Deposit Insurance Act to Indirectly Continue to Engage in an Activity Which 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 Mitchell Savings Bank, Greenfield, Wisconsin ("Bank"). The Bank requests the FDIC's consent for its wholly-owned subsidiary, Mitchell Financial, Inc. ("Subsidiary"), which owns a 50% interest in Yukon/Capitol Company ("Yukon"), to invest in real estate investment activities until it is able to divest itself of these activities.

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. State statutes and proposed administrative rules permit the real estate activity and investment.

The Bank and its Subsidiary have engaged in this activity since 1987; the activity is currently limited to the one parcel which is listed for sale.

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. Bank's interest in the investments and loans is 15.5% of its Tier 1 capital, and it would continue to be "well capitalized" in the event its entire investment were deducted. 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 Bank's investment and leans are now and are 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 authorized the activity; that if the Bank were forced to divest under current market conditions, the Bank would likely suffer a loss; and that the Bank is in compliance with applicable capital standards; the FDIC concludes that the retention of the investment and loans do not pose a significant risk to the Savings Association Insurance Fund, and therefore may be and hereby is approved subject to the following restrictions. These restrictions are imposed due to the volatility and other risks which are inherent in the subject real estate activity.

The Bank's real estate investments and loans shall be limited to this specific project; the Bank shall continue to meet all applicable capital standards, for the purpose of this calculation, the Bank will not be required to include any increase in its equity interest in the Subsidiary due to profits from the partnership; the Bank shall divest itself of all interest in the investment within five years, and if the Bank has not divested itself of all of its interest within three years, then the Bank shall submit to the FDIC a written divestiture plan describing the means by which the Bank shall comply; contracts for services with the Bank and the Subsidiary shall be made in accord with terms and conditions comparable to those available from an independent entity; the Bank calculate quarterly capital ratios deducting its investment, including equity and debt, in connection with the subject real estate investment activity; if any of the capital ratios decline to such a level such that the Bank would be considered less than well capitalized, then the Bank must notify the FDIC and submit a capital plan describing the means by which it will achieve a well capitalized position; and the FDIC shall have the right to alter, suspend or withdraw its approval if circumstances change significantly. In addition, transactions between the Bank and its Subsidiary shall be made in accordance with the restrictions of sections 23A and 23B of the Federal Reserve Act, 12 U.S.C. § 371c and 371c-1, to the same extent as though the Subsidiary were an affiliate as defined under sections 23A and 23B, with the exception that the 10% limit for covered transactions will not apply.

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