FIRST RELIANCE 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: FDIC Proposed Increase in the Threshold for
the Small Bank CRA Streamlined Examination
Dear Mr. Feldman
I am the President & CEO of First Reliance Bank, located in Florence,
SC. Florence is a city with a population of 35,000 with a county
population of 112,000. My bank has assets of $253 million but will not
be required to report CRA until 2006. I 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. However, I believe
this would lower my current regulatory burden by 4100 man-hours and
would represent approximately $80,000 in annual savings to our company.
Also, I am in favor of 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 benefit the banks’ own communities, especially
less populated rural communities with lower loan demand. That was
certainly not intent of Congress when it enacted CRA.
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 examination 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 institution’s
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.
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. I will
be happy to discuss these issues further with you, if that would be
helpful.
Sincerely,
F. R. (Rick) Saunders, Jr.
President & CEO
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