Jay L. Kim, Esq.
Dear Mr. Kim:
This is in response to the request by Marquette Financial Companies, Minneapolis, Minnesota ("Marquette"), and Community Bank of Arizona, National Association, Wickenburg, Arizona ("Community Bank"), for an exemption from section 23A of the Federal Reserve Act (12 U.S.C. § 371c) in order that Marquette may contribute all the shares of its nonbank subsidiaries, Builders Mortgage Company LLC, Anoka ("Builders Mortgage"), and Itasca Business Credit, Inc., also in Minneapolis ("Itasca"), both in Minnesota, to Community Bank, which would be a subsidiary bank of Marquette when the shares are contributed.1 Builders Mortgage engages in residential construction lending and Itasca engages in asset-based lending. Community Bank's request is part of a restructuring of the chain banking organization of Carl R. Pohlad and members of his immediate family (the "Pohlads").
Section 23A limits the amount of "covered transactions" between a bank and any single affiliate to 10 percent of the bank’s capital stock and surplus, and limits the aggregate amount of covered transactions between a bank and all its affiliates to 20 percent of the bank’s capital stock and surplus. Covered transactions include a bank’s loans to an affiliate, investments in the securities of an affiliate, purchases of assets from an affiliate, and certain other transactions. The contribution of the Builders Mortgage and Itasca shares to Community Bank is a covered transaction under section 23A.
The Board is specifically authorized by section 23A to exempt "at its discretion . . . transactions or relationships from the requirements of this section if it finds such exemptions to be in the public interest and consistent with the purposes of this section."2 The Board has approved exemptions in similar cases for one-time transfers that are part of a corporate reorganization and that are structured to ensure the quality of the transferred assets.3
As in previous cases reviewed by the Board, the proposed transaction is a by-product of a one-time reorganization. The Pohlads are restructuring their banking operations after the February 2002 sale by Marquette of five subsidiary banks, including its lead bank, Marquette Bank, National Association, to Wells Fargo & Company.
Community Bank has committed that it will not purchase any low-quality assets, as defined in section 23A, in connection with the transaction. Marquette has committed that, for two years after the transfer, it will make quarterly cash contributions to Community Bank equal to the book value plus any write-downs taken by Community Bank of any transferred assets that have become low-quality assets, as defined in section 23A, during the quarter. Neither the Comptroller of the Currency nor the State of Arizona has objected to the proposal.
In light of these considerations and all the facts you have presented, the proposed transaction appears to be consistent with safe and sound banking practices and on terms that would ensure the quality of the assets transferred. Accordingly, the Director of the Division of Banking Supervision and Regulation, pursuant to authority delegated by the Board and with the concurrence of the General Counsel, has determined that the transaction appears to be consistent with the purposes of section 23A, and hereby grants the requested exemption.
This determination is specifically conditioned on compliance by Marquette and Community Bank with all the commitments and representations made by them in connection with the request. These commitments and representations are deemed to be conditions imposed in writing in connection with this request and, as such, may be enforced in proceedings under applicable law. This determination also is based on the specific circumstances surrounding the proposed transaction and may be revoked in the event of any material change in those circumstances or any failure by Marquette or Community Bank to observe any of its commitments or representations. Granting this exemption does not represent a determination concerning the permissibility of any other transaction that is subject to section 23A or concerning any other affiliates of Marquette.
Senior Vice President
and General Counsel
Marquette Financial Companies
60 South Sixth Street, Suite 3800
Minneapolis, Minnesota 55402
Very truly yours,
(signed) Robert deV. Frierson
Robert deV. Frierson
Deputy Secretary of the Board