FDIC Federal Register Citations

Fairfield County Bank Corp.

March 10, 2006

Mr. Robert Feldman
Executive Secretary
Attn: Comments/Legal ESS
Federal Deposit insurance Corp.
550 17th Street N.W.
Washington, D.C. 20429

Dear Mr. Feldman,

I am writing in response to the proposed guidance "Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices". Thank you for the opportunity to comment on this proposed guidance.

As background, Fairfield County Bank Corp. is a state chartered mutual savings bank incorporated in 1871. We have $1.263 billion in assets, 9.26% Tier 1 capital, 10.0% Tier 2 capital and have been a [REDACTED] rated bank in our past few FDIC Safety and Soundness Examinations; the most recent of which was completed in June 2005.

Based on the proposed guidance we have a Commercial Real Estate concentration. We have $250 million in construction loans and an additional $200 million in commercial real estate loans. Our assets and these loans received a [REDACTED] component rating in our examination last year. Having read the proposed guidance several times and discussed it with my peers in the industry, I have grave concerns on how this guidance would be applied to our bank. While it has been stressed that this guidance merely reiterates existing regulations, it will result in a much stricter and more limited interpretation of these regulations. This guidance will be de facto new regulations.

The proposed guidance represents a blanket approach to commercial real estate lending, which categorizes this type of lending as "risky". This approach has several flaws.

First and foremost, this guidance treats all commercial real estate 1oans the same without looking at the underlying strength of the individual loans or the rigor of the lending program. A commercial real estate loan on a fully leased shopping plaza or office building carries far less risk than a loan for development of a new plaza or office building that is unleased at the outset. Yet, they are lumped together to determine if there is a Commercial Real Estate concentration. Likewise, single family residential construction lending in a stable market of owner occupied homes is far different than tract lending in markets dominated by non owner occupied investment properties. Single family construction lending is also different from condominium construction, or apartment conversions. Yet, all are lumped together to determine if there is a Commercial Real Estate concentration.

Secondly, the proposed guidance treats all Commercial Real Estate lending the same without accounting for different market conditions throughout the country. I am told that the FDIC has identified certain over valued markets around the country. The guidance, however, will treat all Commercial Real Estate lending the same whether it is in one of these markets or a more stable market.

The proposed guidance also fails to examine the lending opportunities available to banks in different markets. Our area of New England is dominated by service businesses and residential housing. There is very little manufacturing in our area and the businesses that are here are small or they are corporate headquarters for national and international companies.

The primary lending opportunities in our market are therefore, commercial mortgages on office buildings, apartments, and shopping areas or residential construction lending. Residential lending is now dominated by mortgage companies; auto lending is dominated by the captive finance companies of the manufacturers, and consumer lending is dominated by the credit card companies.

Without Commercial Real Estate lending many community banks could barely survive. If the purpose of this guidance is to force community banks to merge it will succeed in doing so. What choice will there be?

Finally, this guidance ignores the needs of the local communities that smaller banks serve. If smaller banks are forced to reduce Commercial Real Estate lending, who will finance the office buildings and homes in the communities they serve. Certainly not the mega banks.

While I am critical of this proposed guidance, I strongly support the goal of safe lending. There already is however, an adequate body of regulation in place that addressed prudent lending. Stricter guidance is not needed.

Eight months ago our bank received an overall [REDACTED] rating from the FDIC in a Safety and Soundness Examination. Our capital and our assets both received [REDACTED] component ratings. I seriously doubt whether the same examiners would give us this rating today even though our capital level has increased and our asset quality has not changed.

Moreover, our loan loss reserve was considered adequate, our policies and procedures were sufficient and our management was considered good. I wonder if the same conclusions would be drawn today. Again, my guess is that this guidance would cause an examiner to be more cautious and conservative in his or her judgment.

In conclusion, it is my belief that the proposed guidance is unnecessary and flawed. Existing regulations already address the concerns raised by the regulatory bodies. And, the guidance fails to examine the benefits and roles that prudent commercial real estate lending plays in both the market place and the banking industry.

I urge you to reconsider this proposed guidance.

Sincerely,

Gary C. Smith,
President and CEO