Federal Deposit
Insurance Corporation

Wilshire State Bank

Dear Mr. Feldman:

Upon reviewing the interagency proposed guideline dated 1/13/06, we came to develop a question on the definition of the CRE loans subject to the proposed guideline.

First of all, the proposed guideline defines CRE loans as “exposures secured by raw land, land development and construction (including 1-4 family residential construction), multi-family property, and non-farm nonresidential property where the primary or a significant source of repayment is derived from rental income associated with the property (that is, loans for which 50% or more of the source of repayment comes from third party, non-affiliated, rental income) or the proceeds of the sale, refinancing, or permanent financing of the property…”.

The guideline also states that “The Agencies have excluded loans secured by owner-occupied properties from the CRE definition because their risk profiles are less influenced by the condition of the general CRE market.”, which implies that owner-occupied CRE loans are those for which less than 50% of the source of repayment comes from third party, non-affiliated, rental income or the proceeds of the sale, refinancing, or permanent financing of the property.

If what we deduced from the proposed guideline regarding the definition of owner-occupied CRE loans is true, one of the things we are concerned about is how we are going to objectively measure the percentage of rental income, sale/refinancing/perm. take-out proceeds in the repayment source. In order to address this issue, we have seen some financial institutions using the owner’s occupancy ratio in the property in lieu of the foregoing percentage. As a few of our peer banks have already commented about it, we feel that a clear and objective definition on owner-occupied CRE loans should come first before the guideline is to be put in force.

I appreciate this opportunity to express our concerns, and hope that these concerns will be reflected in your final guideline.

Sincerely,

Justin Shin
FVP & Credit Administrator |
Wilshire State Bank