PROVIDENT COMMUNITY BANK
September 23, 2004
Mr. Robert E. Feldman
Executive Secretary
Attention: Comments/Legal ESS
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429
RE: RIN Number 3064-AC50
Dear Mr. Feldman:
I am President and Chief Executive Officer of Provident Community
Bank, located in Union, South Carolina, a small rural community that has
decreased in population over the past several years. My bank currently
has $352 million in assets and is subject to the large bank CRA Exam.
However, due to a large investment portfolio, our core bank size is
actually $212 million. I am writing to strongly support the FDIC’s
proposal to raise the threshold for the streamlined small bank CRA
examination to $1 billion without regard to the size of the bank’s
holding company. This would greatly relieve the regulatory burden
imposed on many small banks such as my own under the current regulation,
which are required to meet the standards imposed on the nation’s largest
$1 trillion banks. I understand that this is not an exemption from CRA
and that my bank would still have to help meet the credit needs of its
entire community and be evaluated by my regulator.
I also support the addition of a community development criterion to
the small bank examination for larger community banks. It appears to be
a significant improvement over the investment test. However, I urge the
FDIC to adopt its original $500 million threshold for small banks
without a CD criterion and only apply the new CD criterion to community
banks greater than $500 million up to $1 billion. Banks under $500
million now hold about the same percent of overall industry assets as
community banks under $250 million did a decade ago when the revised CRA
regulations were adopted, so this adjustment in the CRA threshold is
appropriate. As FDIC examiners know, it has proven extremely difficult
for small banks, especially those in rural areas, to find appropriate
CRA qualified investments in their communities. Many small banks have
had to make regional or statewide investments that are extremely
unlikely to ever benefit the bank’s own communities. That was certainly
not the intent of Congress when it enacted CRA. Our bank is primarily
located in three rural counties in the upstate of South Carolina and
therefore offers few qualified investment opportunities. We had
purchased a $1.2 million CRA qualified investment that we were not given
credit for in our previous CRA exam because it represented the entire
state of South Carolina.
An additional reason to support the FDIC’s CD criterion is that it
significantly reduces the current regulation’s “cliff effect.” Today,
when a small bank goes over $250 million, it must completely reorganize
its CRA program and begin a massive new reporting, monitoring and
investment program. If the FDIC adopts its proposal, a state nonmember
bank would move from the small bank examination to an expanded but still
streamlined small bank examination, with the flexibility to mix
Community Development loans, services and investments to meet the new CD
criterion. This would be far more appropriate to the size of the bank,
and far better than subjecting the community bank to the same large bank
examinations that applies to $1 trillion banks. This more graduated
transition to the large bank examination is a significant improvement
over the current regulation.
I strongly oppose making the CD criterion a separate test from the
bank’s overall CRA evaluation. For a community bank, CD lending is not
significantly different from the provision of credit to the entire
community. The current small bank test considers the institutions
overall lending in its community. The addition of a category of CD
lending (and services to aid lending and investments as a substitute for
lending) fits well within the concept of serving the whole community. A
separate test would create an additional CD obligation and regulatory
burden that would erode the benefit of the streamlined exam.
I strongly support the FDIC’s proposal to change the definition of
“community development” from only focusing on low- and moderate-income
area residents to including rural residents. I think that this change in
the definition will go a long way toward eliminating the current
distortions in the regulation. We caution the FDIC to provide a
definition of “rural” that will not be subject to misuse to favor just
affluent residents of rural areas.
In conclusion, I believe that the FDIC has proposed a major
improvement in the CRA regulations, one that much more closely aligns
the regulations with the Community Reinvestment Act itself, and I urge
the FDIC to adopt its proposal, with the recommendations above.
Sincerely,
Dwight V. Neese
President and Chief Executive Officer
Provident Community Bank
CC: The Honorable John D. Hawke, Jr.
