Federal Deposit
Insurance Corporation

NewportFed

October 6, 2004

Mr. Robert E. Feldman
Executive Secretary
Attention: Comments/Legal ESS
Federal Deposit Insurance Corporation
550 17th Street NW
Washington, DC 20429

RE: RIN 3064-AC50; Notice of Proposed Rulemaking to 12 CFR Part 345.

Subject: Support for the proposed revisions to the Community Reinvestment Act Regulations.

Dear Mr. Feldman:

We appreciate the opportunity to comment on the FDIC's proposed revisions to the Community Reinvestment Act (CRA). NewportFed is a small community bank [i.e. $175 million in assets with 3 office locations], and we strongly support the proposal to increase the asset size limit of banks eligible for the streamlined small-bank CRA examination to $1 billion.

The proposal will reduce our regulatory burden without weakening our commitment to reinvest in our communities. We believe that reinvesting in our communities makes good business sense. Therefore, reducing the regulatory exam process will not change the way we and,likely, other community banks do business. Rather, in our opinion, it will free up human and financial resources that can be better directed to the community to provide more lending and other needed services.

It is unfair to evaluate small banks (under $1 billion) using the same exam procedures as those used for a multi billion dollar sized bank. Under the more streamlined CRA exam, community banks would still be required to lend to all segments of their communities, including low-and moderate-income individuals and neighborhoods and would continue to be evaluated for their performance in adhering to compliance regulations. The proposal, if implemented, will decrease regulatory burden in terms of both cost of compliance and the man-hours needed to comply with the current large bank procedures.

The addition of a community development criterion to the small bank examination for those banks over $250 million in assets maybe an improvement over the present investment test, but we oppose it. Quite often it is extremely difficult for small banks to find investments that meet the qualified investment test and are located in their communities. As a result, many community banks (especially those in rural areas) have to invest in statewide or regional projects to meet CRA requirements. These investments actually take resources away from the bank's local community. Moreover, the community development criterion should not be a new stand alone test but part of the evaluation of a bank's overall lending to the community.

The FDIC's proposed changes to the CRA regulations are a vitally important step in revising and improving the CRA regulations and in reducing regulatory burden. While community banks will still be examined under CPA for their record of helping to meet the credit needs of their communities, the expanded small bank test will eliminate some of the most problematic and burdensome elements of the current CRA regulation.

As you know, the overall regulatory burden on small banks continues to increase. Some examples include new data gathering and reporting requirements under HMDA, the USA Patriot Act, the privacy and information security provisions of the Gramm-Leach-Bliley Act, and recent amendments to the Fair Credit Reporting Act. But the nature of community banks has not changed. When we have to comply with the same extensive CRA data gathering and reporting requirements as large banks, the expenses and burdens to community banks increase enormously.

In summary, while we support raising the small bank threshold, we do not support adding new tests or criteria. Adding new standards will defeat the FDIC's purpose of reducing regulatory burden, perhaps establishing new regulations that are just as onerous as the current rules.

We thank you for considering our views.

Sincerely,
Kevin M. McCarthy
President and CEO