Federal Deposit
Insurance Corporation

From: Stephanie Hodo [mailto:shodo@firststatebnk.com]
Sent: Wednesday, October 13, 2004 11:17 AM
To: Comments
Subject: SPAM::RIN Number 3064-AC50: FDIC Proposed Increase in the Threshold for the Small Bank

First State Bank
Stephanie Hodo
Assistant Vice President
Compliance Officer

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 Sir:

I am Stephanie G. Hodo of First State Bank, located in Waynesboro, Mississippi, a town of approximately 6, 500 residents. My bank is $300 million in asset size and is currently subject to the large bank CRA examination. I am writing to 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 that this would lower my current regulatory burden by reducing the man hours spent on CRA technical requirements.

First State Bank has branch locations in Clarke, Wayne, Greene, and George counties. The total population of the bank's assessment area is 71,614 according to the 2000 Census. My bank is completely dedicated to serving the communities in which we are located. Our employees and their families reside in the counties they serve and realize firsthand the importance of community involvement. We are a locally owned and operated hometown bank. Our shareholders, directors and employees want to keep it as such. For year ending 2003, we made a total of 541 small business loans and of this total 444 were made inside the bank's assessment area.

We began large bank reporting in 2002 and submitted our first year's data in January 2003. Once we reached over $250 million in assets for the second consecutive year, we had to completely reorganize our CRA program. We began a massive new reporting, monitoring and investment program. Having experienced first hand what this means to a bank our size, I feel that I can state it was very overwhelming. We had to reorganize departmental structure to accommodate the increase in large bank reporting requirements.

I also support 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, such as ours, 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 ever benefit the banks' own communities. That was certainly not the intent of Congress when it enacted CRA. We have not been evaluated under the large bank CRA exam procedures. At the time of our last examination we had not yet begun reporting as a large bank. However, we have had a problem in finding qualified CRA investments that benefit our assessment area.

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. My Bank is involved in many innovative projects to help the communities we serve. We currently offer a free checking account product, the Money Smart curriculum, and a first time homeowner loan program for which wehave received grant money from the Federal Home Loan Bank to help low income borrowers with closing costs.

I strongly support the FDIC's proposal to change the definition of "community development" from only focusing on low- and moderate-income area residents to including rural residents. I think that this change in the definition will go a long way toward eliminating the current distortions in the regulation. We caution the FDIC to provide a definition of "rural" that will not be subject to misuse to favor just affluent residents of rural areas.

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,
Stephanie Hodo
AVP Compliance Officer and CRA Officer
First State Bank, Waynesboro, MS
601.735.3124