Federal Deposit
Insurance Corporation

Country Bank

From: Dana Frye 
Sent: Friday, February 03, 2006 5:09 PM
To: Comments
Cc: Dwight Reynolds
Subject: Commercial Real Estate Lending - Proposed Interagency Guidance

Dear Robert E. Feldman:

I am responding to your request for input on the proposed guidelines for
defining concentrations of credit in CRE lending. I believe the
intention of this guidance is a solid lending practice that deserves
monitoring and risk management.  However, it is my opinion that your
definition of CRE loan is too broad.  You accumulate three classes of
loans that exhibit different and unique loan tendencies.  It is my
opinion that the following classes should be separated and monitored
separately for issues of concentrations of credit:

(1)  Home Construction Mortgages (1-4 family residential construction):
These loans are unique in that they are matched to pre-qualified takeout
buyers who are contractually bound to close these credits upon
completion.  Though these construction loans have management elements
that are similar to other construction loans, they are not speculative
not dependent on sale of the housing unit.

(2)  Raw Land, Land Development, Contractor Spec Home Construction, and
Commercial Construction and Development:  These are the real CRE.  These
loans share the same exposure to economic climate changes, interest rate
shifts, occupancy and vacancy shifts, employment shifts, etc.

(3)  Multi-family properties, assisted living complexes, rental
complexes, apartments (loans with 50% of more of the source of repayment
is due to third party lease):  These loans are completed projects with
established performance, occupancy, rent rolls, operating expenses, etc.
These loans are common within the class, but are uncommon to  
#1 & #2 above.  In reality, conditions that can affect a construction
based economy can have an opposite effect on these properties (ex. when
housing costs rise, rental units can establish a higher demand).  

I just do not see the value in aggregating all these credits into CRE.
When you elect to aggregate these credits you put the smaller bank at a
greater disadvantage because we may not have the opportunity to be
competitive with commercial and industrial deals and we do not have a
diversified loan supply.  However, we are a bedroom community, and we
may have the opportunity to finance construction projects for contract
homes or assisted living projects.  When you artifically aggregate these
loans, you place a unrealistic upper limit on our loan classes and force
us to place these quality local credits to our participants and accept a
25 basis point participation return instead of a 400 bp direct loan
margin.

I encourage you to separate these loan classes.

Thanks you for the opportunity to address this management practice in
advance of implementation.

Dana Frye, EVP, Country Bank, Aledo, Illinois 61231