Federal Deposit
Insurance Corporation

Bitterroot Valley Bank

February 22, 2006

TO: F.D.I.C.
FROM: Rich Zins, President
Bitterroot Valley Bank
Lolo, MT

RE: Comments to “Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices”

I have read the proposed guidance for Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices and would like to make the following comments:

1. The definition of CRE loans is very vague and needs to be specific. For example, I am not sure whether a loan to purchase bare land and construct a primary residence with an approved takeout loan is included in the definition or not. How is farm land viewed? Is it considered farmland or bare land? Is it part of the concentration calculation? Please make the definitions very specific and try to cover all normal scenarios as well as possible.

2. It seems prudent to ask that each CRE loan be evaluated on its own merit. It also seems reasonable to be able to look at a loan that fits the concentration criteria and then look for other factors that show reduced risk to the bank such as net worth, cash position, income streams, and other factors specific to an individual borrower. For example, we have a client that has a very high net worth, maintains a large cash position and has a very high income unrelated to real estate. He has a subdivision development loan with the bank. His primary repayment for this loan is sale of lots to individuals and builders. However, we have determined that he could easily amortize the loan and not sell another lot without putting himself or the bank at risk. It seems reasonable that this loan not be lumped in with those similar borrowers that must sell lots to service the loan requirements.

3. The guidance suggests that banks should look at CRE concentrations as a capital issue to maintain sound financial condition of the institution. We believe that this should be a loan loss reserve issue. Loans that carry more CRE exposure should be reserved at a higher level than those not meeting the CRE definition or those that meet the criteria in item (2) above.

4. I do not believe that a land/construction loan to build a borrower’s primary residence with a qualified takeout loan should be included in the calculation. The guidance may ultimately dampen speculative building but should never do so to primary home owners.

5. Banks throughout the nation are very different. The real estate markets can not be bunched into one bucket. The lending cultures are so diverse that this proposal may hurt very strong banks and impact growth areas in ways that would not be in the national interest. This proposal is painting a potential risk with a very broad brush. It seems that in the present risk based environment, a more practical approach would be to ask each bank to assess the potential concentration risk on an individual basis.