FDIC Federal Register Citations

October 18, 2004

Federal Deposit Insurance Corporation
Attn: Robert E. Feldman, Executive Secretary
550 17th Street, NW.
Washington, DC 20429

RE: RIN number 3064-AC50

Dear Sir:

United Security Bank is and has been a very strong supporter of CRA and has an Outstanding rating. We strongly support the proposed revisions to 12 CFR 345 implementing the Community Reinvestment Act (CRA) that would change the definition of “small bank”, raising the asset size threshold to $1 Billion; adding a community development activity criterion to the streamlined evaluation method; and expanding the definition of “community development”.

As an independent community business bank, our customers are small businesses and small farms. We live and work in one of the most economically stressed regions in the nation. Six of the communities in the Bank’s Assessment Area have city populations of less than 10,000. The central San Joaquin valley has had double digit unemployment for more than ten years, more than twice the national and state averages. However, there are a number of changes that, I believe, need to be considered to ensure the goals and purpose of the Community Reinvestment Act.

The first is the definition of size. The Bank has grown rapidly over the past six years from an organization of about $125 Million in assets to one today of $585 Million. While it is true that the Bank is above the median size of most banks is the nation and is considered a “big bank” under the CRA regulations, but United Security Bank is very small, almost insignificant, when considered to Citibank, Bank of America and other multi-billion dollar banks. I can tell you that banks our size or smaller do not have the staffing and resources available, without causing unnecessary burden and expense, to comply with the collection, analysis, reporting and disclosure requirements of “Big Banks.” I believe that the size definition needs to be increased, and recommend that banks with over $1 Billion in assets be considered “Big Banks.”

Recently in a meeting with officials of the Federal Reserve Bank of San Francisco, the President of the Bank stated that he thought the Regulatory community had finally found a way to impact the safety and soundness of Banks over $500 Million. With the existing increased “Big Bank” requirements for CRA over $250 Million, for FIDICIA 112 for those banks over $500 Million and for publicly traded institutions over $500M subject to Sarbanes-Oxley, the regulatory burden has finally risen to a level that adversely impacts the safe and prudent operation of a bank, in that management no longer has time to “run” the Bank.

The Banking industry is one of the most regulated industries. We are examined by the federal regulators. We are audited by our independent CPA’s. We hire outside consultants to review and test our systems and procedures. Surely, Bank’s have more oversight and scrutiny than most other public companies. Yet, to comply with Sarbanes-Oxley Section 404, we contracted with another CPA firm for an estimated 1250 man hours (not including management’s) at great expense, to assist management in an assessment, documentation and testing of the Bank’s policies, procedures and controls to comply with this law.

I know that this may seem irrelevant, but the fact is, at $580 Million dollars, United Security Bank is still a small community bank. We clearly do not have the staff and resources of Wells Fargo, Bank of America, and the other large multi-billion dollar bank. In fact, of the 9,079 financial institutions, including thrifts, 116 banks greater than $10 Billion control 72% of all banking assets. Banks that are less than $1 Billion, while important in our communities, are not really relevant in the national picture.

The lending test is the keystone to CRA. The origination of loans that promote economic growth and development, through the preservation or creation of jobs is fundamental to community reinvestment and development. This is implicit in the purpose and function of banking. Is a bank that is superior in originating loans within its assessment area that promote economic growth but that has limited opportunities for investment only satisfactory and not outstanding? I would hope that the regulation would not penalize those organizations with only a satisfactory rating.

Also, I believe that the concept of innovative and complex needs to be tossed out of the regulation. Why should “vanilla” loans that create jobs and infrastructure raising the standard of living and community reinvestment not be given the same weight as a loan that is considered innovative and complex. Most of those loans are nothing more that “smoky mirrors” and probably more risky. The regulation, as written, was to be consistent with safe and sound banking practices. A trap evolves in that the definition of innovative and complex this year is not next year. Isn’t the essential focus of the Act to create results. We should not confuse efforts with results. Simple, straightforward loans that create results are just as effective, and probably more so when considering the costs and risks associated over loans that are considered innovative and complex.

Four of the communities that we serve, were former Bank of America or Wells Fargo branches that they sold to our Bank. Two of these communities have community unemployment rates that are at or above 30% unemployed. The point being that just a presence in these communities is a commitment to CRA and the cumulative totals of the Bank aren’t a meaningful measure at $250,000.

I believe in affordable housing for low or moderate-income families. Everyone should have acceptable, clean, safe housing. However, to place the emphasis on affordable housing in “Community Development” eludes me. To build housing for low-income people does not create new jobs for them. It does not increase their standard of living. What I have observed is that after a period of time we have created another “ghetto” or “project”. Affordable housing is important, but personally, I think the point is missed when the emphasis is on affordable housing; and not on the preservation or creation of long term jobs within the Bank’s community and assessment area.

As previously, stated United Security Bank is a strong advocate of CRA. If you have any questions or want clarification, please contact me. My phone number is (559) 248-5074.

Sincerely,

Rhodlee A. Braa
Senior Vice President & Chief Credit Officer
United Security Bank
1525 E. Shaw Ave.
Fresno, CA 93710